<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME Two World Trade Center
OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion during the six-month
period ended September 30, 2000, as real personal consumption accelerated and
unemployment reached a 30-year low. In addition, surging oil prices heightened
the risk of inflation. The Federal Reserve Board responded early this year by
further tightening monetary policy. Three increases in the federal funds rate,
totaling 100 basis points, have occurred between February and May. Since June
the Fed has left the rate unchanged at a nine-year high of 6.50 percent.
Strong economic growth and a more restrictive monetary policy caused long-term
interest rates to increase throughout 1999. In January, however, the U.S.
Treasury announced plans to use the federal budget surplus to reduce debt. This
announcement initially precipitated a 50 to 75 basis point drop in yields of
longer-maturity Treasuries. Municipal bond yields also declined, but lagged the
downward trend of Treasury yields.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began the year at 5.97 percent. This index
reached a high of 6.19 percent in mid January before ending September at 5.74
percent. Because bond prices move inversely to changes in interest rates, bond
prices, which had declined significantly last year, improved in the first nine
months of 2000.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. A rising yield ratio
indicates weaker relative performance by municipals. The increase in the ratio
from 92 percent at the end of 1999 to 97 percent at the end of September, can be
attributed primarily to the magnitude of the rally in long-term Treasuries. Over
the past three years the high and low ratios have been 100 percent and 83
percent, respectively.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
During the first nine months of 2000, municipal underwriting was 19 percent
lower than in the same period last year. Refunding activity, the most
interest-rate-sensitive component of supply, dropped nearly 60 percent.
Approximately 40 percent of the underwritings were enhanced with bond insurance.
30-YEAR BOND YIELDS 1994-2000
<TABLE>
<CAPTION>
Insured 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
5.85 6.05 96.69
6.03 6.16 97.89
6.00 6.29 95.39
5.97 6.48 92.13
2000 6.18 6.49 95.22
6.04 6.14 98.37
5.82 5.83 99.83
5.91 5.96 99.16
5.91 6.01 98.34
5.84 5.90 98.98
5.73 5.78 99.13
5.62 5.67 99.12
5.74 5.89 97.45
5.65 5.79 97.58
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
For the six-month period ended September 30, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Municipal Income Opportunities Trust III (OIC)
increased from $9.34 to $9.41 per share. Based on this change plus a
reinvestment of tax-free dividends totaling $0.27 per share, the Fund's total
NAV return was 4.27 percent. OIC's value on the New York Stock Exchange (NYSE)
increased from $7.6875 to $8.375 per share during the same period. Based on this
change plus reinvestment of tax-free dividends, OIC's total market return was
12.63 percent. OIC's share price was trading at an 11.00 percent discount to its
NAV on September 30, 2000.
Monthly dividends for the fourth quarter of 2000 were declared in September.
Beginning with the October payment, the monthly dividend was increased from
$0.045 to $0.0475 per share. The Fund's level of undistributed net investment
income had increased from $0.106 to $0.124 per share over the past six months.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 13 long-term sectors and 57
credits. At the end of September, the portfolio's average maturity was 19 years.
Average duration, a measure of portfolio sensitivity to interest rates, was 6.3
years. Generally, bonds with longer durations have greater volatility. Nonrated
securities comprise more than 60 percent of OIC's assets. The bonds of one
issuer, representing 19 percent of net assets, were not accruing interest. Two
other issuers totaling 27 percent of net assets, were accruing income but may
have difficulty with future debt service payments. The accompanying charts and
tables provide current information on the portfolio's credit quality, maturity
distribution and sector diversification. Optional call provisions and their
respective cost (book) yields by year are also shown.
LOOKING AHEAD
While the Federal Reserve Board has continued to express concern about
inflation, the slower pace of economic growth has reduced the pressure on the
Fed to further tighten monetary policy. We believe municipal bonds offer
tax-conscious investors good long-term value.
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 fiscal period ended September 30,
2000, the Fund purchased and retired 195,333 shares of common stock at a
weighted average market discount of 13.39 percent.
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>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
[LARGEST SECTORS BAR CHART]
LARGEST SECTORS AS OF SEPTEMBER 30, 2000
(% OF NET ASSETS)
<TABLE>
<S> <C>
IDR/PCR 22%
MORTGAGE 16%
RETIREMENT 12%
RECREATION 12%
NURSING & HEALTH 11%
HOSPITAL 10%
EDUCATION 6%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF SEPTEMBER 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
NR 61%
Baa or BBB 15%
Aaa or AAA 12%
A or A 5%
Ba or BB 5%
Aa or AA 2%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[DISTRIBUTION BY MATURITY BAR CHART]
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO NET ASSETS)
WEIGHTED AVERAGE
MATURITY: 19 YEARS
<TABLE>
<S> <C>
UNDER 1 YEAR 4.4%
1-5 YEARS 1.3%
5-10 YEARS 13.2%
10-20 YEARS 30.9%
20-30 YEARS 44.2%
30+ YEARS 6.0%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
<TABLE>
<CAPTION>
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
SEPTEMBER 30, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 6.0 YEARS
YEARS BONDS CALLABLE BONDS CALLABLE
<S> <C>
2000 13%
2001 15%
2002 4%
2003 5%
2004 4%
2005 8%
2006 8%
2007 6%
2008 8%
2009 10%
2010+ 19%
</TABLE>
<TABLE>
<CAPTION>
COST (BOOK) YIELD*
WEIGHTED AVERAGE
BOOK YIELD: 7.35%
<S> <C>
2000 9.2%
2001 9.5%
2002 5.8%
2003 7.3%
2004 6.7%
2005 6.8%
2006 6.8%
2007 6.1%
2008 6.0%
2009 6.1%
2010+ 7.0%
</TABLE>
* 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 IS EARNING A BOOK YIELD OF 9.2% ON 13% OF THE BONDS IN THE
LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2000.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.1%)
Educational Facilities Revenue (5.7%)
$ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50% 05/01/11 $1,071,320
1,200 San Diego County, California, The Burnham Institute COPs.... 6.25 09/01/29 1,222,752
2,250 Massachusetts Development Finance Agency, Eastern Nazarene
College Ser 1999........................................... 5.625 04/01/29 1,928,993
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 997,910
-------- ----------
5,450 5,220,975
-------- ----------
Hospital Revenue (10.1%)
1,500 Hawaii Department of Budget & Finance, Wilcox Memorial
Hospital Ser 1998.......................................... 5.50 07/01/28 1,184,940
1,890 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990.... 9.75 12/01/10 1,953,806
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 1,014,290
1,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 992,780
1,000 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Association Ser 1998 A....... 6.00 05/01/28 778,630
1,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 902,920
1,245 Horizon Hospital System Authority, Pennsylvania, Ser 1996... 6.35 05/15/16 1,144,367
1,300 Jefferson County Health Facilities Development Corporation,
Texas, Baptist Health Ser 1991............................. 8.875 06/01/21 1,243,073
-------- ----------
9,935 9,214,806
-------- ----------
Industrial Development/Pollution Control Revenue (21.8%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990
(AMT)...................................................... 8.00 11/01/20 1,532,235
1,605 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,606,814
1,000 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 983,490
3,000 Perry County, Kentucky, TJ International Ser 1994 (AMT)..... 7.00 06/01/24 3,068,430
1,375 Maryland Industrial Development Financing Authority, Medical
Waste Assocs LP 1989 Ser (AMT) (a)......................... 8.75 11/15/10 1,021,625
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 1,503,300
1,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Ser 1998 A........................................ 6.375 04/01/31 968,060
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 2,563,700
1,695 Cleveland - Cuyahoga County Port Authority, Ohio, C & P
Docks Ser 1997-1 (AMT)..................................... 6.00 03/01/07 1,643,201
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995-B... 7.75% 05/01/20 $1,070,480
1,000 Dallas - Fort Worth International Airport Facility
Improvement Corporation, Texas, American Airlines Inc Refg
Ser 2000 B (AMT)........................................... 6.05 05/01/29 1,002,660
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Ser 1994 A (AMT)..................... 7.45 01/01/09 3,082,830
-------- ----------
20,175 20,046,825
-------- ----------
Mortgage Revenue - Multi-Family (8.7%)
2,246 Saint Tammany Public Trust Financing Authority, Louisiana,
Refg Ser 1990.............................................. 10.00 10/01/20 2,375,807
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 1,765,298
10,416 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,451,602
2,305 Washington Housing Finance Commission, FNMA Collateralized
Refg Ser 1990 A............................................ 7.50 07/01/23 2,355,111
-------- ----------
16,727 7,947,818
-------- ----------
Mortgage Revenue - Single Family (6.8%)
1,500 Colorado Housing & Finance Authority, 2000 Ser B-2 (AMT).... 7.25 10/01/31 1,695,165
2,460 Chicago, Illinois, GNMA-Collateralized Ser 1998 A-1 (AMT)... 6.45 09/01/29 2,513,972
2,000 Ohio Housing Finance Agency, Residential GNMA-Collateralized
1996 Ser B-2 (AMT)......................................... 6.10 09/01/28 2,019,540
-------- ----------
5,960 6,228,677
-------- ----------
Nursing & Health Related Facilities Revenue (10.6%)
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999.......... 6.75 04/01/34 1,756,800
1,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 1,191,080
1,500 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,578,390
2,470 Massachusetts Industrial Finance Agency, Kennedy-Donovan
Center Inc 1990 Issue...................................... 7.50 06/01/10 2,516,312
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999........................ 6.20 06/01/29 842,420
1,860 Hurricane, Utah, Mission Health Ser 1990.................... 10.50 07/01/20 1,854,625
-------- ----------
9,830 9,739,627
-------- ----------
Public Facilities Revenue (1.2%)
1,078 Newton County, Texas, Detention Phase II COPs............... 9.875 12/15/11 1,086,003
-------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Recreational Facilities Revenue (11.5%)
$ 1,000 West Jefferson Amusement & Public Park Authority, Alabama,
VisionLand Ser 1999........................................ 6.375% 02/01/29 $ 600,030
2,000 Del Mar Race Track Authority, California Refg Ser 1996...... 6.00 08/15/08 2,039,780
1,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................... 6.25 01/01/30 959,770
1,300 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.60 02/01/18 1,245,660
3,250 Metropolitan Football Stadium District, Colorado, Sales Tax
Ser 1999 A (MBIA).......................................... 0.00 01/01/10 2,026,310
500 Mashantucket (Western) Pequot Tribe, Connecticut, 1996 Ser A
(b)........................................................ 6.40 09/01/11 524,305
3,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 3,119,040
-------- ----------
12,050 10,514,895
-------- ----------
Retirement & Life Care Facilities Revenue (11.8%)
2,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A........................................ 8.00 01/01/30 1,942,540
1,425 Massachusetts Development Finance Agency, Loomis Communities
Ser 1999 A................................................. 5.625 07/01/15 1,203,398
New Jersey Economic Development Authority,
1,000 Franciscan Oaks Ser 1997................................... 5.70 10/01/17 842,570
1,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 815,630
1,000 Glen Cove Housing Authority, New York, Mayfair at Glen Cove
Ser 1996 (AMT)............................................. 8.25 10/01/26 1,049,800
1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.30 12/15/14 1,018,990
2,966 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 2,573,933
1,750 Wisconsin Health & Educational Facilities Authority, Oakwood
Ser 1998................................................... 5.90 08/15/28 1,379,770
-------- ----------
12,141 10,826,631
-------- ----------
Tax Allocation - Revenue (3.3%)
1,110 Bradley, Illinois, Bradley North Redevelopment Ser 1990..... 9.125 01/01/05 1,142,967
1,811 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (b).................................................... 9.75 06/01/18 1,854,883
-------- ----------
2,921 2,997,850
-------- ----------
Transportation Facilities Revenue (3.4%)
2,000 Foothill/Eastern Transportation Corridor Agency, California,
Ser 1999................................................... 0.00 01/15/27 1,126,620
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (Ambac)......................................... 5.85 10/01/13 1,041,260
1,000 Nevada Department of Business and Industry, Las Vegas
Monorail 2nd Tier Ser 2000................................. 7.375 01/01/40 955,180
-------- ----------
4,000 3,123,060
-------- ----------
Water & Sewer Revenue (1.2%)
1,000 Northern Palm Beach County Improvement District, Florida,
-------- Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 1,057,580
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Revenue (1.0%)
$ 1,000 Capistrano Unified School District, California, Community
-------- Facilities District #98-2 Ladera Ser 1999 Special Tax...... 5.75% 09/01/29 $ 938,500
-----------
102,267 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Cost $90,435,003)............................. 88,943,247
-------- -----------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.5%)
1,200 Missouri Health & Educational Facilities Authority,
Washington University Ser C (Demand 10/02/00).............. 5.55* 09/01/30 1,200,000
400 Harris County Health Facilities Development Corporation,
Texas, St Luke's Episcopal Hospital Ser 1997 A (Demand
10/02/00).................................................. 5.50* 02/15/27 400,000
695 Washington Housing Finance Commission, FNMA Collateralized
-------- Refg Ser 1990 A............................................ 7.50 01/01/01+ 714,015
-----------
2,295 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Cost $2,314,015)............. 2,314,015
-------- -----------
$104,562 TOTAL INVESTMENTS (Cost $92,749,018)(c)................................ 99.6% 91,257,262
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 0.4 344,241
----- -----------
NET ASSETS............................................................. 100.0% $91,601,503
===== ===========
</TABLE>
---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
* Current coupon of variable rate demand obligation.
(a) Bond in default; non-income producing security.
(b) Resale is restricted to qualified institutional investors.
(c) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $1,853,898 and
the aggregate gross unrealized depreciation is $3,345,654,
resulting in net unrealized depreciation of $1,491,756.
Bond Insurance:
------------------------------------------------------------------------
Ambac Ambac Assurance Corporation.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS September 30, 2000 (unaudited)
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
<TABLE>
<S> <C>
Alabama..................... 0.7%
Arkansas.................... 1.7
California.................. 9.4
Colorado.................... 4.1
Connecticut................. 0.6
District of Columbia........ 1.8
Florida..................... 6.3
Hawaii...................... 1.3
Illinois.................... 6.1
Iowa........................ 2.4
Kentucky.................... 3.4%
Louisiana................... 4.3
Maryland.................... 1.1
Massachusetts............... 10.0
Michigan.................... 2.0
Missouri.................... 4.7
Nevada...................... 1.0
New Hampshire............... 0.9
New Jersey.................. 6.7
New York.................... 5.9
Ohio........................ 5.1%
Pennsylvania................ 2.4
Texas....................... 4.1
Utah........................ 2.0
Virginia.................... 11.3
Washington.................. 3.4
Wisconsin................... 1.5
Joint Exemptions*........... (4.6)
----
Total....................... 99.6%
====
</TABLE>
---------------------
* Joint exemptions have been included in each geographic location.
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, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(cost $92,749,018)......................................... $91,257,262
Cash........................................................ 27,254
Interest receivable......................................... 1,828,730
Prepaid expenses and other assets........................... 7,793
-----------
TOTAL ASSETS............................................ 93,121,039
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 1,281,904
Investment advisory fee................................. 45,505
Shares of beneficial interest repurchased............... 44,031
Administration fee...................................... 27,303
Accrued expenses and other payables......................... 120,793
-----------
TOTAL LIABILITIES....................................... 1,519,536
-----------
NET ASSETS.............................................. $91,601,503
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $91,957,280
Net unrealized depreciation................................. (1,491,756)
Accumulated undistributed net investment income............. 1,205,663
Accumulated net realized loss............................... (69,684)
-----------
NET ASSETS.............................................. $91,601,503
===========
NET ASSET VALUE PER SHARE,
9,730,273 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.41
===========
</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, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $3,262,076
----------
EXPENSES
Investment advisory fee..................................... 230,503
Administration fee.......................................... 138,302
Professional fees........................................... 26,208
Shareholder reports and notices............................. 18,645
Transfer agent fees and expenses............................ 14,290
Registration fees........................................... 12,334
Trustees' fees and expenses................................. 8,868
Custodian fees.............................................. 4,001
Other....................................................... 5,168
----------
TOTAL EXPENSES.......................................... 458,319
Less: expense offset........................................ (3,996)
----------
NET EXPENSES............................................ 454,323
----------
NET INVESTMENT INCOME................................... 2,807,753
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 131,428
Net change in unrealized depreciation....................... 224,193
----------
NET GAIN................................................ 355,621
----------
NET INCREASE................................................ $3,163,374
==========
</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, 2000 MARCH 31, 2000
-------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 2,807,753 $ 5,831,283
Net realized gain (loss).............................. 131,428 (201,111)
Net change in unrealized depreciation................. 224,193 (7,471,742)
----------- ------------
NET INCREASE (DECREASE)........................... 3,163,374 (1,841,570)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................. (2,656,717) (5,560,452)
Net realized gain..................................... -- (100,766)
----------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................. (2,656,717) (5,661,218)
----------- ------------
Decrease from transactions in shares of beneficial
interest............................................. (1,577,249) (4,893,522)
----------- ------------
NET DECREASE...................................... (1,070,592) (12,396,310)
NET ASSETS:
Beginning of period................................... 92,672,095 105,068,405
----------- ------------
END OF PERIOD
(Including undistributed net investment income of
$1,205,663 and $1,054,627, respectively).......... $91,601,503 $ 92,672,095
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 2000 (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, 2000 (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 tax purposes are reported as distributions of paid-in-capital.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
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.
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.
3. 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, 2000 aggregated
$5,118,397 and $5,027,382, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At September 30, 2000, the Fund had
transfer agent fees and expenses payable of approximately $3,000.
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, 2000,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,901. At September 30, 2000, the Fund had an accrued pension liability of
$51,278 which is included in accrued expenses in the Statement of Assets and
Liabilities.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS September 30, 2000 (unaudited) continued
4. 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, 1999..................................... 10,522,606 $105,226 $98,322,825
Treasury shares purchased and retired (weighted average
discount 13.76%)*.......................................... (597,000) (5,970) (4,887,552)
---------- -------- -----------
Balance, March 31, 2000..................................... 9,925,606 99,256 93,435,273
Treasury shares purchased and retired (weighted average
discount 13.39%)*.......................................... (195,333) (1,953) (1,575,296)
---------- -------- -----------
Balance, September 30, 2000................................. 9,730,273 $ 97,303 $91,859,977
========== ======== ===========
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
5. DIVIDENDS
On September 26, 2000, the Fund declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ---------------- -----------------
<S> <C> <C>
$0.0475 October 6, 2000 October 20, 2000
$0.0475 November 3, 2000 November 17, 2000
$0.0475 December 8, 2000 December 22, 2000
</TABLE>
6. FEDERAL INCOME TAX STATUS
At March 31, 2000, the Fund had a net capital loss carryover of approximately
$49,000 which will be available through March 31, 2008 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 $152,000 during fiscal 2000.
As of March 31, 2000, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
16
<PAGE> 17
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, 2000* 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $ 9.34 $ 9.99 $10.02 $ 9.69 $ 9.66 $ 9.57
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income............................ 0.29 0.57 0.58 0.61 0.65 0.68
Net realized and unrealized gain (loss).......... 0.03 (0.75) (0.02) 0.40 0.07 (0.01)
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations.... 0.32 (0.18) 0.56 1.01 0.72 0.67
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................ (0.27) (0.54) (0.59) (0.68) (0.69) (0.61)
Net realized gain................................ -- (0.01) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions................. (0.27) (0.55) (0.59) (0.68) (0.69) (0.61)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury
shares........................................... 0.02 0.08 -- -- -- 0.03
------ ------ ------ ------ ------ ------
Net asset value, end of period.................... $ 9.41 $ 9.34 $ 9.99 $10.02 $ 9.69 $ 9.66
====== ====== ====== ====== ====== ======
Market value, end of period....................... $8.375 $7.688 $9.313 $9.875 $10.00 $9.125
====== ====== ====== ====== ====== ======
TOTAL RETURN+..................................... 12.63%(1) (11.87)% 0.11% 5.41% 17.64% 18.54%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.00%(2)(3) 0.99%(3) 1.02%(3) 1.01%(3) 1.03%(3) 1.06%
Net investment income............................. 6.08%(2) 5.89% 5.83% 6.14% 6.66% 6.91%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $91,602 $92,672 $105,068 $105,909 $102,505 $102,488
Portfolio turnover rate........................... 6%(1) 20% 20% 11% 20% 8%
</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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000, PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the most recent fiscal years and through July
1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such periods.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISOR
----------------------------------
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
Trust 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, 2000
