<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter Municipal Income Opportunities Trust III (OIC) for the fiscal year
ended March 31, 1999.
Continued economic turmoil in Asia and Latin America, a currency crisis in
Russia and the orchestrated bailout of a major U.S. hedge fund all contributed
to the volatility in the global financial markets during the second half of
1998. These events precipitated a "flight to quality" demand for U.S. Treasury
securities. U.S. Treasury bond yields reached a 30-year low in October 1998.
During the fourth quarter, the Federal Reserve Board sought to restore stability
to the financial markets by cutting the federal-funds rate 75 basis points in
three moves from 5.50 percent to 4.75 percent.
U.S. economic growth and employment remained strong in the first quarter of
1999. As the world markets stabilized, bond yields began to rise. At that time,
the market became concerned that the pace of economic growth or a rise in
inflation could cause the Federal Reserve to become more restrictive.
MUNICIPAL MARKET CONDITIONS
Municipal yields did not decline as much as U.S. Treasury yields during 1998. At
the end of December long-term insured municipal index yields were 5.05 percent.
This level was only 10 basis points lower than at the beginning of the year. In
contrast, U.S. Treasury bond yields fell 80 basis points, from 5.90 percent to
5.10 percent. U.S. Treasury yields reversed direction in the first quarter of
1999 and rose 50 basis points to 5.60 percent. Municipals were again less
volatile than Treasuries. Insured index yields rose only 10 basis points to 5.15
percent.
The municipal market's modest rally during 1998 created a favorable relative
value relationship versus Treasuries. Municipals underperformed Treasuries, with
the ratio of municipal yields to Treasury yields climbing to 99 percent by
year-end. The higher the ratio, the more attractive municipals are relative to
Treasuries. The ratio declined to 92 percent in the first quarter of 1999, when
municipals outperformed Treasuries. The high to low range of the
municipal/Treasury yield ratio for the past five years has averaged 93 percent
to 84 percent annually.
<PAGE> 2
2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
In addition to lagging the Treasury "flight to quality" rally in 1998,
municipals also experienced a glut of new-issue supply. Underwriting volume of
$284 billion was up 28 percent from the prior year and approached the record
level in 1993. Issuers refinanced bonds at lower interest rates and refundings
were 29 percent of total volume. New-money issues set a record and included the
largest single municipal underwriting - $3.3 billion for the Long Island Power
Authority. In the first three months of 1999, underwriting was 20 percent lower
than the first quarter of 1998.
PERFORMANCE
The Fund's net asset value (NAV) was little changed during the fiscal year.
Based on this NAV change plus reinvestment of tax-free dividends totaling $0.585
per share, the Fund's total NAV return was 5.73 percent. OIC's price on the New
York Stock Exchange declined from $9.875 to $9.313 per share during the same
period. Based on this change plus reinvestment of tax-free dividends, the Fund's
total market return was 0.11 percent. As of March 31, 1999, OIC's share price
was at a 6.78 percent discount to its NAV.
Monthly dividends for the second quarter of 1999 were unchanged at $0.045 per
share. The Fund's level of undistributed net investment income remained
unchanged at $0.073.
30-YEAR BOND YIELDS 1994-1999
<TABLE>
<CAPTION>
30-YEAR INSURED 30-YEAR U.S.
--------------- ------------
<S> <C> <C> <C> <C>
Municipal Yields Treasury Yields
'1994' 5.40 6.34
5.40 6.24
5.80 6.66
6.40 7.09
6.35 7.32
6.25 7.43
6.50 7.61
6.25 7.39
6.30 7.45
6.55 7.81
6.75 7.96
7.00 8.00
6.75 7.88
'1995' 6.40 7.70
6.15 7.44
6.15 7.43
6.20 7.34
5.80 6.66
6.10 6.62
6.10 6.86
6.00 6.66
5.95 6.48
5.75 6.33
5.50 6.14
5.35 5.94
'1996' 5.40 6.03
5.60 6.46
5.85 6.66
5.95 6.89
6.05 6.99
5.90 6.89
5.85 6.97
5.90 7.11
5.70 6.93
5.65 6.64
5.50 6.35
5.60 6.63
'1997' 5.70 6.79
5.65 6.80
5.90 7.10
5.75 6.94
5.65 6.91
5.60 6.78
5.30 6.30
5.50 6.61
5.40 6.40
5.35 6.15
5.30 6.05
5.15 5.92
'1998' 5.15 5.80
5.20 5.92
5.25 5.93
5.35 5.95
5.20 5.80
5.20 5.65
5.18 5.71
5.03 5.27
4.95 5.00
5.05 5.16
5.00 5.06
5.05 5.10
'1999' 5.00 5.09
5.10 5.58
5.15 5.63
<CAPTION>
INSURED
CIPAL YIELDS
AS A
------------
<S> <C>
Percentage of U.S. Treasury Yields
'1994' 85.17
86.54
87.09
90.27
86.75
84.12
85.41
84.57
84.56
83.87
84.80
87.50
85.66
'1995' 83.12
82.66
82.77
84.47
87.09
92.15
88.92
90.09
91.82
90.84
89.58
90.07
'1996' 89.55
86.69
87.84
86.36
86.55
85.63
83.93
82.98
82.25
85.09
86.61
84.46
'1997' 83.95
83.09
83.10
82.85
81.77
82.60
84.13
83.21
84.38
86.99
87.60
86.99
'1998' 88.79
87.84
88.53
89.92
89.66
92.04
90.72
95.45
99.00
97.87
98.81
99.02
'1999' 98.23
91.40
91.47
</TABLE>
Source: Municipal Market Data - A division of Thomson Financial
Municipal Group
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
3
[LARGEST SECTORS CHART]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ -------------------------------------------
<S> <C>
IDR/PCR* 23
Mortgage 14
Retirement & Life Care 10
Nursing & Health 9
Hospital 8
Public Facilities 6
Education 4
Tax Allocation 4
Transportation 3
All Others 19
</TABLE>
[LONG SECTORS PIE CHART]
<TABLE>
<S> <C> <C> <C> <C>
Aaa or AAA Aa or AA A or A Baa or BBB
17 1 6 13
<CAPTION>
<S> <C>
N/R
63
</TABLE>
[CALL STRUCTURE BAR CHART]
<TABLE>
<CAPTION>
PORTFOLIO
STRUCTURE
SUBJECT TO
CHANGE.
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'1999' '2000' '2001' '2002' '2003' '2004' '2005' '2006' '2007' '2008'
2 24 4 3 5 7 7 13 6 11
CALL STRUCTURE as of
March 31, 1999
(% of Total Long-Term
Portfolio)
Percent Callable
WEIGHTED AVERAGE
CALL PROTECTION: 6
YEARS
Years Bonds Callable
<CAPTION>
PORTFOLIO
STRUCTURE
SUBJECT TO
CHANGE.
- ----------
<S> <C> <C>
'2009' '2010+'
6 12
CALL STRUCTURE as of
March 31, 1999
(% of Total Long-Term
Portfolio)
Percent Callable
WEIGHTED AVERAGE
CALL PROTECTION: 6
YEARS
Years Bonds Callable
</TABLE>
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
4
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 15 long-term sectors and 55
credits. Non-rated securities comprise more than half of OIC's long-term
portfolio. All issues are currently accruing interest. At the end of March, the
portfolio's average maturity was 19 years. Average duration, a measure of
sensitivity to interest rate changes, was 5.9 years. The accompanying charts
provide current information on the Fund's call structure, largest sectors and
distribution of credit quality.
LOOKING AHEAD
The combination of a "flight to quality" and the flood of new municipal issues
made the municipal-to-Treasury yield relationship more favorable last year than
it has been in the previous 10 years.
Although municipals have outperformed Treasuries in early 1999, we believe that
municipals still offer investors considerable value versus their historical
relationship with 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, 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 fiscal year ended March 31, 1999 the Fund purchased
and retired 51,300 shares of common stock at a weighted average market discount
of 5.10 percent.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co., and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley
Dean Witter Trust FSB.
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.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
<PAGE> 5
5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 20, 1998, an annual 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 TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For......................................................... 7,956,239
Withheld.................................................... 258,712
Charles A. Fiumefreddo
For......................................................... 7,951,975
Withheld.................................................... 262,976
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael
E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 7,813,196
Against..................................................... 197,183
Abstain..................................................... 204,572
</TABLE>
<PAGE> 6
6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (94.6%)
General Obligation (1.0%)
$ 1,000 New York City, New York, 1994 Ser D......................... 5.75% 08/15/10 $ 1,053,650
- -------- -----------
Educational Facilities Revenue (4.1%)
1,000 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 05/01/11 1,085,320
2,250 Massachusetts Development Finance Agency, Eastern Nazarene
College Ser 1999........................................... 5.625 04/01/29 2,228,422
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 1,039,780
- -------- -----------
4,250 4,353,522
- -------- -----------
Electric Revenue (1.9%)
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
- -------- FSA)**..................................................... 5.00 07/01/21 1,952,620
-----------
Hospital Revenue (7.7%)
1,500 Hawaii Department Budget & Finance, Wilcox Memorial Hospital
Ser 1998................................................... 5.50 07/01/28 1,434,810
2,000 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990.... 9.75 12/01/10 2,172,840
1,250 Illinois Health Facilities Authority, Edward Hospital Refg
Ser 1993................................................... 6.00 02/15/19 1,307,813
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 1,088,010
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 1,079,110
1,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 1,039,920
- -------- -----------
7,750 8,122,503
- -------- -----------
Industrial Development/Pollution Control Revenue (23.1%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990
(AMT)...................................................... 8.00 11/01/20 1,596,240
1,605 Metropolitan Washington Airports Authority, District of
Columbia, Virginia CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,656,312
1,000 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,053,080
3,000 Perry County, Kentucky, T J International Ser 1994 (AMT).... 7.00 06/01/24 3,255,900
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 1,541,700
3,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Reclaimation Improvement District Ser 1998 A...... 6.375 04/01/31 3,083,550
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 2,725,575
1,750 Cleveland - Cuyahoga County Port Authority, Ohio, C & P
Docks
Ser 1997-1 (AMT)........................................... 6.00 03/01/07 1,788,570
1,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995-B... 7.75 05/01/20 1,143,370
1,000 Brazos River Authority, Texas, Texas Utilities Electric Co
Ser 1995 C (AMT)........................................... 5.55 06/01/30 988,080
2,000 Sabine River Authority, Texas, Texas Utilities Electric Co
Ser 1990 B (AMT)........................................... 8.25 10/01/20 2,139,540
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
7
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Ser 1994 A (AMT)..................... 7.45% 01/01/09 $ 3,272,520
- -------- -----------
22,855 24,244,437
- -------- -----------
Mortgage Revenue - Multi-Family (8.3%)
2,292 Saint Tammany Public Trust Financing Authority, Louisiana,
Refg Ser 1990.............................................. 10.00 10/01/20 2,478,197
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 1,798,878
10,461 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,261,144
3,000 Washington Housing Finance Commission, FNMA Collateralized
Refg Ser 1990 A............................................ 7.50 07/01/23 3,132,060
- -------- -----------
17,513 8,670,279
- -------- -----------
Mortgage Revenue - Single Family (6.1%)
2,500 Chicago, Illinois, GNMA-Collateralized Ser 1998 B (AMT)..... 6.45 09/01/29 2,750,175
665 New Hampshire Housing Finance Authority, 1997 Ser D (AMT)... 5.90 07/01/28 692,338
Ohio Housing Finance Agency,
855 GNMA-Backed 1990 Ser C (AMT)............................... 7.85 09/01/21 899,417
2,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)......... 6.10 09/01/28 2,120,480
- -------- -----------
6,020 6,462,410
- -------- -----------
Nursing & Health Related Facilities Revenue (9.2%)
2,220 Champaign, Illinois, Hoosier Care Inc./Champaign Children's
Home
Ser 1989 A................................................. 9.75 08/01/19 2,305,892
1,385 Winchester, Indiana, Hoosier Care II Inc Ser 1990........... 10.375 06/01/20 1,463,654
1,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives
Ser 1996................................................... 9.25 07/01/25 1,319,560
1,500 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,662,495
780 Allegheny County Hospital Development Authority,
Pennsylvania, Allegheny Valley School Ser 1990............. 8.00 02/01/02 808,314
1,910 Hurricane, Utah, Mission Health Service Ser 1990............ 10.50 07/01/20 2,065,971
- -------- -----------
8,795 9,625,886
- -------- -----------
Public Facilities Revenue (6.4%)
1,000 West Jefferson Amusement & Public Park Authority, Alabama,
VisionLand
Ser 1999................................................... 6.375 02/01/29 1,003,770
1,300 San Diego County, California, San Diego Natural History
Museum COPs (AMT).......................................... 5.60 02/01/18 1,294,202
3,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center
Refg Ser 1992 (AMT)........................................ 7.75 12/01/13 3,230,460
1,135 Newton County, Texas, Detention Phase II COPs............... 9.875 12/15/11 1,193,220
- -------- -----------
6,435 6,721,652
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
8
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retirement & Life Care Facilities Revenue (9.7%)
Massachusetts Industrial Finance Agency,
$ 60 Pioneer Valley Living Care Center at Amherst 1990 Issue.... 7.00% 10/01/01 $ 57,938
2,745 Kennedy-Donovan Center Inc 1990 Issue...................... 7.50 06/01/10 2,967,702
New Jersey Economic Development Authority,
1,000 Franciscan Oaks Ser 1997................................... 5.70 10/01/17 1,010,590
1,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 1,008,110
1,000 Glen Cove Housing Authority, New York, The Mayfair at Glen
Cove Ser 1996 (AMT)........................................ 8.25 10/01/26 1,128,190
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.30 12/15/14 1,080,800
2,966 Chesterfield County Industrial Development Authority,
Virgina, Brandermill Woods Ser 1998........................ 6.50 01/01/28 2,927,225
- -------- -----------
9,771 10,180,555
- -------- -----------
Tax Allocation Revenue (4.3%)
1,290 Bradley Illinois, Bradley North Redev Ser 1990.............. 9.125 01/01/05 1,414,653
990 Bridgeview, Illinios, Tax Increment Refg Ser 1995........... 9.00 01/01/11 1,136,302
1,877 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (a).................................................... 9.75 06/01/18 1,983,406
- -------- -----------
4,157 4,534,361
- -------- -----------
Transportation Facilities Revenue (3.0%)
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/16 2,072,850
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 1,096,980
- -------- -----------
6,000 3,169,830
- -------- -----------
Water & Sewer Revenue (0.5%)
2,660 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
- -------- (FGIC)..................................................... 0.00 09/01/30 513,593
-----------
Other Revenue (6.6%)
1,000 Capistrano Unified School District, California, Community
Facilities
District #98-2 Ladera Ser 1999 Special Tax (WI)............ 5.75 09/01/29 998,520
Del Mar Race Track Authority, California,
2,000 Refg Ser 1996.............................................. 6.00 08/15/06 2,120,660
2,000 Refg Ser 1996.............................................. 6.00 08/15/08 2,138,800
500 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1996 Ser A (a)............................................. 6.40 09/01/11 548,860
1,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr # 9A Ser 1996 A....................... 7.30 08/01/27 1,092,810
- -------- -----------
6,500 6,899,650
- -------- -----------
Refunded (2.7%)
590 Illinois Health Facilities Authority, Hinsdale Hospital Ser
1990 C (ETM)............................................... 9.50 11/15/19 658,971
2,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)................. 5.50 02/15/06+ 2,198,920
- -------- -----------
2,590 2,857,891
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
9
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$108,296 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $93,607,046).................. $99,362,839
- -------- -----------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.8%)
2,000 Idaho Health Facilities Authority, St Luke's Regional
Medical Center Ser 1995 (Demand 04/01/99).................. 3.10*% 05/01/22 2,000,000
1,000 Harris County Health Facilities Development Corporation,
- -------- Texas, Methodist Hospital Ser 1994 (Demand 04/01/99)....... 3.10* 12/01/25 1,000,000
-----------
3,000 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $3,000,000)................................................... 3,000,000
-----------
$111,296 TOTAL INVESTMENTS (Identified Cost $96,607,046) (b).................... 97.4% 102,362,839
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 2.6 2,705,566
----- -----------
NET ASSETS.............................................................. 100.0% $105,068,405
----- ===========
-----
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
++ Joint exemption in locations shown.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase
of "when-issued" securities.
(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 $5,864,406 and the aggregate gross
unrealized depreciation is $108,613, resulting in net
unrealized appreciation of $5,755,793.
Bond Insurance:
- -------------------------------------------------------------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Securities Association.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 1999, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
March 31, 1999
<TABLE>
<S> <C>
Alabama.................. 1.0%
Arkansas................. 1.5
California............... 7.3
Colorado................. 2.0
Connecticut.............. 0.5
District of Columbia..... 1.6
Florida.................. 2.1
Hawaii................... 1.4
Idaho.................... 1.9
Illinois................. 11.2
Indiana.................. 1.4%
Iowa..................... 2.2
Kentucky................. 3.1
Louisiana................ 3.9
Massachusetts............ 8.5
Michigan................. 1.9
Missouri................. 3.1
New Hampshire............ 0.6
New Jersey............... 8.4
New York................. 5.7
Ohio..................... 7.7%
Pennsylvania............. 2.4
Texas.................... 5.0
Utah..................... 3.8
Virginia................. 10.4
Washington............... 3.0
Joint Exemptions*........ (4.2)
----
Total.................... 97.4%
====
</TABLE>
- ---------------------
* Joint exemptions have been included in each location.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS:
Investments in securities, at value
(identified cost $96,607,046).............................. $102,362,839
Cash........................................................ 118,912
Receivable for:
Investments sold........................................ 1,973,317
Interest................................................ 1,849,692
-----------
TOTAL ASSETS............................................ 106,304,760
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 1,000,000
Investment advisory fee................................. 47,594
Administration fee...................................... 28,556
Accrued expenses and other payables......................... 160,205
-----------
TOTAL LIABILITIES....................................... 1,236,355
-----------
NET ASSETS.............................................. $105,068,405
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $98,428,051
Net unrealized appreciation................................. 5,755,793
Accumulated undistributed net investment income............. 783,796
Accumulated undistributed net realized gain................. 100,765
-----------
NET ASSETS.............................................. $105,068,405
===========
NET ASSET VALUE PER SHARE,
10,522,606 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.99
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended March 31, 1999
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $7,246,215
---------
EXPENSES
Investment advisory fee..................................... 529,231
Administration fee.......................................... 317,539
Professional fees........................................... 79,596
Shareholder reports and notices............................. 42,354
Transfer agent fees and expenses............................ 39,022
Registration fees........................................... 24,601
Trustees' fees and expenses................................. 21,074
Custodian fees.............................................. 5,972
Other....................................................... 20,720
---------
TOTAL EXPENSES.......................................... 1,080,109
Less: expense offset........................................ (5,955)
---------
NET EXPENSES............................................ 1,074,154
---------
NET INVESTMENT INCOME................................... 6,172,061
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 1,921,914
Net change in unrealized appreciation....................... (2,267,379)
---------
NET LOSS................................................ (345,465)
---------
NET INCREASE................................................ $5,826,596
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
13
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 6,172,061 $ 6,410,173
Net realized gain...................................... 1,921,914 1,308,636
Net change in unrealized appreciation.................. (2,267,379) 2,822,696
----------- -----------
NET INCREASE....................................... 5,826,596 10,541,505
Dividends from net investment income................... (6,180,388) (7,137,217)
Net decrease from transactions in shares of beneficial
interest.............................................. (486,995) --
----------- -----------
NET INCREASE (DECREASE)............................ (840,787) 3,404,288
NET ASSETS:
Beginning of period.................................... 105,909,192 102,504,904
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$783,796 and $774,572, respectively)............... $105,068,405 $105,909,192
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Municipal Income Opportunities Trust III (the
"Fund"), formerly Municipal Income Opportunities Trust III, 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.
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1999, continued
15
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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), formerly Dean Witter InterCapital
Inc., 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.
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1999, continued
16
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, 1999 aggregated $20,433,359
and $25,069,904, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At March 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $2,000.
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 year ended March 31, 1999, included
in Trustees' fees and expenses in the Statement of Operations amounted to
$6,114. At March 31, 1999, the Fund had an accrued pension liability of $50,001
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, 1997..................................... 10,573,906 $105,739 $98,806,170
Reclassification due to permanent book/tax differences...... -- -- 3,137
---------- -------- -----------
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
========== ======== ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 1999, continued
17
6. DIVIDENDS
On March 30, 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... April 9, 1999 April 23, 1999
$0.045... May 7, 1999 May 21, 1999
$0.045... June 4, 1999 June 18, 1999
</TABLE>
7. FEDERAL INCOME TAX STATUS
During the year ended March 31, 1999, the Fund utilized its net capital loss
carryover of approximately $1,804,000.
<PAGE> 18
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 YEAR ENDED MARCH 31,*
----------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $10.02 $ 9.69 $ 9.66 $ 9.57 $9.32
------ ------ ------ ------ -----
Income (loss) from investment operations:
Net investment income..................................... 0.58 0.61 0.65 0.68 0.67
Net realized and unrealized gain (loss)................... (0.02) 0.40 0.07 (0.01) 0.19
------ ------ ------ ------ -----
Total income from investment operations..................... 0.56 1.01 0.72 0.67 0.86
------ ------ ------ ------ -----
Less dividends and distributions from:
Net investment income..................................... (0.59) (0.68) (0.69) (0.61) (0.59)
Net realized gain......................................... -- -- -- -- (0.07)
------ ------ ------ ------ -----
Total dividends and distributions........................... (0.59) (0.68) (0.69) (0.61) (0.66)
------ ------ ------ ------ -----
Anti-dilutive effect of acquiring treasury shares........... -- -- -- 0.03 0.05
------ ------ ------ ------ -----
Net asset value, end of period.............................. $ 9.99 $10.02 $ 9.69 $ 9.66 $9.57
====== ====== ====== ====== =====
Market value, end of period................................. $9.313 $9.875 $10.00 $9.125 $8.25
====== ====== ====== ====== =====
TOTAL RETURN+............................................... 0.11% 5.41% 17.64% 18.54% 5.05%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.02%(1) 1.01%(1) 1.03%(1) 1.06% 1.05%
Net investment income....................................... 5.83% 6.14% 6.66% 6.91% 7.24%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $105,068 $105,909 $102,505 $102,488 $104,937
Portfolio turnover rate..................................... 20% 11% 20% 8% 6%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 19
19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER 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 Morgan Stanley Dean Witter
Municipal Income Opportunities Trust III (the "Fund"), formerly Municipal Income
Opportunities Trust III, at March 31, 1999, 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, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 7, 1999
--------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 1999, all of the Fund's
dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
<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
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
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST III
Annual Report
March 31, 1999
