UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number:811-06052
Morgan Stanley Municipal Income Opportunities Trust III
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: March 31, 2004
Date of reporting period: March 31, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Municipal Income Opportunities Trust III performed during the annual period. We
will provide an overview of the market conditions, and discuss some of the
factors that affected performance during the reporting period. In addition, this
report includes the Fund's financial statements and a list of Fund investments.
Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Fund will achieve its investment objective. The Fund is
subject to market risk, which is the possibility that market values of
securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
FUND REPORT
For the year ended March 31, 2004
MARKET CONDITIONS
During the fiscal year ended March 31, 2004, 30-year municipal bond yields moved
in a wide range, reaching near-record lows in May and spiking upward in
midsummer before stabilizing over the last six months. Interest rates fell early
in the period when investors sought bonds as a haven from war-induced
uncertainty. This "flight to quality" in Treasuries carried over to municipal
bonds, which also enjoyed capital appreciation. Yields on 30-year AAA municipal
bonds fell from 4.73 percent in March 2003 to 4.53 percent this March but ranged
between a low of 4.34 percent and a high of 5.07 percent. The yield on the
30-year Treasury decreased from 4.82 percent to 4.77 percent over the fiscal
year. These changes caused the municipal-to-Treasury yield ratio to decline,
making municipals less attractive relative to Treasuries. However, traditional
institutional investors continued to "cross over" to buy municipal bonds.
Lower-rated and nonrated municipals outperformed investment-grade issues as
investors attempted to maintain income in the current interest-rate environment.
Tax-exempt issuance was heavy during the year. Municipalities took advantage of
low interest rates to finance new projects and refinance existing debt. The
surge in issuance was enough to bring municipal volume to a record $383 billion
for 2003. Volume slowed significantly in the early months of 2004.
PERFORMANCE ANALYSIS
For the 12-month period ended March 31, 2004, the net asset value (NAV) of
Morgan Stanley Municipal Income Opportunities Trust III (OIC) increased from
$9.33 to $9.39 per share. Based on this change plus reinvestment of tax-free
dividends totaling $0.555 per share the Fund's total NAV return was 7.11
percent. OIC's value on the New York Stock Exchange (NYSE) increased from $8.63
to $8.92 per share during the same period. Based on this change plus
reinvestment of tax-free dividends, the Fund's total market return was 10.00
percent. On March 31, 2004, OIC's NYSE market price was at a 5.0 percent
discount to its NAV.
Monthly dividends for the second quarter of 2004, declared in March, were
unchanged at $0.045 per share. The dividend reflects the level of the Fund's
undistributed net investment income and projected earnings power. The Fund's
level of undistributed net investment income was $0.10 per share on March 31,
2004, versus $0.12 per share 12 months earlier.(1)
The Fund's duration(2) (a measure of interest-rate sensitivity) was positioned
to be shorter than its benchmark, thus reducing interest-rate volatility. The
Portfolio's duration was 7.4 years as compared to 8.2 years for the Lehman
Brothers High Yield Municipal Bond Index. The Fund's shorter duration
- --------------------------------------------------------------------------------
(1) Income earned by certain securities in the portfolio may be subject to the
federal alternative minimum tax (AMT).
(2) A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates.
The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, Funds with shorter durations perform
better in rising-rate environments, while Funds with longer durations
perform better when rates decline.
2
stance limited its upside performance. The Fund's performance relative to that
of its peer group, the Lipper Closed-End High Yield Municipal Debt Funds Index,
was also hampered by its better-quality portfolio at a time when lower-quality
issues were outperforming. We maintained our long-term commitment to
diversification with the Fund's net assets of $85.5 million diversified across
67 credits in 11 sectors. New purchases were focused on health-care issues to
take advantage of supply and attractive yield opportunities.
The Fund's procedure for reinvesting 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
investors 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 NAV, whichever is lower at the
time of purchase.
3
<Table>
<Caption>
LARGEST SECTORS
Hospital 19.1%
IDR/PCR* 17.4%
Recreational Facilities 15.0%
Retirement & Life Care Facilities 14.7%
Nursing & Health Related Facilities 10.4%
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 4%
Aa/AA 0%
A/A 3%
Baa/BBB 32%
Ba/BB 6%
Non Rated 55%
</Table>
* Industrial Development/Pollution Control Revenue
Data as of March 31, 2004. Subject to change daily. Largest sectors' percentages
are as a percentage of net assets and long-term credit analysis is as a
percentage of total long-term investments. Provided for informational purposes
only and should not be deemed as a recommendation to buy or sell the securities
mentioned. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
RESULTS OF ANNUAL SHAREHOLDER MEETING
ON DECEMBER 16, 2003, AN ANNUAL MEETING OF THE FUND'S SHAREHOLDERS WAS HELD FOR
THE PURPOSE OF VOTING ON THE FOLLOWING MATTER, THE RESULTS OF WHICH WERE AS
FOLLOWS:
(1) ELECTION OF TRUSTEES:
<Table>
- --------------------------------------------------
EDWIN J. GARN
FOR: 7,787,460
WITHHELD: 175,193
- --------------------------------------------------
JOSEPH J. KEARNS
FOR: 7,788,140
WITHHELD: 174,514
- --------------------------------------------------
MICHAEL E. NUGENT
FOR: 7,786,165
WITHHELD: 176,489
- --------------------------------------------------
PHILIP J. PURCELL
FOR: 7,788,288
WITHHELD: 174,366
- --------------------------------------------------
FERGUS REID
FOR: 7,786,096
WITHHELD: 176,558
- --------------------------------------------------
</Table>
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL
BOZIC, CHARLES A. FIUMEFREDDO, WAYNE E. HEDIEN, JAMES F. HIGGINS AND DR. MANUEL
H. JOHNSON.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of March 31, 2004
WEIGHTED AVERAGE MATURITY: 20 YEARS
[BAR GRAPH]
<Table>
1-5 5.00
5-10 19.00
10-20 24.00
20-30 50.00
30+ 2.00
</Table>
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
<Table>
Alabama................... 1.1%
Arizona................... 2.4
California................ 8.3
Colorado.................. 4.8
Connecticut............... 3.3
District of Columbia...... 1.4
Florida................... 5.3
Hawaii.................... 2.4
Illinois.................. 2.8
Indiana................... 4.0
Iowa...................... 2.5
Kansas.................... 1.2%
Kentucky.................. 3.6
Louisiana................. 1.6
Maryland.................. 1.3
Massachusetts............. 6.4
Missouri.................. 7.1
Nevada.................... 2.8
New Hampshire............. 1.0
New Jersey................ 5.6
New York.................. 1.1
Oklahoma.................. 1.2
Pennsylvania.............. 3.8%
South Carolina............ 2.2
Tennessee................. 2.7
Texas..................... 3.4
Utah...................... 1.1
Virginia.................. 11.8
Washington................ 1.7
Wyoming................... 1.8
Joint exemption*.......... (1.4)
-----
Total..................... 98.3%
=====
</Table>
- ---------------------
* Joint exemptions have been included in each geographic location.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of March 31, 2004
PERCENT OF BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 5 YEARS
[BAR GRAPH]
<Table>
2004(a) 20.00
2005 7.00
2006 2.00
2007 1.00
2008 8.00
2009 10.00
2010 11.00
2011 10.00
2012 14.00
2013 12.00
2014+ 5.00
</Table>
COST (BOOK) YIELD(b) -- WEIGHTED AVERAGE BOOK YIELD: 6.9%
[BAR GRAPH]
<Table>
2004(a) 7.70
2005 6.90
2006 7.10
2007 6.00
2008 6.40
2009 6.10
2010 6.90
2011 7.40
2012 6.70
2013 6.70
2014+ 5.70
</Table>
(a) Includes issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Fund's operating expenses.
For example, the Fund is earning a book yield of 7.7% on 20% of the
long-term portfolio that is callable in 2004.
Portfolio structure is subject to change.
6
Morgan Stanley Municipal Income Opportunities Trust III
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (96.6%)
General Obligation (1.2%)
$ 1,000 California, Various Purpose dtd 02/01/04................... 5.00% 02/01/33 $ 1,001,090
------- -----------
Educational Facilities Revenue (5.5%)
1,000 Pima County Industrial Development Authority, Arizona, Noah
Webster Basic School Ser 2004 A.......................... 6.125 12/15/34 988,970
800 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs..................................................... 7.50 05/01/11 860,512
1,200 San Diego County, California, The Burnham Institute COPs... 6.25 09/01/29 1,245,696
1,500 Upland, Indiana, Taylor University Ser 2002................ 6.25 09/01/28 1,607,895
------- -----------
4,500 4,703,073
------- -----------
Hospital Revenue (19.1%)
1,000 Colbert County - Northwest Health Care Authority, Alabama,
Helen Keller Hospital Ser 2003........................... 5.75 06/01/27 985,440
1,000 Arizona Health Facilities Authority, John C Lincoln Health
Ser 2002................................................. 6.375 12/01/37 1,059,070
1,500 Hawaii Department of Budget & Finance, Wilcox Memorial
Hospital Ser 1998........................................ 5.50 07/01/28 1,516,050
500 Indiana Health Facility Financing Authority, Riverview
Hospital Ser 2002........................................ 6.125 08/01/31 525,100
Massachusetts Health & Educational Facilities Authority,
1,000 Dana Farber Cancer Institute Ser G-1..................... 6.25 12/01/14 1,057,510
1,000 Dana Farber Cancer Institute Ser G-1..................... 6.25 12/01/22 1,053,500
1,000 Nevada, Missouri, Nevada Regional Medical Center Ser
2001..................................................... 6.75 10/01/31 1,032,590
1,000 Henderson, Nevada, Catholic Health Care West Ser 1998 A.... 5.125 07/01/28 939,210
1,000 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Association Ser 1998 A..... 6.00 05/01/28 888,440
1,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994...................... 7.25 07/01/27 1,024,200
1,000 Oklahoma Development Finance Authority, Comanche County
Hospital 2000 Ser B...................................... 6.60 07/01/31 1,049,310
1,000 Lehigh County General Purpose Authority, Pennsylvania, St
Luke's Hospital Ser 2003................................. 5.25 08/15/23 1,027,880
1,000 South Carolina Job Economic Development Authority, Palmetto
Health Rfdg & Impr Ser 2003 C............................ 6.875 08/01/27 1,106,160
1,500 Knox County Health, Educational & Housing Facility Board,
Tennessee, Baptist Health of East Tennessee Ser 2002..... 6.50 04/15/31 1,559,325
1,500 Teton County Hospital District, Wyoming, St John's Medical
Center Ser 2002.......................................... 6.75 12/01/27 1,525,005
------- -----------
16,000 16,348,790
------- -----------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Industrial Development/Pollution Control Revenue (17.4%)
$ 1,000 Los Angeles Regional Airports Improvement Corporation,
California, American Airlines Inc Terminal 4 Ser 2002 C
(AMT).................................................... 7.50% 12/01/24 $ 849,980
1,205 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT) +.................................................. 10.125 09/01/11 1,206,651
600 Chicago, Illinois, United Airlines Inc Refg Ser 2001 C
(a)...................................................... 6.30 05/01/16 186,000
1,000 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)........... 6.00 06/01/27 988,030
3,000 Perry County, Kentucky, TJ International Inc Ser 1994
(AMT).................................................... 7.00 06/01/24 3,078,330
1,235 Maryland Industrial Development Financing Authority,
Medical Waste Associates LP 1989 Ser (AMT)............... 8.75 11/15/10 1,110,104
1,000 New Jersey Economic Development Authority, Continental
Airlines Inc Ser 1999 (AMT).............................. 6.625 09/15/12 918,340
1,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995
B........................................................ 7.75 05/01/20 1,102,520
880 Carbon County Industrial Development Authority,
Pennsylvania, Panther Creek Partners Refg 2000 Ser
(AMT).................................................... 6.65 05/01/10 963,415
755 Lexington County, South Carolina, Ellett Brothers Inc Refg
Ser 1988................................................. 7.50 09/01/08 739,492
650 Brazos River Authority, Texas, TXU Electric Refg Ser 1999 A
(AMT).................................................... 7.70 04/01/33 742,931
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade LP Ser 1994 A (AMT)................ 7.45 01/01/09 2,981,100
------- -----------
15,325 14,866,893
------- -----------
Mortgage Revenue -- Multi-Family (4.7%)
Alexandria Redevelopment & Housing Authority, Virginia,
1,760 Courthouse Commons Apts Ser 1990 A (AMT)................. 10.00 01/01/21 1,645,037
9,192 Courthouse Commons Apts Ser 1990 B (AMT)................. 0.00 01/01/21 974,360
1,435 Washington Housing Finance Commission, FNMA Collateralized
Refg Ser 1990 A.......................................... 7.50 07/01/23 1,437,640
------- -----------
12,387 4,057,037
------- -----------
Mortgage Revenue -- Single Family (1.5%)
375 Colorado Housing Finance Authority, 1998 Ser B-2 (AMT)..... 7.25 10/01/31 384,270
915 Chicago, Illinois, GNMA - Collateralized Ser 1998 A-1
(AMT).................................................... 6.45 09/01/29 931,269
------- -----------
1,290 1,315,539
------- -----------
Nursing & Health Related Facilities Revenue (10.4%)
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Ser 1999..................... 6.75 04/01/34 1,566,540
1,000 Pinellas County Health Facilities Authority, Florida, Oaks
of Clearwater Ser 2004................................... 6.25 06/01/34 1,005,650
985 Iowa Health Facilities Development Financing Authority,
Care Initiatives Ser 1996................................ 9.25 07/01/25 1,173,273
1,300 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993......... 8.375 10/01/13 1,332,825
</Table>
8
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 1,905 Massachusetts Development Finance Agency, Kennedy-Donovan
Center Inc 1990 Issue.................................... 7.50% 06/01/10 $ 1,984,591
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999...................... 6.20 06/01/29 942,940
1,790 Hurricane, Utah, Mission Health Service Ser 1990 (b)....... 10.50 07/01/20 906,044
------- -----------
9,980 8,911,863
------- -----------
Public Facilities Revenue (1.1%)
1,000 Kansas City Industrial Development Authority, Missouri,
Plaza Library Ser 2004................................... 5.90 03/01/24 979,770
------- -----------
Recreational Facilities Revenue (15.0%)
1,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................. 6.25 01/01/30 996,960
1,300 San Diego County, California, San Diego Natural History
Museum COPs.............................................. 5.60 02/01/18 1,105,169
3,250 Metropolitan Football Stadium District, Colorado, Sales Tax
Ser 1999 A (MBIA)........................................ 0.00 01/01/10 2,709,265
500 Mashantucket (Western) Pequot Tribe, Connecticut, 1996 Ser
A (c).................................................... 6.40 09/01/11 542,765
Mohegan Tribe of Indians, Connecticut,
1,500 Gaming Authority Ser 2001................................ 6.25 01/01/31 1,599,600
700 Gaming Authority Ser 2003................................ 5.25 01/01/33 701,533
1,000 Overland Park Development Corporation, Kansas, Convention
Center Hotel Ser 2000 A.................................. 7.375 01/01/32 1,008,440
3,000 St Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)............................... 7.75 12/01/13 3,058,350
1,000 Austin Convention Enterprises Inc, Texas, Convention Center
Hotel Ser 2000 A......................................... 6.70 01/01/32 1,064,770
------- -----------
13,250 12,786,852
------- -----------
Retirement & Life Care Facilities Revenue (14.7%)
2,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A...................................... 8.00 01/01/30 1,934,160
500 Hawaii Department of Budget & Finance, Kahala Nui 2003 Ser
A........................................................ 8.00 11/15/33 508,245
750 Illinois Health Facilities Authority, Villa St Benedict Ser
2003 A-1................................................. 6.90 11/15/33 757,785
1,425 Massachusetts Development Finance Agency, Loomis
Communities Ser 1999 A................................... 5.625 07/01/15 1,392,966
New Jersey Economic Development Authority,
1,000 Cedar Crest Village Inc Ser 2001 A....................... 7.25 11/15/31 1,029,540
1,000 Franciscan Oaks Ser 1997................................. 5.70 10/01/17 929,920
1,000 Franciscan Oaks Ser 1997................................. 5.75 10/01/23 902,050
750 Shelby County Health, Educational & Housing Facilities
Board, Tennessee, Village at Germantown Ser 2003 A....... 7.25 12/01/34 763,800
</Table>
9
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 1,000 Bexar County Health Facilities Development Corporation,
Texas, Army Retirement Residence Ser 2002................ 6.30% 07/01/32 $ 1,062,800
2,884 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998..................... 6.50 01/01/28 2,756,650
500 Peninsula Ports Authority of Virginia, Virginia Baptist
Homes Ser 2003 A......................................... 7.375 12/01/32 528,400
------- -----------
12,809 12,566,316
------- -----------
Tax Allocation Revenue (4.8%)
1,000 Capistrano Unified School District, California, Community
Facilities District #98-2 Ladera Ser 1999 Special Tax.... 5.75 09/01/29 1,018,970
Elk Valley Public Improvement Corporation, Colorado,
500 Ser 2001 A............................................... 7.30 09/01/22 523,165
500 Ser 2001 A............................................... 7.35 09/01/31 523,120
500 Chicago, Illinois, Lake Shore East Ser 2002................ 6.75 12/01/32 502,690
1,000 Des Peres, Missouri, West County Center Ser 2002........... 5.75 04/15/20 1,017,660
500 Clark County, Nevada, Special Impr Dist 142 Mountains Edge
Ser 2003................................................. 6.375 08/01/23 509,790
------- -----------
4,000 4,095,395
------- -----------
Transportation Facilities Revenue (1.2%)
1,000 Nevada Department of Business & Industry, Las Vegas
Monorail 2nd Tier Ser 2000............................... 7.375 01/01/40 981,440
------- -----------
92,541 Total Tax-Exempt Municipal Bonds (Cost $83,182,332)........................... 82,614,058
------- -----------
Short Term Tax-Exempt Municipal Obligations (1.7%)
1,270 Indiana Health Facility Financing Authority, Clarian Health
Ser 2000 B (Demand 04/01/04)............................. 1.05* 03/01/30 1,270,000
200 Geisinger Authority, Pennsylvania, Geisinger Health Ser
2000 (Demand 04/01/04)................................... 1.12* 08/01/28 200,000
------- -----------
1,470 Total Short Term Tax-Exempt Municipal Obligations (Cost $1,470,000)........... 1,470,000
------- -----------
</Table>
<Table>
$94,011 Total Investments (Cost $84,652,332) (d)........................... 98.3% 84,084,058
=======
Other Assets in Excess of Liabilities.............................. 1.7 1,464,799
----- -----------
Net Assets......................................................... 100.0% $85,548,857
===== ===========
</Table>
10
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 continued
- ---------------------
<Table>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate demand obligation.
+ Joint exemption in locations shown.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing security; issuer in default.
(c) Resale is restricted to qualified institutional investors.
(d) The aggregate cost for federal income tax purposes is
$84,559,667. The aggregate gross unrealized appreciation is
$2,899,235 and the aggregate gross unrealized depreciation
is $3,374,844, resulting in net unrealized depreciation of
$475,609.
Bond Insurance:
- ---------------
MBIA Municipal Bond Investors Assurance Corporation.
</Table>
11
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2004
<Table>
Assets:
Investments in securities, at value
(cost $84,652,332)........................................ $84,084,058
Cash........................................................ 66,788
Receivable for:
Interest................................................ 1,509,205
Investments sold........................................ 70,000
Prepaid expenses............................................ 751
-----------
Total Assets............................................ 85,730,802
-----------
Liabilities:
Payable for:
Investment advisory fee................................. 38,962
Administration fee...................................... 23,377
Shares of beneficial interest repurchased............... 9,889
Accrued expenses............................................ 109,717
-----------
Total Liabilities....................................... 181,945
-----------
Net Assets.............................................. $85,548,857
===========
Composition of Net Assets:
Paid-in-capital............................................. $86,512,919
Net unrealized depreciation................................. (568,274)
Accumulated undistributed net investment income............. 876,902
Accumulated net realized loss............................... (1,272,690)
-----------
Net Assets.............................................. $85,548,857
===========
Net Asset Value Per Share,
9,109,873 shares outstanding (unlimited shares authorized of
$.01 par value)............................................. $9.39
===========
</Table>
12
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended March 31, 2004
<Table>
Net Investment Income:
Interest Income............................................. $5,690,993
----------
Expenses
Investment advisory fee..................................... 430,884
Administration fee.......................................... 258,531
Professional fees........................................... 53,353
Transfer agent fees and expenses............................ 44,800
Shareholder reports and notices............................. 44,525
Registration fees........................................... 13,950
Trustees' fees and expenses................................. 13,618
Custodian fees.............................................. 6,983
Other....................................................... 12,807
----------
Total Expenses.......................................... 879,451
Less: expense offset........................................ (6,879)
----------
Net Expenses............................................ 872,572
----------
Net Investment Income................................... 4,818,421
----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. 464,717
Futures contracts........................................... (112,488)
----------
Net Realized Gain....................................... 352,229
----------
Net Change in Unrealized Depreciation....................... 398,174
----------
Net Gain................................................ 750,403
----------
Net Increase................................................ $5,568,824
==========
</Table>
13
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 4,818,421 $ 5,236,607
Net realized gain (loss).................................... 352,229 (744,766)
Net change in unrealized depreciation....................... 398,174 786,162
----------- -----------
Net Increase............................................ 5,568,824 5,278,003
Dividends to shareholders from net investment income........ (5,107,395) (5,346,225)
Decrease from transactions in shares of beneficial
interest.................................................. (1,479,902) (1,635,237)
----------- -----------
Net Decrease............................................ (1,018,473) (1,703,459)
Net Assets:
Beginning of period......................................... 86,567,330 88,270,789
----------- -----------
End of Period
(Including undistributed net investment income of $876,902
and $1,123,663, respectively)............................... $85,548,857 $86,567,330
=========== ===========
</Table>
14
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
1. Organization and Accounting Policies
Morgan Stanley 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 following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid 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 mean between the last reported bid and
asked price. 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.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) 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. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the
15
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 continued
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments known as variation margin are recorded by
the Fund as unrealized gains and losses. Upon closing of the contract, the Fund
realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
E. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
F. Use of Estimates -- 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.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
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 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, 2004 aggregated $9,967,555
and $12,840,507, respectively.
Morgan Stanley Trust, an affiliate of the Investment Advisor and Administrator,
is the Fund's transfer agent. At March 31, 2004, the Fund had transfer agent
fees and expenses payable of approximately $5,300.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and
16
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 continued
compensation. Aggregate pension costs for the year ended March 31, 2004 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$7,186. At March 31, 2004, the Fund had an accrued pension liability of $58,116
which is included in accrued expenses in the Statement of Assets and
Liabilities.
On December 2, 2003, the Trustees voted to close the plan to new participants,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Trustees
throughout the year.
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
--------- --------- -----------
Balance, March 31, 2002..................................... 9,467,173 $94,672 $89,534,129
Treasury shares purchased and retired (weighted average
discount 6.71%)*.......................................... (187,600) (1,876) (1,633,361)
Reclassification due to permanent book/tax differences...... -- -- 43
--------- ------- -----------
Balance, March 31, 2003..................................... 9,279,573 92,796 87,900,811
Treasury shares purchased and retired (weighted average
discount 6.08%)*.......................................... (169,700) (1,697) (1,478,205)
Reclassification due to permanent book/tax differences...... -- -- (786)
--------- ------- -----------
Balance, March 31, 2004..................................... 9,109,873 $91,099 $86,421,820
========= ======= ===========
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
5. Dividends
On March 30, 2004, the Fund declared the following dividends from net investment
income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- -------------- ----------------
$0.045 April 16, 2004 April 30, 2004
$0.045 May 7, 2004 May 21, 2004
$0.045 June 4, 2004 June 18, 2004
</Table>
17
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 continued
6. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.
7. Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
To hedge against adverse interest rate changes, the Fund may invest in financial
futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
8. Federal Income Tax Status
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 tax purposes are reported as distributions of paid-in-capital.
18
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 continued
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
Tax-exempt income........................................... $ 5,107,395 $5,346,225
=========== ==========
As of March 31, 2004, the tax-basis components of accumulated losses were as follows:
Undistributed tax-exempt income............................. $ 817,450
Undistributed ordinary income............................... 57,228
Undistributed long-term gains............................... --
-----------
Net accumulated earnings.................................... 874,678
Capital loss carryforward*.................................. (1,188,743)
Post-October losses......................................... (83,947)
Temporary differences....................................... (90,441)
Net unrealized depreciation................................. (475,609)
-----------
Total accumulated losses.................................... $ (964,062)
===========
</Table>
* During the year ended March 31, 2004, the Fund utilized $197,569 of its net
capital loss carryforward. As of March 31, 2004, the Fund had a net capital loss
carryforward of $1,188,743 which will expire on March 31, 2011 to offset future
capital gains to the extent provided by regulations.
As of March 31, 2004, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year) and book amortization of discounts on debt
securities and permanent book/tax differences primarily attributable to tax
adjustments on debt securities sold by the Fund. To reflect reclassifications
arising from the permanent differences, paid-in-capital was charged $786,
accumulated net realized loss was charged $41,427 and accumulated undistributed
net investment income was credited $42,213.
19
Morgan Stanley Municipal Income Opportunities Trust III
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 continued
9. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants intend to move to dismiss the action and otherwise vigorously to
defend it. While the Fund believes that it has meritorious defenses, the
ultimate outcome of this matter is not presently determinable at this early
stage of the litigation, and no provision has been made in the Fund's financial
statements for the effect, if any, of this matter.
20
Morgan Stanley 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
---------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of period...................... $9.33 $ 9.32 $ 9.48 $ 9.34 $ 9.99
----- ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*................................ 0.52 0.56 0.57 0.57 0.57
Net realized and unrealized gain (loss)............... 0.09 0.01 (0.12) 0.11 (0.75)
----- ------ ------ ------ ------
Total income (loss) from investment operations............ 0.61 0.57 0.45 0.68 (0.18)
----- ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................. (0.56) (0.57) (0.57) (0.56) (0.54)
Net realized gain..................................... -- -- (0.05) (0.01) (0.01)
----- ------ ------ ------ ------
Total dividends and distributions......................... (0.56) (0.57) (0.62) (0.57) (0.55)
----- ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares*........ 0.01 0.01 0.01 0.03 0.08
----- ------ ------ ------ ------
Net asset value, end of period............................ $9.39 $ 9.33 $ 9.32 $ 9.48 $ 9.34
===== ====== ====== ====== ======
Market value, end of period............................... $8.92 $ 8.63 $ 8.72 $ 8.85 $7.688
===== ====== ====== ====== ======
Total Return+............................................. 10.00% 5.58% 5.56% 23.09% (11.87)%
Ratios to Average Net Assets:
Expenses.................................................. 1.02%(1) 0.98%(1) 0.99%(1) 0.97%(1) 0.99%(1)
Net investment income..................................... 5.59% 5.96% 6.02% 6.05% 5.89%
Supplemental Data:
Net assets, end of period, in thousands................... $85,549 $86,567 $88,271 $91,424 $92,672
Portfolio turnover rate................................... 12% 8% 18% 14% 20%
</Table>
- ---------------------------------------------------
<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%.
</Table>
21
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust III
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Morgan Stanley Municipal Income Opportunities Trust III:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Municipal Income Opportunities Trust III (the "Fund"), including the
portfolio of investments, as of March 31, 2004, and the related statements of
operations for the year then ended and changes in 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. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Municipal Income Opportunities Trust III as of March 31, 2004, 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 of America.
Deloitte & Touche LLP
New York, New York
May 17, 2004
2004 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended March 31, 2004, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
22
Morgan Stanley Municipal Income Opportunities Trust III
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- --------------------------------------- ----------- -------------- ------------------------------ -------------
Michael Bozic (63) Trustee Since April Private Investor; Director or 208
c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds
Counsel to the Independent Trustees (since April 1994) and the
919 Third Avenue Institutional Funds (since
New York, NY July 2003); formerly Vice
Chairman of Kmart Corporation
(December 1998-October 2000),
Chairman and Chief Executive
Officer of Levitz Furniture
Corporation (November
1995-November 1998) and
President and Chief Executive
Officer of Hills Department
Stores (May 1991-July 1995);
formerly variously Chairman,
Chief Executive Officer,
President and Chief Operating
Officer (1987-1991) of the
Sears Merchandise Group of
Sears, Roebuck & Co.
Edwin J. Garn (71) Trustee Since January Director or Trustee of the 208
c/o Summit Ventures LLC 1993 Retail Funds (since January
1 Utah Center 1993) and the Institutional
201 S. Main Street Funds (since July 2003);
Salt Lake City, UT member of the Utah Regional
Advisory Board of Pacific
Corp.; formerly United States
Senator (R-Utah) (1974-1992)
and Chairman, Senate Banking
Committee (1980-1986), Mayor
of Salt Lake City, Utah
(1971-1974), Astronaut, Space
Shuttle Discovery (April
12-19, 1985), and Vice
Chairman, Huntsman Corporation
(chemical company).
Wayne E. Hedien (70) Trustee Since Retired; Director or Trustee 208
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since
Counsel to the Independent Trustees September 1997) and the
919 Third Avenue Institutional Funds (since
New York, NY July 2003); formerly
associated with the Allstate
Companies (1966-1994), most
recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Michael Bozic (63) Director of Weirton Steel
c/o Kramer Levin Naftalis & Frankel LLP Corporation.
Counsel to the Independent Trustees
919 Third Avenue
New York, NY
Edwin J. Garn (71) Director of Franklin Covey (time
c/o Summit Ventures LLC management systems), BMW Bank of
1 Utah Center North America, Inc. (industrial
201 S. Main Street loan corporation), United Space
Salt Lake City, UT Alliance (joint venture between
Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific
(multilevel marketing); member of
the board of various civic and
charitable organizations.
Wayne E. Hedien (70) Director of The PMI Group Inc.
c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The
919 Third Avenue Field Museum of Natural History;
New York, NY director of various other business
and charitable organizations.
</Table>
23
Morgan Stanley Municipal Income Opportunities Trust III
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- --------------------------------------- ----------- -------------- ------------------------------ -------------
Dr. Manuel H. Johnson (55) Trustee Since July Senior Partner, Johnson Smick 208
c/o Johnson Smick International, Inc. 1991 International, Inc., a
2099 Pennsylvania Avenue, N.W. consulting firm; Chairman of
Suite 950 the Audit Committee and
Washington, D.C. Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2003); Co-
Chairman and a founder of the
Group of Seven Council (G7C),
an international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since July President, Kearns & Associates 209
PMB754 2003 LLC (investment consulting);
23852 Pacific Coast Highway Deputy Chairman of the Audit
Malibu, CA Committee and Director or
Trustee of the Retail Funds
(since July 2003) and the
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.
Michael E. Nugent (67) Trustee Since July General Partner of Triumph 208
c/o Triumph Capital, L.P. 1991 Capital, L.P., a private
445 Park Avenue investment partnership;
New York, NY Chairman of the Insurance
Committee and Director or
Trustee of the Retail Funds
(since July 1991) and the
Institutional Funds (since
July 2001); formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (71) Trustee Since July Chairman of Lumelite Plastics 209
c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the
85 Charles Colman Blvd. Governance Committee and
Pawling, NY Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Dr. Manuel H. Johnson (55) Director of NVR, Inc. (home
c/o Johnson Smick International, Inc. construction); Chairman and Trustee
2099 Pennsylvania Avenue, N.W. of the Financial Accounting
Suite 950 Foundation (oversight organization
Washington, D.C. of the Financial Accounting
Standards Board); Director of RBS
Greenwich Capital Holdings
(financial holding company).
Joseph J. Kearns (61) Director of Electro Rent
PMB754 Corporation (equipment leasing),
23852 Pacific Coast Highway The Ford Family Foundation, and the
Malibu, CA UCLA Foundation.
Michael E. Nugent (67) Director of various business
c/o Triumph Capital, L.P. organizations.
445 Park Avenue
New York, NY
Fergus Reid (71) Trustee and Director of certain
c/o Lumelite Plastics Corporation investment companies in the
85 Charles Colman Blvd. JPMorgan Funds complex managed by
Pawling, NY J.P. Morgan Investment Management
Inc.
</Table>
24
Morgan Stanley Municipal Income Opportunities Trust III
TRUSTEE AND OFFICER INFORMATION continued
Interested Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Interested Trustee Registrant Time Served* Past 5 Years** Trustee***
- ------------------------------------- ----------- -------------- ------------------------------ -------------
Charles A. Fiumefreddo (70) Chairman of Since July Chairman and Director or 208
c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds
Harborside Financial Center, and Trustee (since July 1991) and the
Plaza Two, Institutional Funds (since
Jersey City, NJ July 2003); formerly Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (56) Trustee Since June Director or Trustee of the 208
c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000)
Harborside Financial Center, and the Institutional Funds
Plaza Two, (since July 2003); Senior
Jersey City, NJ Advisor of Morgan Stanley
(since August 2000); Director
of the Distributor and Dean
Witter Realty Inc.; previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley (May
1999-August 2000), and
President and Chief Operating
Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
<Caption>
Name, Age and Address of
Interested Trustee Other Directorships Held by Trustee
- ------------------------------------- -----------------------------------
Charles A. Fiumefreddo (70) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
James F. Higgins (56) Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust The Equitable Life Assurance
Harborside Financial Center, Society of the United States
Plaza Two, (financial services).
Jersey City, NJ
</Table>
- ---------------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the
"Retail Funds").
** The dates referenced below indicating commencement of services as
Director/Trustee for the Retail Funds and the funds advised by Morgan
Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the
"Institutional Funds") reflect the earliest date the Director/Trustee began
serving the Retail or Institutional Funds as applicable.
*** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Manager and any funds that
have an investment advisor that is an affiliated person of the Investment
Manager (including but not limited to Morgan Stanley Investment Management
Inc.).
25
Morgan Stanley Municipal Income Opportunities Trust III
TRUSTEE AND OFFICER INFORMATION continued
Officers:
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and Morgan
Stanley Services; Chairman and Director of the Distributor;
Chairman and Director of the Transfer Agent; Director of
various Morgan Stanley subsidiaries; President of the
Institutional Funds (since July 2003) and President of the
Retail Funds (since May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van Kampen Closed-End
Funds; Trustee (since May 1999) and President (since October
2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (65) Executive Vice Since April Chief Global Operations Officer and Managing Director of
1221 Avenue of the Americas President and 2003 Morgan Stanley Investment Management Inc.; Managing Director
New York, NY Principal of Morgan Stanley & Co. Incorporated; Managing Director of
Executive Morgan Stanley; Managing Director, Chief Administrative
Officer Officer and Director of the Investment Manager and Morgan
Stanley Services; Chief Executive Officer and Director of
the Transfer Agent; Managing Director and Director of the
Distributor; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since July
2003); and previously President and Director of the
Institutional Funds (March 2001-July 2003).
Barry Fink (49) Vice President Since February General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas and General 1997 (since December 2000) of Morgan Stanley Investment
New York, NY Counsel Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley Services;
Assistant Secretary of Morgan Stanley DW; Vice President of
the Institutional Funds (since July 2003); Managing
Director, Secretary and Director of the Distributor;
previously Secretary of the Retail Funds (February 1997-July
2003); previously Vice President and Assistant General
Counsel of the Investment Manager and Morgan Stanley
Services (February 1997-December 2001).
Joseph J. McAlinden (61) Vice President Since July Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas 1995 Investment Manager and Morgan Stanley Investment Management
New York, NY Inc.; Director of the Transfer Agent, Chief Investment
Officer of the Van Kampen Funds; Vice President of the
Institutional Funds (since July 2003) and the Retail Funds
(since July 1995).
Stefanie V. Chang (37) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and Vice President
New York, NY of the Institutional Funds (since December 1997) and the
Retail Funds (since July 2003); formerly practiced law with
the New York law firm of Rogers & Wells (now Clifford Chance
US LLP).
</Table>
26
Morgan Stanley Municipal Income Opportunities Trust III
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial since July Stanley Services (since December 2001); previously Vice
Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003);
Plaza Two, Financial previously Vice President of the Investment Manager and
Jersey City, NJ Officer since Morgan Stanley Services (August 2000-November 2001) and
September 2002 Senior Manager at PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (58) Vice President Since July Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust 2003 Treasurer of the Investment Manager, the Distributor and
Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail
Plaza Two, Funds (April 1989-July 2003); formerly First Vice President
Jersey City, NJ of the Investment Manager, the Distributor and Morgan
Stanley Services.
Mary E. Mullin (37) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc.; Secretary of the
New York, NY Institutional Funds (since June 1999) and the Retail Funds
(since July 2003); formerly practiced law with the New York
law firms of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ---------------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an Officer
for the Retail and Institutional Funds reflect the earliest date the Officer
began serving the Retail or Institutional Funds as applicable.
27
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President and General Counsel
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Municipal Income
Opportunities Trust III
Annual Report
March 31, 2004
[MORGAN STANLEY LOGO]
38513RPT-RA04-00156P-Y03/04
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES......................... $ 27,930 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES....... $ 684 (2) $ 3,364,576 (2)
TAX FEES................. $ 4,134 (3) $ 652,431 (4)
ALL OTHER FEES........... $ -- $ --
TOTAL NON-AUDIT FEES............... $ 4,818 $ 4,017,007
TOTAL.............................. $ 32,748 $ 4,017,007
2003
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES......................... $ 27,253 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES....... $ 657 (2) $ 2,620,902 (2)
TAX FEES................. $ 4,229 (3) $ 302,377 (4)
ALL OTHER FEES........... $ -- $ 423,095 (5)
TOTAL NON-AUDIT FEES............... $ 4,886 $ 3,346,374
TOTAL.............................. $ 32,139 $ 3,346,374
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors)
and any entity controlling, controlled by or under common
control with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically
data verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and
review of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future
business applications and improving business and operational
processes.
2
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee or its delegate ("specific pre-approval"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the general pre-approval of the Audit
Committee. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers and provides a different
period and states otherwise. The Audit Committee will annually review and
pre-approve the services that may be provided by the Independent Auditors
without obtaining specific pre-approval from the Audit Committee. The Audit
Committee will add to or subtract from the list of general pre-approved services
from time to time, based on subsequent determinations.
- --------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "Policy"), adopted as of the date above, supercedes and
replaces all prior versions that may have been adopted from time to time.
3
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant general pre-approval to other
Audit services, which are those services that only the Independent Auditors
reasonably can provide. Other Audit services may include statutory audits and
services associated with SEC registration statements (on Forms N-1A, N-2, N-3,
N-4, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix
B.1. All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
4
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3
must be specifically pre-approved by the Audit Committee (or by any member of
the Audit Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
5
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer
to monitor the performance of all services provided by the Independent Auditors
and to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.
6
1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and
7
Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund invests in exclusively non-voting securities and therefore this item is
not applicable.
Item 8. [Reserved.]
Item 9 -- Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
8
Item 10 Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Municipal Income Opportunities Trust III
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
May 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
May 18, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
May 18, 2004
10