<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year with
strong growth sustaining full employment. Rising commodity prices heightened
concern about inflation. The price of oil moved above $30 per barrel prior to
closing at $25 per barrel in March. The Federal Reserve Board reacted by raising
the federal funds rate by 25 basis points in both February and March. This
marked the fourth and fifth times in less than a year that the central bank has
increased short-term rates with the market anticipating further rate increases.
Economic growth and a less accommodative monetary policy caused long-term
interest rates to rise throughout 1999 and January. In February, the U.S.
Treasury announced its plan to use the federal budget surplus to retire debt,
precipitating a rally in long Treasury bonds.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of 5.05
percent but increased to 5.97 percent by calendar year-end. This index reached a
high of 6.18 percent in January 2000 before ending March at 5.82 percent.
Because bond prices move inversely to changes in interest rates, bond prices
declined significantly last year and improved modestly in the first quarter of
2000.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. Over the past five years
the ratio has ranged between an average high of 93 percent and an average low of
85 percent. The increase in the ratio from 92 percent at the end of 1999 to 99
percent at the end of March 2000 can be primarily attributed to the magnitude of
the rally in long-term Treasuries. A rising yield ratio indicates weaker
relative performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent. Refunding activity, the most interest-rate-sensitive
component of supply, was down more than 50 percent. In the first three months of
this year, volume was 30 percent lower than in the same period last year.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
[BAR/LINE GRAPH]
30 YEAR BOND YIELDS 1994-2000
<TABLE>
<CAPTION>
Insured Insured Municipal Yields as a
Municipal Yields U.S. 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 97.90
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
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
The performance of Morgan Stanley Dean Witter Municipal Income Opportunities
Trust III (OIC) was affected by the higher-interest-rate environment outlined
above. For the 12-month period ended March 31, 2000, the Fund's net asset value
(NAV) declined from $9.99 to $9.34 per share. Based on this change, plus the
reinvestment of tax-free dividends totaling $0.54 per share and a long-term
capital gains distribution of $0.01 per share paid in December 1999, the Fund's
total NAV return was -0.20 percent. OIC's value on the New York Stock Exchange
(NYSE) fell from $9.3125 to $7.6875 per share during this period. Based on this
change, plus reinvestment of distributions, OIC's total market return was -11.87
percent. As of March 31, 2000, OIC's share price was at a 17.6 percent discount
to its NAV.
Monthly dividends for the first quarter of 2000, declared in January, were
unchanged at $0.045 per share. The Fund's level of undistributed net investment
income was $0.106 per share on March 31, 2000, versus $0.073 per share 12 months
earlier.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $92.7 million were diversified among 13 long-term
sectors and 53 credits. At the end of March the portfolio's average maturity was
19 years and its average duration, a measure of sensitivity to interest rate
changes, 6.3 years. Nonrated securities comprise more than half of OIC's assets.
The bonds of one issuer representing 1 percent of net assets are currently not
accruing interest. Two other issues, totaling 3 percent of net assets, were
accruing income but may experience difficulty with future debt service payments.
The accompanying charts and tables provide current information on the
portfolio's credit quality, sector distribution and geographic diversification.
Optional call provisions by year and their respective cost (book) yields are
also displayed.
LOOKING AHEAD
The Federal Reserve Board has expressed concern over prices and rising consumer
wealth. We anticipate that the central bank will continue to increase short-term
interest rates in an effort to slow the economy. We believe municipal bonds
continue to 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 year ended March 31, 2000, the
Fund purchased and retired 5.7 percent (597,000 shares) of its outstanding
common stock at a weighted average market discount of 13.8 percent. The effect
of this activity is reported in the Financial Highlights table on page 17.
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 March 31, 2000, continued
LARGEST SECTORS as of March 31, 2000
(% of Net Assets)
[LARGEST SECTORS BAR CHART]
<TABLE>
<CAPTION>
RECREATIONAL RETIREMENT & NURSING &
IDR/PCR* MORTGAGE FACILITIES LIFE CARE HEALTH HOSPITAL
- -------- -------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C>
23% 17% 14% 12% 11% 7%
<CAPTION>
EDUCATION
- ---------
<S> <C>
6%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS as of March 31, 2000
(% of Total Long-Term Portfolio)
[CREDIT RATINGS PIE CHART]
<TABLE>
<CAPTION>
Aaa/AAA Aa/AA A/A Baa/BBB N/R
- ------- ----- --- ------- ---
<S> <C> <C> <C> <C>
12% 2% 5% 18% 63%
</TABLE>
As measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp.
Portfolio structure is subject to change.
<TABLE>
<CAPTION>
GEOGRAPHIC SUMMARY OF INVESTMENTS
- ---------------------------------
<S> <C>
Based on Market Value as a Percent of Net Assets
March 31, 2000
Alabama 0.8%
Arkansas 1.7
California 11.1
Colorado 3.8
Connecticut 0.6
District of Columbia 1.7
Florida 6.3
Hawaii 1.3
Illinois 6.1
Iowa 2.4
Kentucky 3.3
Louisiana 4.3
Maryland 1.1
Massachusetts 9.9
Michigan 2.0
Missouri 3.9
New Jersey 6.6
New York 5.9
Ohio 5.7
Pennsylvania 1.1
Texas 3.7
Utah 2.1
Virginia 14.5
Washington 3.3
Wisconsin 1.5
Joint Exemptions* -4.5
----
Total 100.20%
=======
- --------------------------
* Joint exemptions have been included in each geographic
location.
Portfolio structure is subject to change.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
[BAR CHART]
CALL AND COST (BOOK) YIELD STRUCTURE
MARCH 31, 2000
<TABLE>
<CAPTION>
PERCENT CALLABLE*
-----------------
<S> <C>
2000 26.00%
2001 5.00%
2002 3.00%
2003 5.00%
2004 5.00%
2005 7.00%
2006 10.00%
2007 6.00%
2008 7.00%
2009 10.00%
2010+ 16.00%
Weighted Average Call Protection: 5.2 Years
[LINE GRAPH]
<CAPTION>
COST (BOOK) YIELD **
--------------------
<S> <C>
2000
9.07%
2001
9.92%
2002
5.83%
2003
7.30%
2004
6.70%
2005
6.96%
2006
6.58%
2007
6.10%
2008
5.78%
2009
6.05%
2010+
6.98%
Weighted Average Book Yield:7.35%
* % 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 9.92% on 5% of the long-term
portfolio that are callable in 2001.
Portfolio structure is subject to change.
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On October 28, 1999, 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>
Wayne E. Hedien
For......................................................... 6,846,385
Withheld.................................................... 163,956
Dr. Manuel H. Johnson
For......................................................... 6,844,603
Withheld.................................................... 165,738
John L. Schroeder
For......................................................... 6,847,685
Withheld.................................................... 162,656
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent and
Philip J. Purcell.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 6,849,901
Against..................................................... 47,021
Abstain..................................................... 113,419
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.1%)
Educational Facilities Revenue (5.5%)
$ 1,000 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 % 05/01/11 $1,049,860
1,200 San Diego County, California, The Burnham Institute COPs.... 6.25 09/01/29 1,174,644
2,250 Massachusetts Development Finance Agency, Eastern Nazarene
College Ser 1999........................................... 5.625 04/01/29 1,928,430
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 977,500
- -------- ----------
5,450 5,130,434
- -------- ----------
Hospital Revenue (6.5%)
1,500 Hawaii Department of Budget & Finance, Wilcox Memorial
Hospital Ser 1998.......................................... 5.50 07/01/28 1,166,295
1,890 Dixon, Illinois, Katherine Shaw Bethea Hospital Ser 1990.... 9.75 12/01/10 1,976,902
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G -1...................... 6.25 12/01/14 1,011,410
1,000 Dana Farber Cancer Institute Ser G -1...................... 6.25 12/01/22 984,420
1,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 913,030
- -------- ----------
6,390 6,052,057
- -------- ----------
Industrial Development/Pollution Control Revenue (22.8%)
1,500 Pope County, Arkansas, Arkansas Power & Light Co Ser 1990
(AMT)...................................................... 8.00 11/01/20 1,545,480
1,605 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,605,498
1,000 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 979,150
3,000 Perry County, Kentucky, TJ International Ser 1994 (AMT)..... 7.00 06/01/24 3,064,170
1,375 Maryland Industrial Development Financing Authority, Medical
Waste Assocs LP 1989 Ser (AMT)(a).......................... 8.75 11/15/10 1,045,000
1,500 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 1,459,470
1,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Ser 1998 A........................................ 6.375 04/01/31 951,540
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 2,603,375
1,695 Cleveland - Cuyahoga County Port Authority, Ohio, C & P
Docks Ser 1997-1 (AMT)..................................... 6.00 03/01/07 1,633,675
1,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995-B... 7.75 05/01/20 1,063,500
2,000 Sabine River Authority, Texas, Texas Utilities Electric Co
Ser 1990 B (AMT)........................................... 8.25 10/01/20 2,062,720
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Ser 1994 A (AMT)**................... 7.45 01/01/09 3,078,299
- -------- ----------
21,175 21,091,877
- -------- ----------
Mortgage Revenue - Multi-Family (9.3%)
2,262 Saint Tammany Public Trust Financing Authority, Louisiana,
Refg Ser 1990.............................................. 10.00 10/01/20 2,391,764
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 1,763,784
10,438 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,385,497
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Washington Housing Finance Commission, FNMA Collateralized
Refg Ser 1990 A............................................ 7.50 % 07/01/23 $3,069,120
- -------- ----------
17,460 8,610,165
- -------- ----------
Mortgage Revenue - Single Family (7.3%)
1,500 Colorado Housing & Finance Authority, 2000 Ser B-2 (AMT)
(WI)....................................................... 7.25 10/01/31 1,631,280
2,460 Chicago, Illinois, GNMA-Collateralized Ser 1998 A-1 (AMT)... 6.45 09/01/29 2,504,083
Ohio Housing Finance Agency,
665 GNMA-Backed 1990 Ser C (AMT)............................... 7.85 09/01/21 682,523
2,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)......... 6.10 09/01/28 1,944,700
- -------- ----------
6,625 6,762,586
- -------- ----------
Nursing & Health Related Facilities Revenue (10.7%)
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999.......... 6.75 04/01/34 1,783,040
1,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 1,203,550
1,500 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,589,775
2,630 Massachusetts Industrial Finance Agency, Kennedy-Donovan
Center Inc 1990 Issue...................................... 7.50 06/01/10 2,625,529
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999........................ 6.20 06/01/29 852,480
1,895 Hurricane, Utah, Mission Health Service Ser 1990............ 10.50 07/01/20 1,900,685
- -------- ----------
10,025 9,955,059
- -------- ----------
Public Facilities Revenue (1.2%)
1,097 Newton County, Texas, Detention Phase II COPs............... 9.875 12/15/11 1,103,969
- -------- ----------
Recreational Facilities Revenue (13.5%)
1,000 West Jefferson Amusement & Public Park Authority, Alabama
VisionLand Ser 1999........................................ 6.375 02/01/29 729,330
Del Mar Race Track Authority, California
2,000 Refg Ser 1996.............................................. 6.00 08/15/06 2,040,080
2,000 Refg Ser 1996.............................................. 6.00 08/15/08 2,023,820
1,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................... 6.25 01/01/30 917,010
1,300 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.60 02/01/18 1,188,408
3,250 Metropolitan Football Stadium District, Colorado, Sales Tax
Ser 1999 A (MBIA).......................................... 0.00 01/01/10 1,923,968
500 Mashantucket (Western) Pequot Tribe, Connecticut, 1996 Ser A
(b)........................................................ 6.40 09/01/11 518,715
3,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 3,126,120
- -------- ----------
14,050 12,467,451
- -------- ----------
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 1,965,120
1,425 Massachusetts Development Finance Agency, Loomis Communities
Ser 1999 A................................................. 5.625 07/01/15 1,209,155
New Jersey Economic Development Authority,
1,000 Franciscan Oaks Ser 1997................................... 5.70 10/01/17 830,830
1,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 808,960
1,000 Glen Cove Housing Authority, New York, Mayfair at Glen Cove
Ser 1996 (AMT)............................................. 8.25 10/01/26 1,056,920
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.30 % 12/15/14 $1,024,500
2,966 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 2,610,114
1,750 Wisconsin Health & Educational Facilities Authority, Oakwood
Ser 1998................................................... 5.90 08/15/28 1,392,020
- -------- ----------
12,141 10,897,619
- -------- ----------
Tax Allocation Revenue (3.3%)
1,110 Bradley, Illinois, Bradley North Redevelopment Ser 1990..... 9.125 01/01/05 1,163,014
1,845 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (b).................................................... 9.75 06/01/18 1,889,557
- -------- ----------
2,955 3,052,571
- -------- ----------
Transportation Facilities Revenue (2.2%)
2,000 Foothill/Eastern Transportation Corridor Agency, California,
Ser 1999................................................... 0.00 01/15/27 1,022,300
1,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 1,032,470
- -------- ----------
3,000 2,054,770
- -------- ----------
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 1,044,320
----------
Other Revenue (0.9%)
1,000 Capistrano Unified School District, California, Community
- -------- Facilities District #98-2 Ladera Ser 1999 Special Tax...... 5.75 09/01/29 868,250
----------
102,368 TOTAL TAX-EXEMPT MUNICIPAL BONDS
- -------- (Identified Cost $90,807,077)................................................... 89,091,128
----------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.1%)
500 Missouri Health & Educational Facilities Authority,
Washington University Ser C (Demand 04/03/00).............. 4.00*% 09/01/30 500,000
300 Harris County Health Facilities Development Corporation,
Texas, St Luke's Episcopal Hospital Ser 1997 A (Demand
04/03/00).................................................. 4.10* 02/15/27 300,000
3,000 Roanoke Industrial Development Authority, Virginia, Carilion
Health Ser 1997 A
(Demand 04/03/00).......................................... 4.00* 07/01/27 3,000,000
- -------- ----------
3,800 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $3,800,000).................................................... 3,800,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
PORTFOLIO OF INVESTMENTS March 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$106,168 TOTAL INVESTMENTS (Identified Cost $94,607,077) (c)...................... 100.2% $92,891,128
========
LIABILITIES IN EXCESS OF OTHER ASSETS.................................. (0.2) (219,033)
----- -----------
NET ASSETS.............................................................. 100.0% $92,672,095
===== ===========
</TABLE>
- ---------------------
<TABLE>
<S> <C>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a "when-issued" basis.
++ Joint exemption in locations shown.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase
of "when-issued" securities.
(a) Non-income producing security; bond in default.
(b) Resale is restricted to qualified institutional investors.
(c) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $1,834,960 and the aggregate gross
unrealized depreciation is $3,550,909, resulting in net
unrealized depreciation of $1,715,949.
Bond Insurance:
- ------------------------------------------------------------------------
AMBAC AMBAC Assurance Corporation.
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
March 31, 2000
ASSETS:
Investments in securities, at value
(identified cost $94,607,077).............................. $92,891,128
Cash........................................................ 97,266
Interest receivable......................................... 1,795,586
Prepaid expenses and other assets........................... 19,989
----------
TOTAL ASSETS............................................ 94,803,969
----------
LIABILITIES:
Payable for:
Investments purchased................................... 1,633,969
Shares of beneficial interest repurchased............... 287,266
Investment advisory fee................................. 44,435
Administration fee...................................... 26,661
Accrued expenses and other payables......................... 139,543
----------
TOTAL LIABILITIES....................................... 2,131,874
----------
NET ASSETS.............................................. $92,672,095
==========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $93,534,529
Net unrealized depreciation................................. (1,715,949)
Accumulated undistributed net investment income............. 1,054,627
Accumulated net realized loss............................... (201,112)
----------
NET ASSETS.............................................. $92,672,095
==========
NET ASSET VALUE PER SHARE,
9,925,606 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.34
===========
</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 year ended March 31, 2000
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 6,807,601
-----------
EXPENSES
Investment advisory fee..................................... 495,327
Administration fee.......................................... 297,196
Professional fees........................................... 51,752
Shareholder reports and notices............................. 41,778
Transfer agent fees and expenses............................ 31,570
Registration fees........................................... 24,668
Trustees' fees and expenses................................. 17,574
Custodian fees.............................................. 8,318
Other....................................................... 16,438
-----------
TOTAL EXPENSES.......................................... 984,621
Less: expense offset........................................ (8,303)
-----------
NET EXPENSES............................................ 976,318
-----------
NET INVESTMENT INCOME................................... 5,831,283
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (201,111)
Net change in unrealized appreciation....................... (7,471,742)
-----------
NET LOSS................................................ (7,672,853)
-----------
NET DECREASE................................................ $(1,841,570)
===========
</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 YEAR
ENDED FOR THE YEAR
MARCH 31, ENDED
2000 MARCH 31, 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 5,831,283 $ 6,172,061
Net realized gain (loss)............................... (201,111) 1,921,914
Net change in unrealized appreciation.................. (7,471,742) (2,267,379)
------------ ------------
NET INCREASE (DECREASE)............................ (1,841,570) 5,826,596
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (5,560,452) (6,180,388)
Net realized gain...................................... (100,766) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................. (5,661,218) (6,180,388)
------------ ------------
Decrease from transactions in shares of beneficial
interest.............................................. (4,893,522) (486,995)
------------ ------------
NET DECREASE....................................... (12,396,310) (840,787)
NET ASSETS:
Beginning of period.................................... 105,068,405 105,909,192
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,054,627 and $783,796, respectively)............. $ 92,672,095 $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 March 31, 2000
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.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 2000, continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY/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 year ended March 31, 2000 aggregated $18,602,185
and $21,403,458, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At March 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $2,400.
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, 2000, included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,622. At March 31, 2000, the Fund
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
NOTES TO FINANCIAL STATEMENTS March 31, 2000, continued
had an accrued pension liability of $50,691 which is included in accrued
expenses in the Statement of Assets and Liabilities.
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, 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 13.76%)*.......................................... (597,000) (5,970) (4,887,552)
---------- -------- -----------
Balance, March 31, 2000..................................... 9,925,606 $ 99,256 $93,435,273
========== ======== ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
5. DIVIDENDS
On March 28, 2000, 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 7, 2000 April 20, 2000
$0.045 May 5, 2000 May 19, 2000
$0.045 June 9, 2000 June 23, 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 YEAR ENDED MARCH 31*
----------------------------------------------------
2000 1999 1998 1997 1996
<S> <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
------ -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income...................................... 0.57 0.58 0.61 0.65 0.68
Net realized and unrealized gain (loss).................... (0.75) (0.02) 0.40 0.07 (0.01)
------ -------- -------- -------- --------
Total income (loss) from investment operations.............. (0.18) 0.56 1.01 0.72 0.67
------ -------- -------- -------- --------
Less dividends and distributions from:
Net investment income...................................... (0.54) (0.59) (0.68) (0.69) (0.61)
Net realized gain.......................................... (0.01) -- -- -- --
------ -------- -------- -------- --------
Total dividends and distributions........................... (0.55) (0.59) (0.68) (0.69) (0.61)
------ -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.08 -- -- -- 0.03
------ -------- -------- -------- --------
Net asset value, end of period.............................. $ 9.34 $ 9.99 $ 10.02 $ 9.69 $ 9.66
====== ======== ======== ======== ========
Market value, end of period................................. $7.688 $ 9.313 $ 9.875 $ 10.00 $ 9.125
====== ======== ======== ======== ========
TOTAL RETURN+............................................... (11.87)% 0.11% 5.41% 17.64% 18.54%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.99 %(1) 1.02%(1) 1.01%(1) 1.03%(1) 1.06%
Net investment income....................................... 5.89 % 5.83% 6.14% 6.66% 6.91%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $92,672 $105,068 $105,909 $102,505 $102,488
Portfolio turnover rate..................................... 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) 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
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") at March 31, 2000, 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
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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, 2000 by correspondence with the custodian and broker, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 9, 2000
2000 FEDERAL TAX NOTICE (unaudited)
During the year ended March 31, 2000, the Fund paid to
shareholders $0.54 per share from tax-exempt income.
For the year ended March 31, 2000, the Fund paid to
shareholders $0.01 per share from long-term capital gains.
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST III
REVISED INVESTMENT POLICY (unaudited)
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter Municipal Income
Opportunities Trust III (the "Fund") approved an investment policy whereby the
Fund would be permitted to invest up to 10% of its assets in inverse floating
rate municipal obligations. The inverse floating rate municipal obligations in
which the Fund will invest are typically created through a division of a fixed
rate municipal obligation into two separate instruments, a short-term obligation
and a long-term obligation. The interest rate on the short-term obligation is
set at periodic auctions. The interest rate on the long-term obligation is the
rate the issuer would have paid on the fixed income obligation: (i) plus the
difference between such fixed rate and the rate on the short-term obligation, if
the short-term rate is lower than the fixed rate; or (ii) minus such difference
if the interest rate on the short-term obligation is higher than the fixed rate.
The interest rates on these obligations generally move in the reverse direction
of market interest rates. If market interest rates fall, the interest rate on
the obligation will increase and if market interest rates increase, the interest
rate on the obligation will fall. Inverse floating rate municipal obligations
offer the potential for higher income than is available from fixed rate
obligations of comparable maturity and credit rating. They also carry greater
risks. In particular, the prices of inverse floating rate municipal obligations
are more volatile, i.e., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate obligations.
19
<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 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 ADVISOR
- ----------------------------------
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, 2000
