<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST III Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS March 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Municipal
Income Opportunities Trust III (OIC) for the fiscal year ended March 31, 1997.
Economic growth moderated during the third quarter of 1996, causing fixed-income
yields to move lower through November. However, increased consumer spending led
to an acceleration of economic activity, which prompted yields to rise between
December and March. On March 25, 1997, the Federal Reserve Board raised the
federal-funds rate 25 basis points to 5.50 percent in a preemptive move against
a possible acceleration in the rate of inflation.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal revenue bond yields rose from 5.40 percent in
February 1996 and reached a high of 6.15 percent in April and June before
returning to 5.50 percent in November. At the end of March 1997, municipal
yields stood at 5.85 percent. Although municipal yields followed the pattern of
Treasuries, they generally were less volatile.
The ratio of insured municipal revenue bond yields to 30-year U.S. Treasury
yields ranged from 86 percent to 81 percent and ended March at 82 percent. A
declining ratio means that municipal bond prices outperformed U.S. Treasury
prices. Over the past three years, the annual range of the ratio has averaged 81
to 92 percent.
On the supply side of the market, new-issue municipal volume increased 14
percent to $183 billion in 1996. Underwriting volume this year is expected to
exceed bond maturities and redemptions.
PERFORMANCE
Municipal Income Opportunities Trust III's net asset value (NAV) moved from
$9.66 to $9.69 per share during the fiscal year ended March 31, 1997. Based on
this NAV change, plus reinvestment of tax-free dividends totaling $0.685 per
share, the Fund's total return was 7.79 percent. OIC's
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 1997, continued
market price on the New York Stock Exchange rose from $9.125 per share to $10.00
per share during the year. Based on this market price change and reinvestment of
tax-free dividends, the Fund's total market return was 17.64 percent.
On March 31, 1997, OIC's market price was trading at a three percent premium to
NAV. Undistributed net investment income totaled $0.142 per share, versus $0.178
per share a year ago. Beginning with the November 1996 payment, the monthly
dividend was increased from $0.055 to $0.06 per share to more closely reflect
the Fund's anticipated income. Net assets stood at $103 million.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 12 long-term sectors and 52
credits. Non-rated securities comprised 62 percent of the Fund's portfolio. The
Fund's average maturity was 20 years. The combination of older, shorter-call
issues and newer issues with longer call dates provided an average of six years
of call protection. At the end of the fiscal year all loans held by the Fund
were accruing interest. One loan, representing less than three percent of net
assets, was accruing income, but may face difficulty meeting future debt service
requirements.
LOOKING AHEAD
With the collapse of flat-tax proposals, municipal bonds have improved relative
to U.S. Treasury securities. In their average range, tax-free yields are
currently somewhat rich compared to Treasury yields. If municipal yields were to
rise significantly in the future, the Fund would tend to sell its more defensive
holdings in order to extend maturity and increase call protection.
FIVE LARGEST SECTORS AS OF MARCH 31, 1997
(% OF NET ASSETS)
ALL OTHERS 31%
IDR/PCR* 20%
NURSING & HEALTH RELATED 17%
HOUSING 13%
HOSPITAL 10%
TAX ALLOCATION 9%
* INDUSTRIAL DEVELOPMENT REVENUE/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 1997, continued
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF MARCH 31, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION:
6 YEARS
PERCENT CALLABLE
<S> <C> <C>
1997 0.1%
1998 1.3%
1999 2.5%
2000 38.1%
2001 13.9%
2002 2.3%
2003 12.7%
2004 5.5%
2005 6.4%
2006 10.0%
2007+ 7.2%
YEARS CALLABLE
</TABLE>
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 March 31, 1997,
OIC purchased and retired 40,000 shares of common stock at a weighted average
market discount of 3.68 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
RESULTS OF ANNUAL MEETING
* * *
On October 29, 1996, an annual meeting of the Fund's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Dr. Manuel H. Johnson
For................................................................. 6,945,309
Withheld............................................................ 150,209
John L. Schroeder
For................................................................. 6,927,644
Withheld............................................................ 167,874
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire,
Michael E. Nugent and Philip J. Purcell.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................. 6,816,955
Against............................................................. 73,943
Abstain............................................................. 204,620
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................. 6,924,217
Against............................................................. 39,973
Abstain............................................................. 131,328
</TABLE>
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (95.2%)
General Obligation (0.9%)
$ 1,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 970,900
- -------- ------------
Educational Facilities Revenue (1.9%)
1,000 ABAG Finance Authority for Nonprofit Corporations, California, National
Center for International Schools COPs.................................. 7.50 05/01/11 989,720
1,000 New York State Dormitory Authority, State University 1993 Ser A......... 5.25 05/15/15 918,780
- -------- ------------
2,000 1,908,500
- -------- ------------
Electric Revenue (3.5%)
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....... 5.00 07/01/21 1,766,860
1,750 Swanton, Vermont, Ser 1993.............................................. 6.70 12/01/23 1,792,490
- -------- ------------
3,750 3,559,350
- -------- ------------
Hospital Revenue (9.6%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,227,000
1,500 Duarte, California, City of Hope National Medical Center Ser 1993
COPs................................................................... 6.125 04/01/13 1,496,670
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990................ 9.75 12/01/10 2,148,840
Illinois Health Facilities Authority,
1,250 Edward Hospital Refg Ser 1993.......................................... 6.00 02/15/19 1,215,800
625 Hindsdale Hospital Ser 1990 C.......................................... 9.50 11/15/19 705,350
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/14 1,017,810
1,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/22 1,013,880
- -------- ------------
9,375 9,825,350
- -------- ------------
Industrial Development/Pollution Control Revenue (20.4%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990 (AMT)......... 8.00 11/01/20 1,623,135
1,750 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 1,753,272
1,500 Chicago, Illinois, Chicago-O'Hare Int'l Airport/American Airlines Inc
Ser 1990 A (AMT)....................................................... 7.875 11/01/25 1,619,835
3,000 Perry County, Kentucky, T J International Ser 1994 (AMT)................ 7.00 06/01/24 3,091,980
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 1,453,350
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 2,832,725
1,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995 B.................................... 7.75 05/01/20 1,084,790
2,000 Brazos River Authority, Texas, Texas Utilities Electric Co 1990 Ser A
(AMT).................................................................. 8.125 02/01/20 2,172,820
2,000 Sabine River Authority, Texas, Texas Utilities Electric Co Ser 1990 B
(AMT).................................................................. 8.25 10/01/20 2,209,400
3,000 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade Ser 1994 A (AMT)........................................... 7.45 01/01/09 3,117,600
- -------- ------------
19,750 20,958,907
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Mortgage Revenue - Multi-Family (8.3%)
$ 2,342 Saint Tammany Public Trust Financing Authority, Louisiana, Refg Ser
1990................................................................... 10.00 % 10/01/20 $ 2,550,676
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)............................... 10.00 01/01/21 1,759,947
10,594 Courthouse Commons Apts Ser 1990 B (AMT)............................... 0.00 01/01/21 984,101
3,000 Washington Housing Finance Commission, FNMA Collateralized Refg Ser 1990
A...................................................................... 7.50 07/01/23 3,172,890
- -------- ------------
17,696 8,467,614
- -------- ------------
Mortgage Revenue - Single Family (4.5%)
1,225 Louisiana Housing Finance Agency, GNMA Collateralized Ser 1988 (AMT).... 8.30 11/01/20 1,269,039
Ohio Housing Finance Agency,
1,285 GNMA-Backed 1990 Ser C (AMT)........................................... 7.85 09/01/21 1,358,348
2,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)..................... 6.10 09/01/28 1,980,540
- -------- ------------
4,510 4,607,927
- -------- ------------
Nursing & Health Related Facilities Revenue (17.1%)
2,280 Champaign, Illinois, Hoosier Care Inc/Champaign Children's Home Ser 1989
A...................................................................... 9.75 08/01/19 2,425,578
1,435 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,529,251
2,000 Iowa Health Facilities Development Finance Authority, Care Initiatives
Ser 1996............................................................... 9.25 07/01/25 2,324,400
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,580,040
2,100 Massachusetts Health & Educational Facilities Authority, Farren Care
Center Inc 1990 Ser A.................................................. 10.375 06/01/10 2,359,539
Massachusetts Industrial Finance Agency,
2,975 Kennedy-Donovan Center Inc 1990 Issue.................................. 9.75 06/01/10 3,181,376
100 Pioneer Valley Living Care Center at Amherst 1990 Issue................ 7.00 10/01/01 93,623
59 Pioneer Valley Living Care Center at Amherst 1990 Issue................ 0.00 10/01/20 1,183
535 New York State Medical Care Facilities Finance Agency, Mental Health
1990 Ser B............................................................. 7.875 08/15/08 591,025
1,205 Allegheny County Hospital Development Authority, Pennsylvania, Allegheny
Valley School Ser 1990................................................. 8.00 02/01/02 1,255,164
1,945 Hurricane, Utah, Mission Health Service Ser 1990........................ 10.50 07/01/20 2,162,782
- -------- ------------
16,134 17,503,961
- -------- ------------
Public Facilities Revenue (1.2%)
1,211 Newton County, Texas, Detention Phase II COPs........................... 9.875 12/15/11 1,238,865
- -------- ------------
Retirement & Lifecare Facilities Revenue (7.2%)
Connecticut Development Authority,
350 Seabury Life Care Ser 1996............................................. 8.75 09/01/06 351,361
2,325 Seabury Life Care Ser 1991............................................. 10.00 09/01/16 2,454,386
1,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove Ser 1996
(AMT).................................................................. 8.25 10/01/26 1,001,540
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.30 12/15/14 1,028,530
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Chesterfield County Industrial Development Authority, Virginia,
$ 3,450 Brandermill Woods Ser 1991 A........................................... 7.25#% 07/01/16 $ 2,484,000
500 Brandermill Woods Ser 1991 A........................................... 0.00 07/01/17 10,000
500 Brandermill Woods Ser 1991 A........................................... 0.00 07/01/18 10,000
500 Brandermill Woods Ser 1991 A........................................... 0.00 07/01/19 10,000
500 Brandermill Woods Ser 1991 A........................................... 0.00 07/01/20 10,000
500 Brandermill Woods Ser 1991 A........................................... 0.00 07/01/21 10,000
- -------- ------------
10,625 7,369,817
- -------- ------------
Tax Allocation (8.6%)
2,885 Lely Community Development District, Florida, Ser 1991.................. 9.00 10/01/11 3,296,920
1,610 Bradley Illinois, Bradley North Redev Ser 1990.......................... 9.125 01/01/05 1,783,204
990 Bridgeview, Illinois, Tax Increment Refg Ser 1995....................... 9.00 01/01/11 1,089,891
400 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 464,676
1,934 Muskegon Downtown Development Authority, Michigan, 1989 Ser A-1 (a)..... 9.75 06/01/18 2,178,235
- -------- ------------
7,819 8,812,926
- -------- ------------
Transportation Facilities Revenue (7.5%)
3,000 San Joaquin Hills Transportation Corridor Agency, California, Toll Road
Sr Lien................................................................ 6.75 01/01/32 3,120,510
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 987,640
1,750 Cleveland - Cuyahoga County Port Authority, C & P Docks Ser 1997-1
(AMT).................................................................. 6.00 03/01/07 1,706,583
2,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 1,900,160
- -------- ------------
7,750 7,714,893
- -------- ------------
Other Revenue (4.0%)
2,100 Del Mar Race Track Authority, California, Refg Ser 1996................. 6.00 08/15/06 2,102,814
1,000 Mashantuket (Western) Pequot Tribe, Connecticut, Special 1996 Ser A
(a).................................................................... 6.40 09/01/11 1,021,870
1,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996 A.................................................. 7.30 08/01/27 1,017,670
- -------- ------------
4,100 4,142,354
- -------- ------------
Refunded (0.5%)
445 New York State Medical Care Facilities Finance Agency, Mental Health
- -------- 1990 Ser B............................................................. 7.875 08/15/08++ 497,421
------------
106,165 TOTAL MUNICIPAL BONDS (Identified Cost $92,378,309)............................................. 97,578,785
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.8%)
200 Valdez, Alaska, Marine Terminal Exxon Pipeline Co Ser C (Demand
04/01/97).............................................................. 3.80* 12/01/33 200,000
600 Metropolitan Nashville Airport Authority, Tennessee, American Airlines
Inc Refg Ser 1995 B (Demand 04/01/97).................................. 3.80* 10/01/12 600,000
1,000 Converse County, Wyoming, Pacific Corp Ser 1994 (AMBAC) (Demand
- -------- 04/01/97).............................................................. 3.85* 11/01/24 1,000,000
------------
1,800 TOTAL SHORT-MUNICIPAL OBLIGATIONS (Identified Cost $1,800,000).................................. 1,800,000
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$107,965 TOTAL INVESTMENTS (Identified Cost $94,178,309) (b).................................... 97.0% $ 99,378,785
=========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 3.0 3,126,119
---- ------------
NET ASSETS.............................................................................. 100.0% $102,504,904
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Joint exemption in the District of Columbia and Virginia.
++ Joint exemption in New York and New Jersey.
# Restructured coupon rate effective 01/01/97.
++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $5,453,114 and the aggregate gross unrealized depreciation is $252,638,
resulting in net unrealized appreciation of $5,200,476.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FSA Financial Securities Association.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
March 31, 1997
<TABLE>
<S> <C>
Alaska................... 0.2%
Arkansas................. 1.6
California............... 9.7
Connecticut.............. 3.7
District of Columbia..... 1.7
Florida.................. 5.2
Illinois................. 10.5
Indiana.................. 1.5
Iowa..................... 2.3
Kentucky................. 3.0%
Louisiana................ 5.3
Massachusetts............ 9.6
Michigan................. 2.1
New York................. 6.6
New Jersey............... 2.8
Ohio..................... 7.8
Pennsylvania............. 2.3
Tennessee................ 0.6
Texas.................... 5.5%
Utah..................... 3.8
Vermont.................. 1.7
Virginia................. 8.2
Washington............... 4.8
Wyoming.................. 1.0
Joint Exemptions*........ (4.5)
----
Total.................... 97.0%
====
</TABLE>
- ---------------------
* Joint exemptions have been included in more than one geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $94,178,309)........................................ $ 99,378,785
Cash.................................................................. 201,371
Receivable for:
Interest.......................................................... 2,062,947
Investments sold.................................................. 1,020,000
Prepaid expenses and other assets..................................... 24,308
------------
TOTAL ASSETS...................................................... 102,687,411
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 43,791
Administration fee................................................ 26,274
Accrued expenses and other payables................................... 112,442
------------
TOTAL LIABILITIES................................................. 182,507
------------
NET ASSETS:
Paid-in-capital....................................................... 98,911,909
Net unrealized appreciation........................................... 5,200,476
Accumulated undistributed net investment income....................... 1,504,731
Accumulated net realized loss......................................... (3,112,212)
------------
NET ASSETS........................................................ $102,504,904
============
NET ASSET VALUE PER SHARE,
10,573,906 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $9.69
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 7,916,629
-----------
EXPENSES
Investment advisory fee................................................ 514,840
Administration fee..................................................... 308,904
Professional fees...................................................... 113,774
Transfer agent fees and expenses....................................... 42,776
Registration fees...................................................... 24,221
Shareholder reports and notices........................................ 23,236
Trustees' fees and expenses............................................ 16,389
Custodian fees......................................................... 6,144
Other.................................................................. 6,785
-----------
TOTAL EXPENSES..................................................... 1,057,069
LESS: EXPENSE OFFSET............................................... (6,117)
-----------
NET EXPENSES....................................................... 1,050,952
-----------
NET INVESTMENT INCOME.............................................. 6,865,677
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................................................... (1,216,634)
Net change in unrealized appreciation.................................. 1,989,928
-----------
NET GAIN........................................................... 773,294
-----------
NET INCREASE........................................................... $ 7,638,971
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 6,865,677 $ 7,267,715
Net realized loss...................................... (1,216,634) (234,096)
Net change in unrealized appreciation.................. 1,989,928 197,628
------------ ------------
NET INCREASE....................................... 7,638,971 7,231,247
Dividends from net investment income................... (7,249,645) (6,572,115)
Net decrease from transactions in shares of beneficial
interest.............................................. (372,790) (3,108,030)
------------ ------------
NET INCREASE (DECREASE)............................ 16,536 (2,448,898)
NET ASSETS:
Beginning of period.................................... 102,488,368 104,937,266
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,504,731 and $1,888,699, respectively)........... $ 102,504,904 $ 102,488,368
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1997
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's investment objective is to provide a
high level of current income which is exempt from federal income tax. The Fund
was organized as a Massachusetts business trust on February 20, 1990 and
commenced operations on April 30, 1990.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the 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 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.
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.
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
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.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), the Fund pays an advisory fee, calculated weekly and
payable monthly, by applying the annual rate of 0.50% to the Fund's 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"), an affiliate of the Investment Adviser, the Fund pays an
administration fee, calculated weekly and payable monthly, by applying the 0.30%
to the Fund's 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.
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
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, 1997 aggregated $20,167,768
and $22,382,838, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At March 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $8,500.
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 year ended March 31, 1997, included
in Trustees' fees and expenses in the Statement of Operations amounted to $852.
At March 31, 1997, the Fund had an accrued pension liability of $46,228 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>
CAPITAL
PAR VALUE PAID IN
OF EXCESS OF
SHARES SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, March 31, 1995......................................................... 10,969,106 $109,691 $102,283,038
Treasury shares purchased and retired (weighted average discount 10.325%)*...... (355,200) (3,552) (3,104,478)
---------- -------- ------------
Balance, March 31, 1996......................................................... 10,613,906 106,139 99,178,560
Treasury shares purchased and retired (weighted average discount 3.68%)*........ (40,000) (400) (372,390)
---------- -------- ------------
Balance, March 31, 1997......................................................... 10,573,906 $105,739 $ 98,806,170
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At March 31, 1997, the Fund had a net capital loss carryover of approximately
$2,022,000 of which $1,248,000 will be available through March 31, 2003 and
$774,000 will be available through March 31, 2005 to offset future capital gains
to the extent provided by regulations.
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1997, continued
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $836,000 during fiscal 1997. As of March 31, 1997, the Fund had
temporary book/tax differences attributable to post-October losses and capital
loss deferrals on wash sales.
7. DIVIDENDS
The Fund declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------ --------- --------------- ---------------
<S> <C> <C> <C>
March 25, 1997 $0.06 April 4, 1997 April 18, 1997
April 29, 1997 $0.06 May 9, 1997 May 23, 1997
</TABLE>
<PAGE> 16
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 YEAR ENDED MARCH 31
------------------------------------------------------------
1997 1996 1995++ 1994 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 9.66 $ 9.57 $ 9.32 $ 9.41 $ 9.51
------- ------- ------- ------- -------
Net investment income............................................ 0.65 0.68 0.67 0.66 0.70
Net realized and unrealized gain (loss).......................... 0.07 (0.01) 0.19 (0.04) (0.05)
------- ------- ------- ------- -------
Total from investment operations................................. 0.72 0.67 0.86 0.62 0.65
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income......................................... (0.69) (0.61) (0.59) (0.71) (0.72)
Net realized gain............................................. -- -- (0.07) -- (0.03)
------- ------- ------- ------- -------
Total dividends and distributions................................ (0.69) (0.61) (0.66) (0.71) (0.75)
------- ------- ------- ------- -------
Anti-dilutive effect of acquiring treasury shares................ -- 0.03 0.05 -- --
------- ------- ------- ------- -------
Net asset value, end of period................................... $ 9.69 $ 9.66 $ 9.57 $ 9.32 $ 9.41
======= ======= ======= ======= =======
Market value, end of period...................................... $ 10.00 $ 9.125 $ 8.25 $ 8.50 $ 9.625
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN+......................................... 17.64% 18.54% 5.05% (5.04)% 9.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 1.03%(1) 1.06% 1.05% 1.07% 1.12%
Net investment income............................................ 6.66% 6.91% 7.24% 6.88% 7.37%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $102,505 $102,488 $104,937 $106,916 $107,912
Portfolio turnover rate.......................................... 20% 8% 6% 12% 3%
</TABLE>
- ---------------------
+ 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 brokerage commissions.
++ Restated for comparative purposes.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
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, 1997, 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 five years in the
period then ended, 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 at March
31, 1997 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 9, 1997
--------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 1997, the Fund paid to the
shareholders $0.69 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.
<PAGE> 18
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<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ---------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ---------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
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
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST III
Annual Report
March 31, 1997
