<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III Two World Trade Center
LETTER TO THE SHAREHOLDERS September 30, 1999 New York, New York 10048
</TABLE>
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, has continued to experience robust
growth this year. Fears earlier this year that rapid growth would rekindle
inflation caused the fixed-income markets to anticipate that the Federal Reserve
Board would take back some of the liquidity provided during last year's
international economic difficulties. During the summer, the Fed changed monetary
policy and in two separate moves raised the federal-funds rate 50 basis points,
to 5.25 percent. By the end of September, long-term interest rates rose to
levels last seen in the spring of 1998.
MUNICIPAL MARKET CONDITIONS
In the wake of 1998's international economic difficulties, the financial markets
have continued to experience volatility from global healing. Last year's
"flight-to-quality" rally primarily benefited U.S. Treasuries. As global turmoil
subsided and interest rates began to rise this year, Treasury yields increased
more than municipal yields. Long-term insured municipal index yields have risen
80 basis points, to 5.85 percent, during the first nine months of 1999. Over the
same period, Treasury yields rose nearly 100 basis points, to 6.05 percent.
The ratio of long-term municipal yields to Treasury yields declined from 99
percent at the end of 1998 to 96 percent by the end of September. This ratio is
a measure of relative performance that compares long-term insured municipal
index yields to benchmark 30-year Treasury yields. A declining ratio means that
municipals have outperformed Treasuries. Over the past five years the annual
high ratio has averaged 93 percent of Treasuries, the annual low ratio 84
percent.
The relative performance of municipals was also aided by a slowdown in the pace
of underwritings. New-issue volume declined 20 percent in the first nine months
of 1999. Refunding activity, the most interest-rate-sensitive component of
supply, was down 50 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
30-YEAR BOND YIELDS 1994-1999
<TABLE>
<CAPTION>
30-YEAR INSURED 30-YEAR U.S. INSURED MUNICIPAL YIELDS AS A
MUNICIPAL YIELDS TREASURY YIELDS PERCENTAGE OF U.S. TREASURY YIELDS
---------------- --------------- ----------------------------------
<S> <C> <C> <C>
1994 5.40% 6.34% 85.17%
5.40 6.24 86.54
5.80 6.66 87.09
6.40 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.50 7.61 85.41
6.25 7.39 84.57
6.30 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.80
7.00 8.00 87.50
6.75 7.88 85.66
1995 6.40 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.20 7.34 84.47
5.80 6.66 87.09
6.10 6.62 92.15
6.10 6.86 88.92
6.00 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.50 6.14 89.58
5.35 5.94 90.07
1996 5.40 6.03 89.55
5.60 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.90 6.89 85.63
5.85 6.97 83.93
5.90 7.11 82.98
5.70 6.93 82.25
5.65 6.64 85.09
5.50 6.35 86.61
5.60 6.63 84.46
1997 5.70 6.79 83.95
5.65 6.80 83.09
5.90 7.10 83.10
5.75 6.94 82.85
5.65 6.91 81.77
5.60 6.78 82.60
5.30 6.30 84.13
5.50 6.61 83.21
5.40 6.40 84.38
5.35 6.15 86.99
5.30 6.05 87.60
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.20 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.20 5.80 89.66
5.20 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
5.55 6.10 90.98
5.75 6.06 94.88
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
The net asset value (NAV) of Morgan Stanley Dean Witter Municipal Income
Opportunities Trust III (OIC) declined from $9.99 to $9.60 per share during the
six-month period ended September 30, 1999. This change plus a reinvestment of
tax-free dividends of $0.27 per share produced a NAV based return of -0.84
percent. OIC's value on the New York Stock Exchange (NYSE) fell from $9.3125 to
$8.3125 per share during the same period. This market change plus a reinvestment
of tax-free dividends produced a market based total return of -7.98 percent. On
September 30, 1999, OIC's NYSE market price was at a 13.4 percent discount to
its net asset value.
Monthly dividends for the fourth quarter of 1999, declared in September, were
unchanged at $0.045 per share. The Fund's level of undistributed net investment
income was $0.092 per share on September 30, 1999, versus $0.074 per share six
months ago.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
[LARGEST SECTORS BAR CHART]
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF SEPTEMBER 30, 1999
(% OF NET ASSETS)
<S> <C>
IDR/PCR* 24%
MORTGAGE 14%
NURSING & HEALTH 12%
RETIREMENT & LIFE CARE 9%
HOSPITAL 7%
PUBLIC FACILITIES 6%
EDUCATION 5%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
</TABLE>
[CREDIT RATINGS PIE CHART]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CREDIT RATINGS AS OF SEPTEMBER
30, 1999 (% OF TOTAL LONG-TERM
PORTFOLIO)
Aaa OR AAA AA OR AA A OR A Baa OR BBB N/R
14% 0% 4% 16% 66%
AS MEASURED BY MOODY'S
INVESTORS SERVICE, INC. OR
STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT
TO CHANGE.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
BASED ON MARKET VALUE AS A PERCENT OF NET ASSETS
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ALABAMA................. 0.8%
ARKANSAS................ 1.6
CALIFORNIA.............. 10.7
COLORADO................ 1.9
CONNECTICUT............. 0.5
DISTRICT OF COLUMBIA.... 1.6
FLORIDA................. 5.0
HAWAII.................. 1.3
ILLINOIS................ 7.3
IOWA.................... 2.3
KENTUCKY................ 3.2
LOUISIANA............... 4.1
MARYLAND................ 1.4
MASSACHUSETTS........... 9.7
MICHIGAN................ 1.9
MISSOURI................ 5.3
NEW JERSEY.............. 8.5
NEW YORK................ 6.7
OHIO.................... 5.6
PENNSYLVANIA............ 1.9
TEXAS................... 3.7
UTAH.................... 3.8
VIRGINIA................ 9.1
WASHINGTON.............. 3.1
JOINT EXEMPTIONS*....... (2.6)
------
TOTAL................... 98.4%
======
</TABLE>
- ---------------------
* JOINT EXEMPTIONS HAVE BEEN INCLUDED IN EACH GEOGRAPHIC LOCATION.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
YEARS BONDS CALLABLE PERCENT CALLABLE*
- -------------------- -----------------
<S> <C>
1999 1%
2000 23%
2001 5%
2002 3%
2003 5%
2004 6%
2005 7%
2006 11%
2007 6%
2008 9%
2009 11%
2010+ 13%
<CAPTION>
WEIGHTED AVERAGE
BOOK YIELD: 7.27%
COST (BOOK) YIELD **
--------------------
<S> <C>
1999 7.10%
2000 9.17%
2001 9.87%
2002 5.83%
2003 7.05%
2004 7.18%
2005 6.06%
2006 6.44%
2007 6.10%
2008 5.94%
2009 6.03%
2010+ 6.76%
</TABLE>
* % Based on Long-Term Portfolio.
** Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before fund operating expenses. For
example, the fund earned a book yield of 9.17% on 23% of the long-term
portfolio that are callable in 2000.
Portfolio structure is subject to change.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $99 million were diversified among 14 long-term sectors
and 55 credits. At the end of September the portfolio's average maturity was 19
years and its average duration, a measure of sensitivity to interest-rate
changes, was 6.7 years. Nonrated securities comprise more than half of OIC's
assets. All issues are currently accruing interest. However, two other issues,
representing two percent of net assets, were accruing income but may experience
difficulty with future debt service payments. The accompanying charts provide
current information on the portfolio's credit quality, sector distribution and
geographic diversification. Optional call provisions by year with their
respective book yields are also shown.
LOOKING AHEAD
The Federal Reserve Board's recent interest-rate increases confirmed its
previously signaled intention of becoming less accommodative in the face of
continued strong domestic economic growth. It is anticipated that the Fed may
raise short-term interest rates further. However, we believe municipal bonds
continue to offer long-term investors good value, especially in relationship to
Treasuries.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps 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 may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the six-month period ended September 30,
1999, the Fund purchased and retired 205,600 shares of common stock at a
weighted average market discount of 10.80 percent.
We would like to announce that in July 1999 Julie C. Morrone was named
co-manager of the Fund. Ms. Morrone joined Morgan Stanley Dean Witter Advisors
in 1993, and has worked as a senior municipal analyst on the Fund's management
team.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Municipal
Income Opportunities Trust III and look forward to continuing to serve your
investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (95.9%)
General Obligation (1.0%)
$ 1,000 New York City, New York, 1994 Ser D......................... 5.75% 08/15/10 $1,020,370
- -------- ----------
Educational Facilities Revenue (5.3%)
1,000 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 05/01/11 1,062,230
1,200 San Diego County, California, The Burnham Institute COPs.... 6.25 09/01/29 1,204,824
2,250 Massachusetts Development Finance Agency, Eastern Nazarene
College Ser 1999........................................... 5.625 04/01/29 2,024,933
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 963,800
- -------- ----------
5,450 5,255,787
- -------- ----------
Electric Revenue (1.8%)
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)....................................................... 5.00 07/01/21 1,756,400
- -------- ----------
Hospital Revenue (6.5%)
1,500 Hawaii Department of Budget & Finance, Wilcox Memorial
Hospital Ser 1998.......................................... 5.50 07/01/28 1,323,375
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990.... 9.75 12/01/10 2,126,580
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 1,025,580
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 1,006,240
1,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 990,400
- -------- ----------
6,500 6,472,175
- -------- ----------
Industrial Development/Pollution Control Revenue (24.2%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990
(AMT)...................................................... 8.00 11/01/20 1,565,130
1,605 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,624,324
1,000 Iowa Finance Authority, ISPCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,018,150
3,000 Perry County, Kentucky, TJ International Ser 1994 (AMT)..... 7.00 06/01/24 3,142,949
1,375 Maryland Industrial Development Financing Authority, Medical
Waste Assocs LP 1989 Ser (AMT)............................. 8.75 11/15/10 1,359,903
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 1,485,630
3,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Reclamation Improvement District Ser 1998 A....... 6.375 04/01/31 2,975,430
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 2,652,875
1,750 Cleveland - Cuyahoga County Port Authority, Ohio, C & P
Docks Ser 1997-1 (AMT)..................................... 6.00 03/01/07 1,730,348
1,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995-B... 7.75 05/01/20 1,096,210
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Sabine River Authority, Texas, Texas Utilities Electric Co
Ser 1990 B (AMT)........................................... 8.25% 10/01/20 $2,093,900
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Ser 1994 A (AMT)..................... 7.45 01/01/09 3,183,449
- -------- ----------
23,230 23,928,298
- -------- ----------
Mortgage Revenue - Multi-Family (8.7%)
2,277 Saint Tammany Public Trust Financing Authority, Louisiana,
Refg Ser 1990.............................................. 10.00 10/01/20 2,429,018
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 1,777,952
10,461 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,322,862
3,000 Washington Housing Finance Commission, FNMA Collateralized
Refg Ser 1990 A............................................ 7.50 07/01/23 3,093,210
- -------- ----------
17,498 8,623,042
- -------- ----------
Mortgage Revenue - Single Family (5.4%)
2,500 Chicago, Illinois, GNMA-Collateralized Ser 1998 A-1 (AMT)... 6.45 09/01/29 2,585,875
Ohio Housing Finance Agency,
735 GNMA-Backed 1990 Ser C (AMT)............................... 7.85 09/01/21 761,291
2,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)......... 6.10 09/01/28 1,991,800
- -------- ----------
5,235 5,338,966
- -------- ----------
Nursing & Health Related Facilities Revenue (11.5%)
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999.......... 6.75 04/01/34 1,992,040
1,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 1,253,770
1,500 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,618,755
2,630 Massachusetts Industrial Finance Agency, Kennedy-Donovan
Center Inc 1990 Issue...................................... 7.50 06/01/10 2,717,921
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999........................ 6.20 06/01/29 946,870
780 Allegheny County Hospital Development Authority,
Pennsylvania, Allegheny Valley School Ser 1990............. 8.00 02/01/02 799,040
1,895 Hurricane, Utah, Mission Health Service Ser 1990............ 10.50 07/01/20 2,003,091
- -------- ----------
10,805 11,331,487
- -------- ----------
Public Facilities Revenue (5.6%)
1,300 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.60 02/01/18 1,218,113
3,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 3,162,990
1,116 Newton County, Texas, Detention Phase II COPs............... 9.875 12/15/11 1,142,414
- -------- ----------
5,416 5,523,517
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retirement & Life Care Facilities Revenue (8.9%)
$ 1,000 Lee County Industrial Development Authority, Florida, Shell
Point Village Ser 1999 A................................... 5.50% 11/15/29 $ 863,780
1,425 Massachusetts Development Finance Agency, Loomis Communities
Ser 1999 A................................................. 5.625 07/01/15 1,304,360
New Jersey Economic Development Authority,
1,000 Franciscan Oaks Ser 1997................................... 5.70 10/01/17 918,810
1,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 906,100
1,000 Glen Cove Housing Authority, New York, The Mayfair at Glen
Cove Ser 1996 (AMT)........................................ 8.25 10/01/26 1,089,710
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.30 12/15/14 1,052,060
2,966 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 2,715,926
- -------- ----------
9,391 8,850,746
- -------- ----------
Tax Allocation Revenue (4.4%)
1,290 Bradley, Illinois, Bradley North Redevelopment Ser 1990..... 9.125 01/01/05 1,378,752
990 Bridgeview, Illinois, Tax Increment Refg Ser 1995........... 9.00 01/01/11 1,103,296
1,845 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (a).................................................... 9.75 06/01/18 1,914,575
- -------- ----------
4,125 4,396,623
- -------- ----------
Transportation Facilities Revenue (4.0%)
2,000 Foothill/Eastern Transportation Corridor Agency, California,
Ser 1999................................................... 0.00 01/15/27 1,063,020
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/16 1,887,950
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 1,027,770
- -------- ----------
8,000 3,978,740
- -------- ----------
Water & Sewer Revenue (1.1%)
1,000 Northern Palm Beach County Improvement District, Florida,
- -------- Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 1,066,850
----------
Other Revenue (7.5%)
1,000 West Jefferson Amusement & Public Park Authority, Alabama,
VisionLand Ser 1999........................................ 6.375 02/01/29 830,520
1,000 Capistrano Unified School District, California, Community
Facilities District #98-2 Ladera Ser 1999 Special Tax...... 5.75 09/01/29 940,330
Del Mar Race Track Authority, California,
2,000 Refg Ser 1996.............................................. 6.00 08/15/06 2,074,980
2,000 Refg Ser 1996.............................................. 6.00 08/15/08 2,063,660
1,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................... 6.25 01/01/30 949,650
500 Mashantucket (Western) Pequot Tribe, Connecticut, 1996 Ser A
(a)........................................................ 6.40 09/01/11 521,695
- -------- ----------
7,500 7,380,835
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$107,150 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $93,924,697).................. $94,923,836
- -------- -----------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.5%)
Missouri Health & Educational Facilities Authority,
600 Cox Health Ser 1997 (Demand 10/01/99)...................... 3.80*% 06/01/15 600,000
1,500 Washington University 1996 Ser C (Demand 10/01/99)......... 3.80* 09/01/30 1,500,000
400 North Central Texas Health Facilities Development
Corporation, Presbyterian Medical Center Ser 1985 C (MBIA)
(Demand 10/01/99).......................................... 3.80* 12/01/15 400,000
- -------- -----------
2,500 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $2,500,000)................................................... 2,500,000
-----------
$109,650 TOTAL INVESTMENTS (Identified Cost $96,424,697) (b).................... 98.4% 97,423,836
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 1.6 1,624,978
----- -----------
NET ASSETS............................................................. 100.0% $99,048,814
===== ===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
++ Joint exemption in locations 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 $2,911,852 and the aggregate gross
unrealized depreciation is $1,912,713, resulting in net
unrealized appreciation of $999,139.
Bond Insurance:
- ------------------------------------------------------------------------
AMBAC AMBAC Assurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $96,424,697).............................. $97,423,836
Cash........................................................ 2,033,803
Interest receivable......................................... 1,824,236
Prepaid expenses and other assets........................... 7,727
-----------
TOTAL ASSETS............................................ 101,289,602
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 1,997,240
Investment advisory fee................................. 46,566
Shares of beneficial interest repurchased............... 37,935
Administration fee...................................... 27,940
Accrued expenses and other payables......................... 131,107
-----------
TOTAL LIABILITIES....................................... 2,240,788
-----------
NET ASSETS.............................................. $99,048,814
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $96,640,158
Net unrealized appreciation................................. 999,139
Accumulated undistributed net investment income............. 947,245
Accumulated undistributed net realized gain................. 462,272
-----------
NET ASSETS.............................................. $99,048,814
===========
NET ASSET VALUE PER SHARE,
10,317,006 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.60
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 3,490,546
-----------
EXPENSES
Investment advisory fee..................................... 257,700
Administration fee.......................................... 154,620
Professional fees........................................... 26,505
Transfer agent fees and expenses............................ 18,215
Shareholder reports and notices............................. 15,720
Registration fees........................................... 12,334
Trustees' fees and expenses................................. 8,680
Custodian fees.............................................. 3,851
Other....................................................... 8,898
-----------
TOTAL EXPENSES.......................................... 506,523
Less: expense offset........................................ (3,844)
-----------
NET EXPENSES............................................ 502,679
-----------
NET INVESTMENT INCOME................................... 2,987,867
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 361,507
Net change in unrealized appreciation....................... (4,756,654)
-----------
NET LOSS................................................ (4,395,147)
-----------
NET DECREASE................................................ $(1,407,280)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER 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, 1999 MARCH 31, 1999
- -----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 2,987,867 $ 6,172,061
Net realized gain................................... 361,507 1,921,914
Net change in unrealized appreciation............... (4,756,654) (2,267,379)
------------ ------------
NET INCREASE (DECREASE)......................... (1,407,280) 5,826,596
Dividends from net investment income................ (2,824,418) (6,180,388)
Net decrease from transactions in shares of
beneficial interest................................ (1,787,893) (486,995)
------------ ------------
NET DECREASE.................................... (6,019,591) (840,787)
NET ASSETS:
Beginning of period................................. 105,068,405 105,909,192
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $947,245 and $783,796, respectively)......... $ 99,048,814 $105,068,405
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1999 (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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), the Fund pays the Investment Advisor
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 Advisor pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Advisor.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Morgan Stanley Dean Witter Services
Company Inc. (the "Administrator"), an affiliate of the Investment Advisor, 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.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1999 (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, 1999 aggregated
$10,055,852 and $10,198,005, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At September 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $7,500.
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 six months ended September 30, 1999,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,722. At September 30, 1999, the Fund had an accrued pension liability of
$50,105 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, 1998..................................... 10,573,906 $105,739 $98,809,307
Treasury shares purchased and retired (weighted average
discount 5.10%)*........................................... (51,300) (513) (486,482)
---------- -------- -----------
Balance, March 31, 1999..................................... 10,522,606 105,226 98,322,825
Treasury shares purchased and retired (weighted average
discount 10.80%)*.......................................... (205,600) (2,056) (1,785,837)
---------- -------- -----------
Balance, September 30, 1999................................. 10,317,006 $103,170 $96,536,988
========== ======== ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 1999 (unaudited) continued
6. DIVIDENDS
On September 28, 1999, the Fund declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
<S> <C> <C>
$0.045 October 8, 1999 October 22, 1999
$0.045 November 5, 1999 November 19, 1999
$0.045 December 3, 1999 December 17, 1999
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER 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, 1999* 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................. $ 9.99 $10.02 $ 9.69 $ 9.66 $ 9.57 $ 9.32
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income............................... 0.29 0.58 0.61 0.65 0.68 0.67
Net realized and unrealized gain (loss)............. (0.43) (0.02) 0.40 0.07 (0.01) 0.19
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations....... (0.14) 0.56 1.01 0.72 0.67 0.86
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................... (0.27) (0.59) (0.68) (0.69) (0.61) (0.59)
Net realized gain................................... -- -- -- -- -- (0.07)
------ ------ ------ ------ ------ ------
Total dividends and distributions.................... (0.27) (0.59) (0.68) (0.69) (0.61) (0.66)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares.... 0.02 -- -- -- 0.03 0.05
------ ------ ------ ------ ------ ------
Net asset value, end of period....................... $ 9.60 $ 9.99 $10.02 $ 9.69 $ 9.66 $ 9.57
====== ====== ====== ====== ====== ======
Market value, end of period.......................... $8.313 $9.313 $9.875 $10.00 $9.125 $ 8.25
====== ====== ====== ====== ====== ======
TOTAL RETURN+........................................ (7.98)%(2) 0.11% 5.41% 17.64% 18.54% 5.05%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 0.98 %(3) 1.02%(1) 1.01%(1) 1.03%(1) 1.06% 1.05%
Net investment income................................ 5.80 %(3) 5.83% 6.14% 6.66% 6.91% 7.24%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.............. $99,049 $105,068 $105,909 $102,505 $102,488 $104,937
Portfolio turnover rate.............................. 10 %(2) 20% 11% 20% 8% 6%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total 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
return does not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Julie C. Morrone
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors 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.
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST III
Semiannual Report
September 30, 1999
