<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST III Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS September 30, 1997
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Municipal
Income Opportunities Trust III (OIC) for the six-month period ended September
30, 1997.
Stimulated by a resurgence of consumer spending in late 1996, the economy grew
at a rapid pace in the first quarter of 1997 and pushed interest rates higher.
In March, the Federal Reserve Board tightened monetary policy in a preemptive
move against a possible increase in the rate of inflation. Economic growth
slowed in the second quarter, causing the bond market to rally. By July, yields
had declined to last November's levels. In addition to more moderate economic
growth, low inflation and a stable Fed policy, the bond rally was also aided by
the dollar's strong overseas performance and the shrinking federal budget
deficit. The bond market gave ground in August on fears that strong employment
conditions would prompt the Fed to tighten further. However, the trend toward
lower yields resumed in September and by the end of the third quarter most of
the price declines experienced in August had been erased.
<TABLE>
<CAPTION>
Muni Yields Treasury Yields Ratio
<S> <C> <C> <C>
Dec '93 5.4 6.34 0.8517
5.4 6.24 0.8654
5.8 6.66 0.8709
6.4 7.09 0.9027
6.35 7.32 0.8675
6.25 7.43 0.8412
Jun '94 6.5 7.61 0.8541
6.25 7.39 0.8457
6.3 7.45 0.8456
6.55 7.81 0.8387
6.75 7.96 0.848
7 8 0.875
Dec '94 6.75 7.88 0.8566
6.4 7.7 0.8312
6.15 7.44 0.8266
6.15 7.43 0.8277
6.2 7.34 0.8447
5.8 6.66 0.8709
Jun '95 6.1 6.62 0.9215
6.1 6.86 0.8892
6 6.66 0.9008
5.95 6.48 0.9182
5.75 6.33 0.9084
5.5 6.14 0.8956
Dec '95 5.35 5.94 0.9007
5.4 6.03 0.8955
5.8 6.46 0.866
5.85 6.66 0.8784
5.95 6.89 0.8636
6.05 6.99 0.8655
Jun '96 5.9 6.89 0.8563
5.85 6.97 0.8393
5.9 7.11 0.8298
5.7 6.93 0.8225
5.65 6.64 0.8509
5.5 6.35 0.8661
Dec '96 5.6 6.63 0.8446
5.7 6.79 0.8395
5.65 6.8 0.8308
5.9 7.1 0.831
5.75 6.94 0.8285
5.65 6.91 0.8177
Jun '97 5.6 6.78 0.826
5.3 6.3 0.84
5.5 6.61 0.83
5.4 6.4 0.844
</TABLE>
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields but with less volatility.
The bond rally over the past six months pushed long-term insured revenue index
yields from 5.90 percent in March to a low of 5.30 percent in July before ending
September at 5.40 percent.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
rose slightly to 84 percent in September. A rising ratio means that municipals
have underperformed Treasuries and become more attractive. Over the past four
years, this ratio has annually ranged from an average low of 83 percent to an
average high of 90 percent.
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF SEPTEMBER 30,1997
(% OF NET ASSETS)
<S> <C>
IDR/PCR* 23%
NURSING & HEALTH 15%
MORTGAGE 13%
TAX ALLOCATION 8%
REFUNDED 7%
HOSPITAL 7%
RETIREMENT & LIFE CARE 7%
TRANSPORTATION 5%
ALL OTHERS 15%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF SEPTEMBER 30, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 5 YEARS
PERCENT CALLABLE
YEARS BONDS CALLABLE
<S> <C>
1998 1%
1999 3%
2000 36%
2001 13%
2002 0%
2003 13%
2004 6%
2005 6%
2006 12%
2007 5%
2008+ 5%
</TABLE>
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1997, continued
New issue underwriting volume was slightly ahead in the first half of 1997. The
decline in interest rates led to a surge in refunding activity in the third
quarter. As a result, new-issue municipal volume was up 18 percent during the
first nine months of 1997. Refundings accounted for 25 percent of total volume.
The yield spread between lower-rated issues and high-grade credits continued to
narrow.
PERFORMANCE
The Fund's net asset value (NAV) increased from $9.69 to $9.93 per share during
the six months ended September 30, 1997. Based on this NAV change plus
reinvestment of tax-free dividends, totaling $0.36 per share, the Fund's total
NAV return was 6.10 percent. OIC's market price on the New York Stock Exchange
moved from $10.00 to $10.125 per share. Based on this market price change and
reinvestment of tax-free dividends, the Fund's total market return was 4.83
percent. OIC's market price closed at a two percent premium to NAV on September
30, 1997.
Dividends for the last three months of 1997 were declared in September.
Beginning with the October 1997 payment, the monthly dividend was reduced from
$0.06 per share to $0.0525 per share to more closely reflect the Fund's
anticipated income. Over the past six months the level of undistributed net
investment income declined from $0.142 per share to $0.093 per share.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 14 long-term sectors and 54
credits. Non-rated securities comprised 60 percent of the Fund's portfolio.
Bonds with an approximate market value of $6 million were purchased and $3
million were sold. The average yield of these purchases and sales ranged between
5 1/2 percent and 7 1/2 percent. Distributable income declined when $2 million
par amount of bonds with an average book yield of 9 percent were called for
redemption.
The portfolio's average maturity was 18 years. The combination of older,
shorter-call issues and newer issues with longer call dates produced an average
of 5 years of call protection. The bonds of one issuer, representing two percent
of the Fund's net assets were not accruing interest. No other loans were on the
credit watch list.
LOOKING AHEAD
Municipals have followed the trend of Treasuries this year but have been less
volatile. We expect that the high tax-free income objectives of the Fund will
continue to appeal to investors seeking to participate in the non-rated sector
of the municipal market. The recent enactment of the Taxpayer Relief Act of 1997
did not impact municipals directly and the long-term benefits of tax-exempt
income remained intact.
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1997, continued
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.
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> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST III
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 20, 1997, a special meeting of the Fund's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEE:
<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................. 8,063,150
Withheld............................................................ 175,746
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Dr.
Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................. 7,779,737
Against............................................................. 115,032
Abstain............................................................. 344,127
</TABLE>
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.4%)
General Obligation (1.0%)
$ 1,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 1,027,950
- -------- ------------
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 1,035,360
1,000 New York State Dormitory Authority, State University 1993 Ser A......... 5.25 05/15/15 986,370
- -------- ------------
2,000 2,021,730
- -------- ------------
Electric Revenue (1.8%)
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....... 5.00 07/01/21 1,893,480
- -------- ------------
Hospital Revenue (6.8%)
1,500 Duarte, California, City of Hope National Medical Center Ser 1993
COPs................................................................... 6.125 04/01/13 1,546,785
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990................ 9.75 12/01/10 2,207,840
1,250 Illinois Health Facilities Authority, Edward Hospital Refg Ser 1993..... 6.00 02/15/19 1,271,275
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/14 1,064,150
1,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/22 1,059,330
- -------- ------------
6,750 7,149,380
- -------- ------------
Industrial Development/Pollution Control Revenue (23.1%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990 (AMT)......... 8.00 11/01/20 1,645,545
1,750 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 1,790,163
1,500 Chicago, Illinois, Chicago-O'Hare International Airport/American
Airlines Inc Ser 1990 A (AMT)......................................... 7.875 11/01/25 1,646,220
1,000 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)........................ 6.00 06/01/27 1,031,720
3,000 Perry County, Kentucky, T J International Ser 1994 (AMT)................ 7.00 06/01/24 3,246,090
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 1,521,000
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 2,822,775
1,750 Cleveland - Cuyahoga County Port Authority, C & P Docks Ser 1997-1
(AMT).................................................................. 6.00 03/01/07 1,763,668
1,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995 B.................................... 7.75 05/01/20 1,145,370
2,000 Brazos River Authority, Texas, Texas Utilities Electric Co 1990 Ser A
(AMT).................................................................. 8.125 02/01/20 2,177,100
2,000 Sabine River Authority, Texas, Texas Utilities Electric Co Ser 1990 B
(AMT).................................................................. 8.25 10/01/20 2,220,640
3,000 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade Ser 1994 A (AMT)........................................... 7.45 01/01/09 3,272,910
- -------- ------------
22,500 24,283,201
- -------- ------------
Mortgage Revenue - Multi-Family (8.2%)
2,330 Saint Tammany Public Trust Financing Authority, Louisiana, Refg Ser
1990................................................................... 10.00 10/01/20 2,540,556
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Alexandria Redevelopment & Housing Authority, Virginia,
$ 1,760 Courthouse Commons Apts Ser 1990 A (AMT)................................ 10.00 % 01/01/21 $ 1,776,702
10,594 Courthouse Commons Apts Ser 1990 B (AMT)................................ 0.00 01/01/21 1,069,279
3,000 Washington Housing Finance Commission, FNMA Collateralized Refg Ser 1990
A...................................................................... 7.50 07/01/23 3,166,350
- -------- ------------
17,684 8,552,887
- -------- ------------
Mortgage Revenue - Single Family (5.3%)
1,165 Louisiana Housing Finance Agency, GNMA Collateralized Ser 1988 (AMT).... 8.30 11/01/20 1,213,650
1,000 New Hampshire Housing Finance Authority, 1997 Ser D (AMT)............... 5.90 07/01/28 1,006,830
Ohio Housing Finance Agency,
1,180 GNMA-Backed 1990 Ser C (AMT)............................................ 7.85 09/01/21 1,253,526
2,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)...................... 6.10 09/01/28 2,095,460
- -------- ------------
5,345 5,569,466
- -------- ------------
Nursing & Health Related Facilities Revenue (15.3%)
2,250 Champaign, Illinois, Hoosier Care Inc/Champaign Children's Home Ser 1989
A...................................................................... 9.75 08/01/19 2,405,498
1,415 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,518,889
1,000 Iowa Health Facilities Development Finance Authority, Care Initiatives
Ser 1996............................................................... 9.25 07/01/25 1,311,860
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,639,455
1,970 Massachusetts Health & Educational Facilities Authority, Farren Care
Center Inc 1990 Ser A.................................................. 10.375 06/01/10 2,211,010
Massachusetts Industrial Finance Agency,
2,865 Kennedy-Donovan Center Inc 1990 Issue................................... 9.75 06/01/10 3,102,680
100 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 7.00 10/01/01 95,623
59 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 0.00 10/01/20 1,183
350 New York State Medical Care Facilities Finance Agency, Mental Health
1990 Ser B............................................................. 7.875 08/15/08 388,962
1,205 Allegheny County Hospital Development Authority, Pennsylvania, Allegheny
Valley School Ser 1990................................................. 8.00 02/01/02 1,277,649
1,930 Hurricane, Utah, Mission Health Service Ser 1990........................ 10.50 07/01/20 2,148,051
- -------- ------------
14,644 16,100,860
- -------- ------------
Public Facilities Revenue (1.2%)
1,192 Newton County, Texas, Detention Phase II COPs........................... 9.875 12/15/11 1,249,019
- -------- ------------
Retirement & Lifecare Facilities Revenue (7.2%)
Connecticut Development Authority,
350 Seabury Life Care Ser 1996.............................................. 8.75 09/01/06 358,831
2,325 Seabury Life Care Ser 1991.............................................. 10.00 09/01/16 2,511,023
1,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove
Ser 1996 (AMT)......................................................... 8.25 10/01/26 1,069,720
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.30 12/15/14 1,087,510
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) 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 (b)........................................ 7.25 % 07/01/16 $ 2,484,000
500 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/17 5,000
500 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/18 5,000
500 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/19 5,000
500 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/20 5,000
500 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/21 5,000
- -------- ------------
10,625 7,536,084
- -------- ------------
Tax Allocation (8.4%)
2,785 Lely Community Development District, Florida, Ser 1991.................. 9.00 10/01/11 3,209,100
1,610 Bradley Illinois, Bradley North Redev Ser 1990.......................... 9.125 01/01/05 1,811,588
990 Bridgeview, Illinios, Tax Increment Refg Ser 1995....................... 9.00 01/01/11 1,134,253
400 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 468,856
1,907 Muskegon Downtown Development Authority, Michigan, 1989 Ser A-1 (a)..... 9.75 06/01/18 2,145,997
- -------- ------------
7,692 8,769,794
- -------- ------------
Transportation Facilities Revenue (4.6%)
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B (MBIA)............. 0.00 09/01/16 1,801,200
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 1,028,760
2,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 2,009,280
- -------- ------------
8,000 4,839,240
- -------- ------------
Other Revenue (6.1%)
Del Mar Race Track Authority, California,
2,000 Refg Ser 1996.......................................................... 6.00 08/15/06 2,125,160
2,000 Refg Ser 1996.......................................................... 6.00 08/15/08 2,117,840
1,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996 Ser A
(a).................................................................... 6.40 09/01/11 1,101,230
1,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996 A.................................................. 7.30 08/01/27 1,072,250
- -------- ------------
6,000 6,416,480
- -------- ------------
Refunded (6.5%)
3,000 San Joaquin Hills Transportation Corridor Agency, California, Toll Road
Sr Lien................................................................ 6.75 01/01/03+++ 3,400,650
625 Illinois Health Facilities Authority, Hindsdale Hospital Ser 1990 C
(ETM).................................................................. 9.50 11/15/19 723,581
630 New York State Medical Care Facilities Finance Agency, Mental Health
1990 Ser B............................................................. 7.875 08/15/00+++ 705,417
1,750 Swanton, Vermont, Ser 1993.............................................. 6.70 12/01/03+++ 1,999,183
- -------- ------------
6,005 6,828,831
- -------- ------------
111,437 TOTAL MUNICIPAL BONDS (Identified Cost $94,668,010)............................................ 102,238,402
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (0.8%)
$ 800 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993 (Demand
- -------- 10/01/97) (Identified Cost $800,000)...................................... 3.90*% 03/01/22 $ 800,000
------------
$112,237 TOTAL INVESTMENTS (Identified Cost $95,468,010) (c)................................... 98.2%
======== 103,038,402
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.8 1,922,635
---- ------------
NET ASSETS............................................................................. 100.0% $104,961,037
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Joint exemption in the District of Columbia and Virginia.
++ Joint exemption in New York and New Jersey.
+++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) Resale is restricted to qualified institutional investors.
(b) Non-income producing security: bond in default.
(c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $7,697,906 and the aggregate gross unrealized depreciation is $127,514,
resulting in net unrealized appreciation of $7,570,392.
Bond Insurance:
FSA Financial Securities Association.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1997 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
September 30, 1997
<TABLE>
<S> <C>
Arkansas................. 1.6%
California............... 9.7
Colorado................. 1.7
Connecticut.............. 3.8
District of Columbia..... 1.7
Florida.................. 5.1
Illinois................. 11.1
Indiana.................. 1.5
Iowa..................... 2.2
Kentucky................. 3.1
Louisiana................ 5.9
Massachusetts............ 8.6
Michigan................. 2.0
New Hampshire............ 1.0
New Jersey............... 2.7
New York................. 6.7
Ohio..................... 7.8
Pennsylvania............. 2.3
Texas.................... 5.4
Utah..................... 3.9
Vermont.................. 1.9
Virginia................. 9.9
Washington............... 3.0
Joint Exemptions(1)...... (4.4)
----
Total.................... 98.2%
====
</TABLE>
- ---------------------
(1) Joint exemptions have been included in more than one geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (unaudited)
ASSETS:
Investments in securities, at value (identified cost $95,468,010)..... $103,038,402
Cash.................................................................. 64,872
Receivable for:
Interest.......................................................... 1,930,367
Investments sold.................................................. 100,000
Prepaid expenses and other assets..................................... 9,497
------------
TOTAL ASSETS...................................................... 105,143,138
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 45,864
Administration fee................................................ 27,518
Accrued expenses and other payables................................... 108,719
------------
TOTAL LIABILITIES................................................. 182,101
------------
NET ASSETS........................................................ $104,961,037
============
COMPOSITION OF NET ASSETS:
Paid-in-capital....................................................... $ 98,911,909
Net unrealized appreciation........................................... 7,570,392
Accumulated undistributed net investment income....................... 980,630
Accumulated net realized loss......................................... (2,501,894)
------------
NET ASSETS........................................................ $104,961,037
============
NET ASSET VALUE PER SHARE,
10,573,906 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $9.93
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $3,805,578
----------
EXPENSES
Investment management fee............................................... 260,273
Administration fee...................................................... 156,164
Professional fees....................................................... 51,819
Transfer agent fees and expenses........................................ 16,045
Registration fees....................................................... 12,148
Shareholder reports and notices......................................... 8,922
Trustees' fees and expenses............................................. 8,427
Custodian fees.......................................................... 2,854
Other................................................................... 9,343
----------
TOTAL EXPENSES...................................................... 525,995
Less: expense offset.................................................... (2,836)
----------
NET EXPENSES........................................................ 523,159
----------
NET INVESTMENT INCOME............................................... 3,282,419
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain....................................................... 610,318
Net change in unrealized appreciation................................... 2,369,916
----------
NET GAIN............................................................ 2,980,234
----------
NET INCREASE............................................................ $6,262,653
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
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 30, 1997 MARCH 31, 1997
- ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 3,282,419 $ 6,865,677
Net realized gain (loss)........................... 610,318 (1,216,634)
Net change in unrealized appreciation.............. 2,369,916 1,989,928
----------- -----------
NET INCREASE................................... 6,262,653 7,638,971
Dividends from net investment income............... (3,806,520) (7,249,645)
Net decrease from transactions in shares of
beneficial interest............................... -- (372,790)
----------- -----------
NET INCREASE................................... 2,456,133 16,536
NET ASSETS:
Beginning of period................................ 102,504,904 102,488,368
----------- -----------
END OF PERIOD
(Including undistributed net investment income
of $980,630 and $1,504,731, respectively)...... $104,961,037 $102,504,904
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (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'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 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 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
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
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
annual rate of 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> 16
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) 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 six months ended September 30, 1997 aggregated
$5,905,600 and $4,262,412, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At September 30, 1997, the Fund had transfer agent
fees and expenses payable of approximately $7,000.
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, 1997,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,399. At September 30, 1997, the Fund had an accrued pension liability of
$46,226 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
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- -----------
<S> <C> <C> <C>
Balance, March 31, 1996.......................................................... 10,613,906 $106,139 $99,178,560
Treasury shares purchased and retired (weighted average discount 3.65%)*......... (40,000) (400) (372,390)
---------- ------- -----------
Balance, March 31, 1997 and September 30, 1997................................... 10,573,906 $105,739 $98,806,170
========== ======== ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS
On September 23, 1997, the Fund declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ----------------- ------------------
<S> <C> <C>
$0.0525 October 3, 1997 October 17, 1997
$0.0525 November 7, 1997 November 21, 1997
$0.0525 December 5, 1997 December 19, 1997
</TABLE>
<PAGE> 17
MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1997 (unaudited) continued
7. 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.
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 primarily
attributable to post-October losses and capital loss deferrals on wash sales.
<PAGE> 18
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 SIX FOR THE YEAR ENDED MARCH 31
MONTHS ENDED -----------------------------------------
SEPTEMBER 30, 1997 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 9.69 $ 9.66 $ 9.57
------ ------ ------
Net investment income............................................ 0.31 0.65 0.68
Net realized and unrealized gain (loss).......................... 0.29 0.07 (0.01)
------ ------ ------
Total from investment operations................................. 0.60 0.72 0.67
------ ------ ------
Less dividends and distributions from:
Net investment income......................................... (0.36) (0.69) (0.61)
Net realized gain............................................. -- -- --
------ ------ ------
Total dividends and distributions................................ (0.36) (0.69) (0.61)
------ ------ ------
Anti-dilutive effect of acquiring treasury shares................ -- -- 0.03
------ ------ ------
Net asset value, end of period................................... $ 9.93 $ 9.69 $ 9.66
------ ------ ------
Market value, end of period...................................... $ 10.125 $ 10.00 $ 9.125
====== ====== ======
TOTAL INVESTMENT RETURN+......................................... 4.83%(1) 17.64% 18.54%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 1.02%(2)(3) 1.03%(3) 1.06%
Net investment income............................................ 6.34%(2) 6.66% 6.91%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $104,961 $102,505 $102,488
Portfolio turnover rate.......................................... 8% 20% 8%
<CAPTION>
FOR THE YEAR ENDED MARCH 31
------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 9.32 $ 9.41 $ 9.51
------ ------ ------
Net investment income............................................ 0.67 0.66 0.70
Net realized and unrealized gain (loss).......................... 0.19 (0.04) (0.05)
------ ------ ------
Total from investment operations................................. 0.86 0.62 0.65
------ ------ ------
Less dividends and distributions from:
Net investment income......................................... (0.59) (0.71) (0.72)
Net realized gain............................................. (0.07) -- (0.03)
------ ------ ------
Total dividends and distributions................................ (0.66) (0.71) (0.75)
------ ------ ------
Anti-dilutive effect of acquiring treasury shares................ 0.05 -- --
------ ------ ------
Net asset value, end of period................................... $ 9.57 $ 9.32 $ 9.41
------ ------ ------
Market value, end of period...................................... $ 8.25 $ 8.50 $ 9.625
====== ====== ======
TOTAL INVESTMENT RETURN+......................................... 5.05% (5.04)% 9.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... 1.05% 1.07% 1.12%
Net investment income............................................ 7.24% 6.88% $ 7.37%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $104,937 $106,916 $107,912
Portfolio turnover rate.......................................... 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.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- -----------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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 FSB
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, 1997
