<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST III
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
--------------------------------------------------------------------------------
Interest rates moved higher throughout most of 1994 as the fixed-income
markets focused on the strong pace of economic growth and the risk of higher
inflation. Convinced that growth would be sustained, the Federal Reserve Board
progressively tightened its monetary policy. This led to one of the most severe
bear markets for bonds in recent history. Signs of a slower pace of economic
activity and investor perception that the central bank's tighter monetary policy
was taking effect prompted bonds to rally between November 1994 and March 1995.
MUNICIPAL MARKET CONDITIONS
Municipal bond yields, as tracked by The Bond Buyer Revenue Bond Index,*
moved 187 basis points higher over a 10-month period from a low of 5.50 percent
prior to the Federal Reserve Board's first rate increase in February 1994 to a
high of 7.37 percent in November. The municipal market rallied over the next
four months and the Revenue Bond Index yield declined 108 basis points to 6.29
percent by the end of March 1995.
The balance between supply and demand for municipal securities shifted
along with market conditions. In the spring of 1994, dealer inventories reached
near-record levels as investors sold long-term bonds to pay taxes and raise
cash. A semblance of stability returned to the market during the summer.
However, after Labor Day the market was subjected to another round of weakness
caused by tax-loss selling. Conditions improved in December as the market
anticipated the reinvestment of coupons, bond calls and maturities in January at
a time of scarce supply. This seasonal pattern more than offset the uncertainty
caused by the Orange County, California bankruptcy filing in December. The
market rebound continued through March 1995 based on sustained investor demand
and thin supply.
Long-term municipal bonds have outperformed U.S. Treasury bonds since
November 1994. The ratio of Revenue Bond Index yields to 30-year Treasury yields
over the past 12 months began at 87 percent, ranged as high as 92 percent in
November, and ended at 85 percent on March 31, 1995. A declining ratio means
that municipal bond prices have been relatively stronger than U.S. Treasury bond
prices.
The rise in interest rates in 1994 also took its toll on the level of state
and local government debt issuance. For the year, new-issue volume declined 44
percent to $163 billion. The driving force behind this sharp decline was the
virtual halt in refunding issues, which plummeted 74 percent. Last year,
municipal maturities and bond calls reached $191 billion and exceeded the supply
of new issues coming to market. This marked the first decline in the outstanding
supply of municipal securities. A continuation of this pattern is expected in
1995 and should strengthen municipal market conditions. In the first three
---------------
* 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 and AA+ to A- by Standard &
Poor's.
<PAGE> 2
months of 1995, municipal volume was down approximately 46 percent compared with
the same period last year.
FUND PERFORMANCE
Municipal Income Opportunities Trust III's net asset value (NAV) rose from
$9.32 to $9.57 per share during the fiscal year ended March 31, 1995. Based on
this change plus reinvestment of tax-free dividends totaling $0.585 per share
and capital gains distributions of $0.073 per share, the Fund's total NAV return
for the year was 11.14 percent. Interest rates moved higher during the fiscal
year and drove market-sensitive bond prices lower. However, the Fund's total
return was aided by the resolution of several accruing and non-accruing problem
loans and the defensive nature of the portfolio's high-coupon structure. The
Fund's market price on the New York Stock Exchange declined from $8.50 to $8.25
per share during the fiscal year. Based on this change and including
reinvestment of dividends and capital gains, the Fund's total market return for
the fiscal year was 5.05 percent. The Fund began the fiscal year trading at an
8.8 percent discount to NAV and closed at a 13.8 percent discount. The monthly
dividend has been $0.0475 per share since June 1994. Undistributed net
investment income available to maintain the Fund's dividend increased from $0.02
per share to $0.11 per share.
PORTFOLIO STRUCTURE
Over the course of the fiscal year, more than $3.2 million in principal
proceeds were realized from non-accruing loans. The Tewsbury Housing Authority,
Massachusetts bonds, secured by an uncompleted and environmentally impacted
apartment project, were sold. A completed but unoccupied jail project in Irwin
County, Georgia, received full principal plus two years back interest from a
third party restructuring. A favorable settlement was received in litigation
involving Angelina County, Texas jail bonds after the Fund and other plaintiffs
won a jury verdict.
At the end of the fiscal year, three loans valued at $616,311 (0.6 percent
of net assets) were not accruing interest and three additional loans aggregating
five percent of net assets were accruing income but may have difficulty meeting
future debt-service payments.
As of March 31, 1995, the Fund had net assets totaling approximately $105
million. The portfolio was diversified among 13 specific municipal sectors and
53 separate issuers. The two largest municipal sectors represented in the
portfolio were nursing/health related (19 percent) and industrial
development/pollution control (16 percent). The average maturity and call
protection of the Fund's long-term holdings were 20 and 7 years, respectively.
LOOKING AHEAD
Slower economic growth in 1995 and the extent of the Federal Reserve
Board's previous interest rate moves have improved bond market expectations.
Investor demand for municipal securities should also be sustained by significant
bond maturities, calls for redemption and diminished new-issue supply. Changing
market conditions, bond redemption activity and progress on problem loan
workouts are among the factors that will determine the Fund's future level of
income and influence its market price. Even with the move to higher yields that
occurred last year, the Fund still cannot replace the yield attributable to many
older investments that may be called or sold in the next few years.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchase in the open market. This method helps to
support the market value of the Fund's
<PAGE> 3
shares. In addition, we would like to remind you that the Trustees have approved
a procedure whereby the Fund, when appropriate, may repurchase 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
fiscal year, the Fund purchased 496,900 shares of common stock at a weighted
average discount of 12.7 percent.
We appreciate your 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 March 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- -------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (93.0%)
GENERAL OBLIGATION (0.9%)
$ 1,000 New York City, New York, Ser 1994 D.................... 5.75 % 08/15/10 $ 912,270
--------- -------------
EDUCATIONAL FACILITIES REVENUE (0.8%)
1,000 New York State Dormitory Authority, State University
--------- Ser 1993 A........................................... 5.25 05/15/15 873,370
-------------
ELECTRIC REVENUE (1.6%)
1,750 Swanton, Vermont, Ser 1993............................. 6.70 12/01/23 1,711,623
--------- -------------
HOSPITAL REVENUE (9.5%)
2,000 Corona, California, Vista Hospital System Inc
Ser 1992 B (COPs).................................... 9.50 07/01/20 2,165,360
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser
1990................................................. 9.75 12/01/10 2,143,900
Illinois Health Facilities Authority,
1,250 Edward Hospital Refg Ser 1993........................ 6.00 02/15/19 1,132,600
670 Hinsdale Hospital Ser 1990 C......................... 9.50 11/15/19 775,485
1,505 North Central Texas Health Facilities Development
Corporation, University Medical Center Inc Ser
1987................................................. 7.75 04/01/17 1,535,431
2,100 Tarrant County Health Facilities Development
Corporation, Texas, Community Health Care Foundation
Inc Ser 1991......................................... 9.875 04/01/01 2,214,513
--------- -------------
9,525 9,967,289
--------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (15.5%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co
Ser 1990 (AMT)....................................... 8.00 11/01/20 1,602,300
1,850 Metropolitan Washington Airports Authority, District of
Columbia, CaterAir International Corp Ser 1991
(AMT)*............................................... 10.125 09/01/11 1,921,132
1,500 Chicago, Illinois, Chicago O'Hare Int'l
Airport/American Airlines Inc Ser 1990 A (AMT)....... 7.875 11/01/25 1,564,890
1,000 Perry County, Kentucky, T J International Ser 1994
(AMT)................................................ 7.00 06/01/24 987,610
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 2,778,625
2,000 Brazos River Authority, Texas, Texas Utilities Electric
Co 1990 Ser A (AMT).................................. 8.125 02/01/20 2,156,080
2,000 Sabine River Authority, Texas, Texas Utilities Electric
Co Ser 1990 B (AMT).................................. 8.25 10/01/20 2,165,700
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi Trade of Pittsylvania County Ser 1994
A (AMT).............................................. 7.45 01/01/09 3,084,660
--------- -------------
15,350 16,260,997
--------- -------------
</TABLE>
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- -------------
<C> <S> <C> <C> <C>
MORTGAGE REVENUE - MULTI-FAMILY (8.7%)
$ 1,400 Palm Beach County Housing Authority, Florida, Scattered
Sites Ser 1990 (a)................................... 9.75 % 06/01/20 $ 658,000
2,382 Saint Tammany Public Trust Financing Authority,
Louisiana, Refg Ser 1990............................. 10.00 10/01/20 2,605,446
Alexandria Redevelopment & Housing Authority, Virginia,
Courthouse Commons Apts
10,795 Ser 1990 B (AMT)..................................... 0.00 01/01/21 874,468
1,760 Ser 1990 A (AMT)..................................... 10.00 01/01/21 1,808,400
3,000 Washington Housing Finance Commission, FNMA
Collateralized Refg Ser 1990 A....................... 7.50 07/01/23 3,165,480
--------- -------------
19,337 9,111,794
--------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (5.2%)
770 Indiana Housing Finance Authority, GNMA Collateralized
1990 Ser E-2 (AMT)................................... 8.00 01/01/22 817,778
1,535 Louisiana Housing Finance Agency, GNMA Collateralized
Ser 1988 (AMT)....................................... 8.30 11/01/20 1,638,720
1,900 Ohio Housing Finance Agency, GNMA-Backed
1990 Ser C (AMT)..................................... 7.85 09/01/21 2,002,087
910 Pennsylvania Housing Finance Authority, Ser X (AMT).... 8.15 04/01/24 952,816
--------- -------------
5,115 5,411,401
--------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (18.9%)
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
2,330 Champaign, Illinois, Hoosier Care Inc/Champaign
Children's Home Ser 1989 A........................... 9.75 08/01/19 2,515,118
1,450 Winchester, Indiana, Hoosier Care II Inc Ser 1990...... 10.375 06/01/20 1,532,389
2,000 Iowa Finance Authority, Mercy Health Initiatives Ser
1989................................................. 9.95 07/01/19 2,113,200
1,600 Westside Habilitation Center, Louisiana, Intermediate
Care Facility for the Mentally Retarded Refg Ser
1993................................................. 8.375 10/01/13 1,637,312
2,300 Massachusetts Health & Educational Facilities
Authority, Farren Care Center 1990 Ser A............. 10.375 06/01/10 2,617,308
3,165 Massachusetts Industrial Finance Agency, Kennedy-
Donovan Center Inc 1990 Issue........................ 9.75 06/01/10 3,392,912
980 New York State Medical Care Facilities Finance Agency,
Mental Health 1990 Ser B............................. 7.875 08/15/08 1,067,573
2,445 Maury County Health & Educational Facilities Board,
Tennessee, Southern Healthcare Systems/Heritage Manor
of Monteagle, Rogersville & Columbus Ser 1990 E...... 10.50 03/01/20 2,598,619
1,985 Hurricane, Utah, Mission Health Service Ser 1990....... 10.50 07/01/20 2,260,141
--------- -------------
20,465 19,800,875
--------- -------------
</TABLE>
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- -------------
<C> <S> <C> <C> <C>
PUBLIC FACILITIES REVENUE (4.2%)
$ 1,000 Nevada County, California, Western Nevada County Solid
Waste Mgmt 1991 (COPs)............................... 7.50 % 06/01/21 $ 982,980
2,000 George L Smith II World Congress Center Authority,
Georgia, Domed Stadium Ser 1990 (AMT)................ 7.875 07/01/20 2,185,360
780 Angelina County Jail Facilities Financing Corporation,
Texas, Criminal Detention Center (b)................. 9.75 08/01/09 8
1,286 Newton County, Texas, Detention Phase II (COPs)........ 9.875 12/15/11 1,286,487
--------- -------------
5,066 4,454,835
--------- -------------
RETIREMENT & LIFECARE FACILITIES REVENUE (7.6%)
1,000 Colorado Health Facilities Authority, Liberty Heights
1990 Ser A (b)....................................... 10.00 07/01/19 550,000
2,325 Connecticut Development Authority, Seabury Life Care
Ser 1991............................................. 10.00 09/01/16 2,397,772
400 Massachusetts Industrial Finance Agency, Pioneer Valley
Living Care Center at Amherst 1990 Issue............. 7.00 10/01/01 336,000
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 12/15/14 997,760
Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Project (c)
3,450 Ser 1991 A........................................... 4.00 07/01/16 2,173,500
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
--------- -------------
12,175 8,005,032
--------- -------------
TAX ALLOCATION (12.1%)
3,000 Lely Community Development District, Florida, Ser
1991................................................. 9.00 10/01/11 3,328,260
1,825 Bradley, Illinois, Bradley North Redev Ser 1990........ 9.125 01/01/05 1,951,454
1,000 Bridgeview, Illinois Ser 1991.......................... 9.00 01/01/11 1,010,010
1,730 Carol Stream, Illinois, Carol Pointe Ser 1990 B........ 9.50 01/15/10 1,880,008
2,000 Hodgkins, Illinois, Ser 1991........................... 9.50 12/01/09 2,212,900
1,980 Muskegon Downtown Development Authority, Michigan, Ser
A-1 1989 (d)......................................... 9.75 06/01/18 2,258,951
--------- -------------
11,535 12,641,583
--------- -------------
OTHER REVENUE (1.0%)
1,000 Virgin Islands Public Finance Authority, Matching Fund
--------- Refg Ser 1992 A...................................... 7.25 10/01/18 1,034,640
-------------
</TABLE>
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- -------------
<C> <S> <C> <C> <C>
REFUNDED (7.0%)
$ 2,340 Bedford Park, Illinois, First Lien Ser 1990............ 9.70 % 01/01/10 $ 2,853,607
1,550 Bridgeview, Illinois Ser 1991.......................... 9.50 01/01/11 1,860,914
1,325 Illinois Health Facilities Authority, Hinsdale Hospital
Ser 1990 C........................................... 9.50 11/15/19 1,631,075
895 New York State Medical Care Facilities Finance Agency,
Mental Health 1990 Ser B............................. 7.875 08/15/08 1,030,396
--------- -------------
6,110 7,375,992
--------- -------------
109,428 TOTAL MUNICIPAL BONDS
--------- (IDENTIFIED COST $94,548,781)........................ 97,561,701
-------------
SHORT-TERM MUNICIPAL OBLIGATIONS (4.7%)
2,300 Louisiana Offshore Terminal Authority, LOOP Inc Ser
1992 A
(Tender 04/03/95).................................... 4.50+ 09/01/08 2,300,000
1,100 Massachusetts, Dedicated Income Tax Ser 1990 B
(Tender 04/03/95).................................... 4.50+ 12/01/97 1,100,000
1,500 Harris County Health Facilities Development
Corporation, Texas, St Luke's Episcopal Hospital Ser
1985 B (Tender 04/03/95)............................. 4.50+ 02/15/16 1,500,000
--------- -------------
4,900 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS
--------- (IDENTIFIED COST $4,900,000).................................................. 4,900,000
-------------
$ 114,328 TOTAL INVESTMENTS
======== (IDENTIFIED COST $99,448,781) (e)............................... 97.7% 102,461,701
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.................... 2.3 2,475,565
----- -------------
NET ASSETS........................................................ 100.0% $ 104,937,266
----- -------------
----- -------------
</TABLE>
---------------
<TABLE>
<S> <C>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Variable or floating rate security. Coupon rates shown reflect current rate.
* Jointly issued within District of Columbia and Virginia.
** Jointly issued within New York and New Jersey.
(a) Bond in default.
(b) Non-income producing security, bond in default.
(c) Bond restructured.
(d) Resale is restricted to qualified institutional investors.
(e) The aggregate cost for federal income tax purposes is $99,702,956; the aggregate gross unrealized appreciation
is $6,774,789 and the aggregate gross unrealized depreciation is $4,016,044, resulting in net unrealized
appreciation of $2,758,745.
</TABLE>
See Notes to Financial Statements
<PAGE> 8
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
March 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Arkansas.................... 1.5% Kentucky.................... 0.9% Texas....................... 10.4%
California.................. 3.0 Louisiana................... 7.8 Utah........................ 2.2
Colorado.................... 0.5 Massachusetts............... 7.1 Vermont..................... 1.6
Connecticut................. 2.3 Michigan.................... 2.2 Virgin Islands.............. 1.0
Florida..................... 3.9 New York.................... 3.7 Virginia.................... 7.6
Georgia..................... 2.1 North Carolina.............. 1.4 Washington.................. 3.0
Illinois.................... 20.5 Ohio........................ 2.9 Jointly issued.............. 4.5
----
Indiana..................... 2.2 Pennsylvania................ 0.9 Total....................... 97.7%
----
----
Iowa........................ 2.0 Tennessee................... 2.5
</TABLE>
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
-------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $99,448,781)............ $ 102,461,701
Cash....................................... 71,690
Receivable for:
Interest................................. 2,380,321
Investments sold......................... 250,000
Deferred organizational expenses........... 704
Prepaid expenses and other assets.......... 23,827
-------------
TOTAL ASSETS....................... 105,188,243
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased............................ 71,857
Investment advisory fee.................. 50,321
Administration fee....................... 30,192
Accrued expenses and other payables........ 98,607
-------------
TOTAL LIABILITIES.................. 250,977
-------------
NET ASSETS:
Paid-in-capital............................ 102,392,729
Net unrealized appreciation................ 3,012,920
Accumulated undistributed net investment
income................................... 1,193,099
Accumulated net realized loss.............. (1,661,482)
-------------
NET ASSETS......................... $ 104,937,266
=============
NET ASSET VALUE PER SHARE,
10,969,106 shares outstanding (unlimited
shares authorized of $.01 par value)..... $9.57
-----
-----
STATEMENT OF OPERATIONS
For the year ended March 31, 1995
-------------------------------------------
NET INVESTMENT INCOME:
INTEREST INCOME........................... $ 8,718,719
-------------
EXPENSES
Investment advisory fee.................. 525,869
Administration fee....................... 315,521
Professional fees........................ 113,174
Transfer agent fees and expenses......... 48,767
Trustees' fees and expenses.............. 29,829
Shareholder reports and notices.......... 25,925
Registration fees........................ 24,471
Organizational expenses.................. 8,582
Other.................................... 14,004
-------------
TOTAL EXPENSES......................... 1,106,142
-------------
NET INVESTMENT INCOME................ 7,612,577
-------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized loss........................ (1,407,306)
Net change in unrealized depreciation.... 3,238,763
-------------
NET GAIN............................... 1,831,457
-------------
NET INCREASE......................... $ 9,444,034
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.......................................................... $ 7,612,577 $ 7,576,413
Net realized gain (loss)....................................................... (1,407,306) 562,044
Net change in unrealized depreciation/appreciation............................. 3,238,763 (1,051,107)
-------------- --------------
Net increase............................................................... 9,444,034 7,087,350
-------------- --------------
Dividends and distributions to shareholders from:
Net investment income.......................................................... (6,612,336) (8,083,535)
Net realized gain.............................................................. (816,220) --
-------------- --------------
Total...................................................................... (7,428,556) (8,083,535)
Net decrease from transactions in shares of beneficial interest.................. (3,993,800) --
-------------- --------------
Total decrease............................................................. (1,978,322) (996,185)
NET ASSETS:
Beginning of period.............................................................. 106,915,588 107,911,773
-------------- --------------
END OF PERIOD (including undistributed net investment income of $1,193,099 and
$188,411, respectively)......................................................... $104,937,266 $106,915,588
============== ==============
</TABLE>
See Notes to Financial Statements
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. When market quotations are not readily available,
including circumstances under which it is determined by the Adviser that
sale or bid prices are not reflective of a security's market value,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors). 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 and premiums on securities purchased are
accreted/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 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.
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
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 its Investment Adviser 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 year ended March 31, 1995 aggregated $7,586,698 and
$5,955,211, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At March 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $6,000.
The Fund established 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 year ended March 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $8,161. At March 31, 1995, the Fund had an accrued pension liability of
$48,580 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS -- At March 31, 1995 the Fund had net capital loss
carryovers 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> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
6. 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 March 31, 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
========== ========= =============
</TABLE>
---------------
* The Trustees have voted to retire the shares purchased.
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>
March 28, 1995 $ 0.0475 April 7, 1995 April 21, 1995
April 25, 1995 $ 0.0475 May 5, 1995 May 19, 1995
</TABLE>
8. SELECTED QUARTERLY FINANCIAL DATA (unaudited) --
<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 expressed in thousands.
<PAGE> 13
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
April 30,
1990*
For the year ended March 31, through
------------------------------------------------ March 31,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 9.32 $ 9.41 $ 9.51 $ 9.44 $ 9.30
--------- --------- --------- --------- ---------
Net investment income.................. 0.67 0.66 0.70 0.73 0.57
Net realized and unrealized gain
(loss)............................... 0.24 (0.04) (0.05) 0.12 0.10
--------- --------- --------- --------- ---------
Total from investment operations....... 0.91 0.62 0.65 0.85 0.67
--------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income................ (0.59) (0.71) (0.72) (0.72) (0.50)
Net realized gain.................... (0.07) -- (0.03) (0.06) --
--------- --------- --------- --------- ---------
Total dividends and distributions...... (0.66) (0.71) (0.75) (0.78) (0.50)
Offering costs charged against
capital.............................. -- -- -- -- (0.03)
--------- --------- --------- --------- ---------
Net asset value, end of period......... $ 9.57 $ 9.32 $ 9.41 $ 9.51 $ 9.44
======== ======== ======== ======== ========
Market value, end of period............ $ 8.25 $ 8.50 $ 9.625 $ 9.50 $ 9.125
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+............... 5.05% (5.04)% 9.84% 12.84% (3.49)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................... $ 104,937 $ 106,916 $ 107,912 $ 109,326 $ 107,798
Ratio to average net assets:
Expenses............................. 1.05% 1.07% 1.12% 1.14% 1.12%(2)
Net investment income................ 7.24% 6.88% 7.37% 7.61% 6.72%(2)
Portfolio turnover rate................ 6% 12% 3% 11% 10%(1)
</TABLE>
---------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the first
and 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.
See Notes to Financial Statements
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST III
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Trustees of Municipal Income Opportunities Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Income Opportunities
Trust III (the "Fund") at March 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and for the period April 30, 1990 (commencement of operations)
through March 31, 1991, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at March 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 10, 1995
1995 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 1995, the Fund paid to the shareholders $0.585
per share from net investment income. All of the Fund's dividends from net
investment income were exempt interest dividends, excludable from gross income
for Federal income tax purposes. For the year ended March 31, 1995, the Fund
paid to shareholders $0.073 per share from long-term capital gains.
<PAGE> 15
(This Page Intentionally Left Blank)
<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 MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST III
Annual Report
March 31, 1995
