<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST III Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS
DEAR SHAREHOLDER:
Bond investments have improved steadily since late last year. Progressive
tightening of monetary policy by the Federal Reserve Board over the 12 months
through February 1995 led to slower economic growth and caused bonds to rally.
The trend toward lower interest rates this year was also aided by a 25 basis
point reduction in the fed funds rate in July.
MUNICIPAL MARKET CONDITIONS
Long-term municipal bond yields declined 110 basis points from a high of 7.37
percent in November 1994 to 6.27 percent at the end of September 1995, as
tracked by The Bond Buyer Revenue Bond Index.* This yield decline corresponded
to a 9 percent price increase for callable municipal bonds with 30-year
maturities. Similarly, yields on 1-year municipal notes moved from 4.51 percent
to 3.96 percent. The yield pickup between
1- and 30-year maturities narrowed by 55 basis points moving from 286 to 231
basis points.
Tax-exempt bonds began the year by outperforming U.S. Treasury bonds, but then
deteriorated on a relative basis. The ratio of the Revenue Bond Index yield to
the 30-year U.S. Treasury bond yield moved from 89 percent in December 1994 to
84 percent by the end of February 1995. A declining ratio means that municipal
bond prices have been stronger than U.S. Treasury prices. In the spring, the
municipal market began to discount the risk of comprehensive changes in the tax
code created by flat tax rhetoric from Washington. This caused the yield ratio
to rise as high as 95 percent. Over the past 10 years long municipal yields have
averaged 89 percent of U.S. Treasury yields.
The municipal market continued to experience consolidation in 1995. Municipal
underwriting in the first nine months of the year was down 20 percent from the
same period in 1994. This change followed a 44 percent drop in volume for all of
1994. Generally, demand for new issues was limited to investors replacing older
issues. CS First Boston and Donaldson Lufkin Jenrette withdrew from the
municipal business and caused further consolidation.
- ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS, continued
TAX REFORM
Flat-tax advocates have generated increased publicity for their proposals and
have affected the municipal market since early 1995. Most of the discussion on
proposed tax-reform measures is based on theoretical concepts, containing broad
assumptions and lacking specific detail. Basically, the various plans raise
questions about the fairness of changing from a progressive to a regressive tax
structure. Low flat-tax rate plans call for the elimination of deductions of
mortgage interest, charitable contributions, property taxes, and state and local
income taxes. If politicians make tax reform a central issue in the 1996
elections, media coverage will expand from the financial page to the front page.
When major tax reform turmoil occurred in 1986, municipal yields briefly
exceeded taxable yields.
In addition to the market risk associated with the flat-tax proposals, municipal
credits would also be negatively affected. If mortgage interest and property tax
deductions were eliminated, municipalities would experience a decline in their
property tax base. The loss of state and local income tax deductions would
increase the relative economic disadvantage that high-tax states already face.
The flat tax represents a shift in tax accountability from the federal to local
governments. Taxpayer recognition of the extent of changes under consideration
may impede the passage of comprehensive tax reform.
FUND PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust III (OIC) rose
from $9.57 to $9.73 per share during the six-month period ended September 30,
1995. Based on this NAV change plus reinvestment of tax-free dividends totaling
$0.285 per share, the Fund's total NAV return was 5.16 percent. OIC's market
price on the New York Stock Exchange rose from $8.25 to $8.375 per share during
the period. Based on this market price change and reinvestment of dividends, the
Fund's total market return for the six-months was 5.00 percent. At the end of
September, the Fund had undistributed net investment income totaling $0.158 per
share versus $0.109 six months ago. In a subsequent event, the Trustees voted to
increase OIC's monthly dividend from $0.0475 to $0.055 per share. The revised
dividend more accurately reflects the current earnings of the Fund. OIC's market
price began and ended the period at a 14 percent discount to NAV.
PORTFOLIO STRUCTURE
Progress continues in reducing problem loans either not accruing interest or
facing restructuring. Three loans representing less than one percent of the
Fund's net assets were not accruing income. This compares with five loans
totaling 3.5 percent of net assets that were not earning interest in March. An
additional seven loans, totaling 11 percent of net assets, are currently
accruing income but may have problems meeting future debt service payments.
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS, continued
As of September 30, 1995, the Fund had net assets in excess of $105 million. The
long-term portfolio was diversified among 14 specific municipal sectors and 60
separate credits. The two largest municipal sectors nursing & health related and
industrial development/pollution control revenue bonds represented 37 percent of
net assets. The average maturity and call protection of the Fund's long-term
holdings were 21 and 7 years, respectively. More than 65 percent of the
long-term portfolio was non rated.
LOOKING AHEAD
The slower pace of economic growth in 1995 and the Federal Reserve Board's
previous interest rate moves have improved bond-market expectations. The
decreasing supply of new issues, combined with significant maturities and calls
for redemption, should continue to be positive for the municipal market.
However, tax reduction proposals are likely to continue to receive publicity and
may cloud the outlook for tax-exempt bonds. With long-term municipal securities
yielding more than 90 percent of the yield on U.S. Treasuries, the market has
already begun the process of discounting the risk that a flat tax may eventually
pass.
Among the factors that will determine the Fund's future dividend level are
changes in market yields and the redemption or restructuring of older,
higher-yield portfolio holdings. The Fund continues to gradually upgrade its
portfolio by purchasing more investment-grade bonds than non-rated securities.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund, when
appropriate, may purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the six-month period ended September 30,
1995, OIC purchased and retired 117,100 shares of common stock at a weighted
average market discount of 13.389 percent.
We appreciate your ongoing support of Municipal Income Opportunities Trust III
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- ---------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.4%)
General Obligation (0.9%)
$ 1,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 952,850
- -------- ----------
Educational Facilities Revenue (0.9%)
1,000 New York State Dormitory Authority, State University Ser 1993 A......... 5.25 05/15/15 900,780
- -------- ----------
Electric Revenue (1.7%)
1,750 Swanton, Vermont, Ser 1993.............................................. 6.70 12/01/23 1,774,220
- -------- ----------
Hospital Revenue (11.0%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,188,280
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990................ 9.75 12/01/10 2,158,900
Illinois Health Facilities Authority,
1,250 Edward Hospital Refg Ser 1993.......................................... 6.00 02/15/19 1,172,425
670 Hinsdale Hospital Ser 1990 C........................................... 9.50 11/15/19 785,897
Massachusetts Health & Educational Facilities Authority, Dana Farber
Cancer Inst
1,000 Ser G -1............................................................... 6.25 12/01/14 1,004,120
1,000 Ser G -1............................................................... 6.25 12/01/22 992,120
1,505 North Central Texas Health Facilities Development Corporation,
University
Medical Center Inc Ser 1987............................................ 7.75 04/01/17 1,561,678
2,100 Tarrant County Health Facilities Development Corporation, Texas,
Community Health Care Foundation Inc Ser 1991.......................... 9.875 04/01/01 1,785,000
- -------- ----------
11,525 11,648,420
- -------- ----------
Industrial Development/Pollution Control Revenue (18.1%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990 (AMT)......... 8.00 11/01/20 1,636,785
1,850 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)*............................ 10.125 09/01/11 1,939,207
1,500 Chicago, Illinois, Chicago-O'Hare Intl Airport/American Airlines Inc
Ser 1990 A (AMT)....................................................... 7.875 11/01/25 1,605,630
3,000 Perry County, Kentucky, T J International Inc Ser 1994 (AMT)............ 7.00 06/01/24 3,033,240
2,500 Port Authority of New York & New Jersey, Continental Airlines Inc &
Eastern Airlines Inc/LaGuardia Airport 1990 Ser 2 (AMT)**.............. 9.125 12/01/15 2,817,525
500 Beaver County Industrial Development Authority, Pennsylvania, Cleveland
Electric Illuminating Co Refg Ser 1995................................. 7.625 05/01/25 511,725
2,000 Brazos River Authority, Texas, Texas Utilities Electric Co 1990 Ser A
(AMT).................................................................. 8.125 02/01/20 2,216,040
2,000 Sabine River Authority, Texas, Texas Utilities Electric Co Ser 1990 B
(AMT).................................................................. 8.25 10/01/20 2,187,300
3,000 Pittsylvania County Industrial Development Authority, Virginia, Multi
Trade of Pittsylvania County Ser 1994 A (AMT).......................... 7.45 01/01/09 3,177,810
- -------- ----------
17,850 19,125,262
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Revenue - Multi-Family (8.6%)
$ 1,400 Palm Beach County Housing Authority, Florida, Scattered Sites Ser 1990
(a).................................................................... 9.75 % 06/01/20 $ 658,000
2,373 Saint Tammany Public Trust Financing Authority, Louisiana, Refg Ser
1990................................................................... 10.00 10/01/20 2,614,412
Alexandria Redevelopment & Housing Authority, Virginia, Courthouse
Commons
1,760 Ser 1990 A (AMT)....................................................... 10.00 01/01/21 1,760,000
10,795 Ser 1990 B (AMT)....................................................... 0.00 01/01/21 872,849
3,000 Washington Housing Finance Commission, FNMA Collateralized Refg Ser 1990
A...................................................................... 7.50 07/01/23 3,193,980
- -------- ----------
19,328 9,099,241
- -------- ----------
Mortgage Revenue - Single Family (4.4%)
670 Indiana Housing Finance Authority, GNMA Collateralized 1990 Ser E-2
(AMT).................................................................. 8.00 01/01/22 715,506
1,470 Louisiana Housing Finance Agency, GNMA Collateralized Ser 1988 (AMT).... 8.30 11/01/20 1,571,636
1,775 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser C (AMT)............... 7.85 09/01/21 1,884,145
515 Pennsylvania Housing Finance Authority, Ser X (AMT)..................... 8.15 04/01/24 521,298
- -------- ----------
4,430 4,692,585
- -------- ----------
Nursing & Health Related Facilities Revenue (18.8%)
2,210 North Miami Health Facilities Authority, Florida, Hallmark Homes for
Better Living Foundation Inc Ser 1990 A (b)............................ 10.50 08/01/20 66,303
2,305 Champaign, Illinois, Hoosier Care Inc/Champaign Children's Home Ser 1989
A...................................................................... 9.75 08/01/19 2,539,096
1,450 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,546,005
2,000 Iowa Finance Authority, Mercy Health Initiatives Ser 1989............... 9.95 07/01/19 2,128,320
1,600 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,665,904
2,200 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1990 Ser A...................................................... 10.375 06/01/10 2,532,332
3,075 Massachusetts Industrial Finance Agency, Kennedy-Donovan Center Inc 1990
Issue.................................................................. 9.75 06/01/10 3,319,616
980 New York State Medical Care Facilities Finance Agency, Mental Health
1990 Ser B............................................................. 7.875 08/15/08 1,076,089
2,445 Maury County Health & Educational Facilities Board, Tennessee, Southern
Healthcare/Heritage Manor of Monteagle, Rogersville & Columbus Ser 1990
E...................................................................... 10.50 03/01/20 2,747,838
1,965 Hurricane, Utah, Mission Health Service Ser 1990........................ 10.50 07/01/20 2,234,852
- -------- ----------
20,230 19,856,355
- -------- ----------
Public Facilities Revenue (4.3%)
1,000 Nevada County, California, Western Nevada Cnty Solid Waste Mgmt 1991
COPs................................................................... 7.50 06/01/21 1,012,010
2,000 George L Smith II World Congress Center Authority, Georgia, Domed
Stadium Ser 1990 (AMT)................................................. 7.875 07/01/20 2,205,780
780 Angelina County Jail Facilities Financing Corporation, Texas, Criminal
Detention Center (b)................................................... 9.75 08/01/09 --
1,268 Newton County, Texas, Detention Phase II COPs........................... 9.875 12/15/11 1,292,927
- -------- ----------
5,048 4,510,717
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement & Lifecare Facilities Revenue (7.5%)
$ 1,000 Colorado Health Facilities Authority, Liberty Heights 1990 Ser A (b).... 10.00 % 07/01/19 $ 500,000
2,325 Connecticut Development Authority, Seabury Life Care Ser 1991........... 10.00 09/01/16 2,308,516
Massachusetts Industrial Finance Agency, Pioneer Valley Living Care
Center
at Amherst
135 1990 Issue............................................................. 7.00 10/01/01 122,850
59 1990 Issue............................................................. 0.00 10/01/20 1,183
1,500 Charlotte Housing Authority, North Carolina, Merrywood Senior Adult
Community Ser 1989 A (AMT)............................................. 9.75 05/01/19 1,500,000
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.30 12/15/14 1,014,190
Chesterfield County Industrial Development Authority, Virginia,
Brandermill Woods (c)
3,450 Ser 1991 A............................................................. 6.00 07/01/16 2,415,000
500 Ser 1991 A............................................................. 0.00 07/01/17 10,000
500 Ser 1991 A............................................................. 0.00 07/01/18 10,000
500 Ser 1991 A............................................................. 0.00 07/01/19 10,000
500 Ser 1991 A............................................................. 0.00 07/01/20 10,000
500 Ser 1991 A............................................................. 0.00 07/01/21 10,000
- -------- ----------
11,969 7,911,739
- -------- ----------
Tax Allocation (10.5%)
2,975 Lely Community Development District, Florida, Ser 1991.................. 9.00 10/01/11 3,400,693
1,825 Bradley, Illinois, Bradley North Redev Ser 1990......................... 9.125 01/01/05 1,993,740
1,000 Bridgeview, Illinois, Refg Ser 1995..................................... 9.00 01/01/11 1,067,420
1,730 Carol Stream, Illinois, Carol Pointe Ser 1990 B......................... 9.50 01/15/10 1,917,186
400 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 453,088
1,958 Muskegon Downtown Development Authority, Michigan, Ser A-1 1989 (d)..... 9.75 06/01/18 2,262,969
- -------- ----------
9,888 11,095,096
- -------- ----------
Transportation Facilities Revenue (1.8%)
1,000 Foothills/Eastern Transportation Corridor Agency, California, Toll Road
Sr Lien Ser 1995 A..................................................... 6.00 01/01/34 923,040
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 972,140
- -------- ----------
2,000 1,895,180
- -------- ----------
Other Revenue (1.0%)
1,000 Virgin Islands Public Finance Authority, Matching Fund Refg Ser 1992
A...................................................................... 7.25 10/01/18 1,058,890
- -------- ----------
Refunded (7.9%)
2,340 Bedford Park, Illinois, Tax Allocation First Lien Ser 1990.............. 9.70 01/01/10 2,855,268
1,550 Bridgeview, Illinois, Tax Allocation Ser 1991........................... 9.50 01/01/11 1,824,660
1,600 Hodgkins, Illinois, Tax Allocation Ser 1991............................. 9.50 12/01/09 2,008,624
1,325 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 1,631,208
- -------- ----------
6,815 8,319,760
- -------- ----------
113,833 TOTAL MUNICIPAL BONDS (Identified Cost $98,847,794).............................................. 102,841,095
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (0.3%)
$ 300 Massachusetts, Dedicated Income Tax Ser 1990 B (Demand 10/02/95)
- -------- (Identified Cost $300,000)............................................. 4.60+% 12/01/97 $ 300,000
----------
$114,133 TOTAL INVESTMENTS (Identified Cost $99,147,794)(e)....................................... 97.7% 103,141,095
- --------
- --------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 2.3 2,499,420
---- ----------
NET ASSETS............................................................................... 100.0% $105,640,515
---- ----------
---- ----------
</TABLE>
- ---------------------
<TABLE>
<S> <C>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Current coupon of variable rate security.
* Joint exemption in the District of Columbia and Virginia.
** Joint exemption in New York and New Jersey.
(a) Bond in default.
(b) Bond in default; non-income producing security.
(c) Bond restructured.
(d) Resale is restricted to qualified institutional investors.
(e) The aggregate cost for federal income tax purposes is $99,401,969; the aggregate gross unrealized appreciation
is $7,647,948 and the aggregate gross unrealized depreciation is $3,908,822, resulting in net unrealized
appreciation of $3,739,126.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
September 30, 1995 (unaudited)
<TABLE>
<S> <C>
Arkansas........... 1.6%
California......... 3.9
Colorado........... 0.5
Connecticut........ 2.2
Florida............ 4.8
Georgia............ 2.1
Illinois........... 20.9
Indiana............ 2.2
Iowa............... 2.0
Kentucky........... 2.9%
Louisiana.......... 5.5
Massachusetts...... 7.8
Michigan........... 2.1
New York........... 2.8
North Carolina..... 1.4
Ohio............... 2.7
Pennsylvania....... 1.0
Tennessee.......... 2.6
Texas.............. 8.6%
Utah............... 2.1
Vermont............ 1.7
Virgin Islands..... 1.0
Virginia........... 7.8
Washington......... 3.0
Joint exemption.... 4.5
---
Total.............. 97.7%
---
---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $99,147,794)........... $103,141,095
Cash..................................... 73,244
Receivable for:
Interest............................. 2,485,122
Investments sold..................... 100,000
Prepaid expenses and other assets........ 9,465
----------
TOTAL ASSETS......................... 105,808,926
----------
LIABILITIES:
Payable for:
Investment advisory fee.............. 52,452
Administration fee................... 31,471
Shares of beneficial interest
repurchased......................... 12,420
Accrued expenses and other payables...... 72,068
----------
TOTAL LIABILITIES.................... 168,411
----------
NET ASSETS:
Paid-in-capital.......................... 101,411,903
Net unrealized appreciation.............. 3,993,301
Accumulated undistributed net investment
income.................................. 1,737,886
Accumulated net realized loss............ (1,502,575)
----------
NET ASSETS........................... $105,640,515
----------
----------
NET ASSET VALUE PER SHARE,
10,852,006 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $9.73
----
----
STATEMENT OF OPERATIONS
For the six months ended September 30, 1995
(unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 4,197,990
----------
EXPENSES
Investment advisory fee.................. 265,262
Administration fee....................... 159,157
Professional fees........................ 45,917
Transfer agent fees and expenses......... 22,846
Trustees' fees and expenses.............. 14,926
Shareholder reports and notices.......... 14,622
Registration fees........................ 12,368
Other.................................... 8,311
----------
TOTAL EXPENSES....................... 543,409
----------
NET INVESTMENT INCOME................ 3,654,581
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................ 158,907
Net change in unrealized appreciation.... 980,381
----------
NET GAIN............................. 1,139,288
----------
NET INCREASE............................. $ 4,793,869
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER MARCH 31,
30, 1995 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 3,654,581 $ 7,612,577
Net realized gain (loss).......................... 158,907 (1,407,306)
Net change in unrealized
appreciation/depreciation........................ 980,381 3,238,763
---------- ----------
NET INCREASE.................................. 4,793,869 9,444,034
---------- ----------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................. (3,109,794) (6,612,336)
Net realized gain................................. -- (816,220)
---------- ----------
TOTAL......................................... (3,109,794) (7,428,556)
---------- ----------
Net decrease from transactions in shares of
beneficial interest.............................. (980,826) (3,993,800)
---------- ----------
TOTAL INCREASE (DECREASE)..................... 703,249 (1,978,322)
NET ASSETS:
Beginning of period............................... 104,937,266 106,915,588
---------- ----------
END OF PERIOD
(Including undistributed net investment income
of $1,737,886 and $1,193,099, respectively)... $105,640,515 $104,937,266
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1995 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Municipal Income Opportunities Trust III (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund was organized as a Massachusetts
business trust on February 20, 1990 and commenced operations on April 30, 1990.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1995 (unaudited) continued
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Adviser") paid the organizational expenses of the Fund in the amount of $43,103
which have been reimbursed by the Fund for the full amount thereof. Such
expenses have been deferred and are being amortized by the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.50% to
the Fund's average weekly net assets.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays an administration fee, calculated weekly
and payable monthly, by applying the 0.30% to the Fund's average weekly net
assets.
Under the terms of the Agreement, the Administrator maintains certain of the
Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Administrator. The Administrator also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended September 30, 1995 aggregated
$6,407,940 and $2,309,573, respectively.
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1995 (unaudited) continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At September 30, 1995, the Fund had
transfer agent fees and expenses payable of approximately $4,600.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended September 30, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $4,092. At September 30, 1995, the Fund had an accrued pension liability of
$52,038 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
PAR VALUE CAPITAL PAID
OF IN EXCESS OF
SHARES SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, March 31, 1993 and 1994................................................ 11,466,006 $114,660 $106,271,869
Treasury shares purchased and retired (weighted average discount 12.68%)*....... (496,900) (4,969) (3,988,831)
-------- -------- ----------
Balance, March 31, 1995......................................................... 10,969,106 109,691 102,283,038
Treasury shares purchased and retired (weighted average discount 13.39%)*....... (117,100) (1,171) (979,655)
-------- -------- ----------
Balance, September 30, 1995..................................................... 10,852,006 $108,520 $101,303,383
-------- -------- ----------
-------- -------- ----------
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At March 31, 1995, the Fund had a net capital loss carryover of approximately
$1,407,000 which will be available through March 31, 2003 to offset future
capital gains to the extent provided by regulations. As of March 31, 1995, the
Fund had temporary book/tax differences primarily attributable to capital loss
deferrals on wash sales.
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1995 (unaudited) continued
7. DIVIDENDS
The Fund has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------- --------- ------------------ ------------------
<S> <C> <C> <C>
September 26, 1995 $0.0475 October 6, 1995 October 20, 1995
October 31, 1995 $0.055 November 10, 1995 November 24, 1995
</TABLE>
8. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------
9/30/95 6/30/95
---------------- -----------------
PER PER
TOTAL* SHARE TOTAL* SHARE
------ ------ ------- ------
<S> <C> <C> <C> <C>
Total investment income.............................................................. $2,110 $0.20 $2,088 $0.19
Net investment income................................................................ 1,837 0.17 1,818 0.17
Net realized and unrealized gain..................................................... 319 0.03 820 0.08
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------
3/31/95 12/31/94 9/30/94 6/30/94
---------------- ---------------- ---------------- -----------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income........................... $2,388 $0.21 $2,009 $0.18 $2,175 $0.19 $2,147 $0.19
Net investment income............................. 2,106 0.19 1,743 0.15 1,895 0.17 1,869 0.16
Net realized and unrealized gain (loss)........... 4,207 0.39 (1,354) (0.15) (1,292) (0.03) 270 0.03
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------
3/31/94 12/31/93 9/30/93 6/30/93
---------------- ---------------- ---------------- -----------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income........................... $2,041 $0.18 $2,219 $0.19 $2,255 $0.20 $2,243 $0.19
Net investment income............................. 1,723 0.15 1,926 0.17 1,968 0.17 1,959 0.17
Net realized and unrealized gain (loss)........... (4,195) (0.36) (200) (0.02) 1,843 0.16 2,063 0.18
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE APRIL
SIX 30,
MONTHS FOR THE YEAR ENDED 1990*
ENDED MARCH 31 THROUGH
SEPTEMBER ------------------------------------- MARCH
30, 1995 1995 1994 1993 1992 31, 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period............................. $ 9.57 $ 9.32 $ 9.41 $ 9.51 $ 9.44 $ 9.30
----- ----- ----- ----- ----- -----
Net investment income............................ 0.34 0.67 0.66 0.70 0.73 0.57
Net realized and unrealized gain (loss).......... 0.11 0.24 (0.04) (0.05) 0.12 0.10
----- ----- ----- ----- ----- -----
Total from investment operations................. 0.45 0.91 0.62 0.65 0.85 0.67
----- ----- ----- ----- ----- -----
Less dividends and distributions from:
Net investment income......................... (0.29) (0.59) (0.71) (0.72) (0.72) (0.50)
Net realized gain............................. -- (0.07) -- (0.03) (0.06) --
----- ----- ----- ----- ----- -----
Total dividends and distributions................ (0.29) (0.66) (0.71) (0.75) (0.78) (0.50)
----- ----- ----- ----- ----- -----
Offering costs charged against capital........... -- -- -- -- -- (0.03)
----- ----- ----- ----- ----- -----
Net asset value, end of period................... $ 9.73 $ 9.57 $ 9.32 $ 9.41 $ 9.51 $ 9.44
----- ----- ----- ----- ----- -----
----- ----- ----- ----- -----
Market value, end of period...................... $8.375 $ 8.25 $ 8.50 $9.625 $ 9.50 $9.125
----- ----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL INVESTMENT RETURN+......................... 5.00%(1) 5.05% (5.04)% 9.84% 12.84% (3.49)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... 1.02%(2) 1.05% 1.07% 1.12% 1.14% 1.12%(2)
Net investment income............................ 6.89%(2) 7.24% 6.88% 7.37% 7.61% 6.72%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $105,641 $104,937 $106,916 $107,912 $109,326 $107,798
Portfolio turnover rate.......................... 2%(1) 6% 12% 3% 11% 10%(1)
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* Commencement of operations.
+ Total investment return is based upon the current market value on the last day of each period reported. Dividends and
distributions are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan. Total
investment return does not reflect sales charges or brokerage commissions.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST III
RESULTS OF ANNUAL MEETING (UNAUDITED)
On October 31, 1995, an annual meeting of the Fund's shareholders was held for
the purpose of voting on three separate issues, the results of which were as
follows.
(1) ELECTION OF TRUSTEES:
Jack F. Bennett
<TABLE>
<S> <C>
For................................................................................ 7,831,307
Withheld........................................................................... 191,250
</TABLE>
Michael Bozic
<TABLE>
<S> <C>
For................................................................................ 7,836,850
Withheld........................................................................... 185,707
</TABLE>
Charles A. Fiumefreddo
<TABLE>
<S> <C>
For................................................................................ 7,838,507
Withheld........................................................................... 184,050
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Paul Kolton, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT:
<TABLE>
<S> <C>
For................................................................................ 7,641,764
Against............................................................................ 138,510
Abstain............................................................................ 242,283
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................................ 7,771,739
Against............................................................................ 63,026
Abstain............................................................................ 187,792
</TABLE>
<PAGE> 16
TRUSTEES
- -------------------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------
Dean Witter Trust Company
Harborside Financial Center-Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
- -------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
Municipal
Income
Opportunities
Trust III
Semiannual Report
September 30, 1995
