N-Q
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-06052
Morgan Stanley Municipal Income Opportunities Trust III
(Exact name of registrant as specified in charter)
     
522 Fifth Avenue, New York, New York   10036
(Address of principal executive offices)   (Zip code)
Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6963
Date of fiscal year end: March 31, 2009
Date of reporting period: December 31, 2008
 
 

 

 

Item 1. Schedule of Investments.
The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:
Morgan Stanley Municipal Income Opportunities Trust III
Portfolio of Investments December 31, 2008 (unaudited)
                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
       
Tax-Exempt Municipal Bonds (102.4%)
                        
       
Alabama (1.0%)
                        
$ 500    
Colbert County Northwest Health Care Authority, Helen Keller Hospital Ser 2003
     5.75 %     06/01/27     $ 371,810  
  200    
Cullman Medical Park South, Medical Clinic Board Ser 1993 A
     6.50       02/15/23       167,368  
       
 
                      
       
 
                     539,178  
       
 
                      
       
 
                        
       
Arizona (2.9%)
                        
  650    
Pima County Industrial Development Authority, Constellation Schools Ser 2008
     7.00       01/01/38       473,733  
  1,000    
Pima County Industrial Development Authority, Noah Webster Basic School Ser 2004 A
     6.125       12/15/34       688,280  
  400    
Pima County Industrial Development Authority, Water & Wastewater Global Water Resources LLC Ser 2007 (ATM)
     6.55       12/01/37       263,456  
  250    
Pinal County Electrical District # 4 Electric System Ser 2008
     6.00       12/01/38       182,855  
       
 
                      
       
 
                     1,608,324  
       
 
                      
       
 
                        
       
California (6.0%)
                        
  940    
California County Tobacco Securitization Agency, Gold County Settlement Funding Corp Ser 2006
     0.00       06/01/33       65,697  
  200    
California Municipal Finance Authority Educational Facility, Ser 2008 (a)
     5.875       07/01/28       134,150  
  500    
California Statewide Communities Development Authority, Lancer Educational Housing LLC Ser 2007
     5.625       06/01/33       285,085  
  200    
California Statewide Communities Development Authority, Thomas Jefferson School Ser 2008 A
     7.25       10/01/38       144,480  
  475    
Carlsbad Community Facility District #3, Ser 2006
     5.30       09/01/36       281,314  
  2,000    
Golden State Tobacco Securitization Corporation, Asset Backed Ser 2007 A-1
     5.125       06/01/47       1,016,180  
  450    
Quechan Indian Tribe FT Yuma Indian Reservation Ser 2008
     7.00       12/01/27       327,861  
  1,300    
San Diego County, San Diego Natural History Museum (COPs)
     5.60       02/01/18       1,041,560  
  5,000    
Silicon Valley Tobacco Securitization Authority, Santa Clara Tobacco Securitization Corp Ser 2007
     0.00       06/01/56       22,250  
       
 
                      
       
 
                     3,318,577  
       
 
                      
       
 
                        
       
Colorado (2.9%)
                        
  500    
Colorado Health Facilities Authority, Christian Living Communities Ser 2006 A
     5.75       01/01/37       275,730  
  1,000    
Copperleaf Metropolitan District #2 Ser 2006
     5.95       12/01/36       520,860  
  500    
Elk Valley Public Improvement Corporation, Ser 2001 A
     7.30       09/01/22       418,455  
  500    
Elk Valley Public Improvement Corporation, Ser 2001 A
     7.35       09/01/22       375,750  
       
 
                      
       
 
                     1,590,795  
       
 
                      
       
 
                        
       
Connecticut (3.4%)
                        
  1,000    
Georgetown Special Taxing District, Ser 2006 A (a)
     5.125       10/01/36       486,310  
  500    
Mashantucket (Western) Pequot Tribe, Special Ser 1997 B (a)
     6.50       09/01/31       346,235  
  1,500    
Mohegan Tribe of Indians, Connecticut, Gaming Authority Ser 2001 (a)
     6.25       01/01/31       1,032,180  
       
 
                      
       
 
                     1,864,725  
       
 
                      
       
 
                        
       
District of Columbia (1.2%)
                        
  705    
Metropolitan Washington Airports Authority, District of Columbia & Virginia, CaterAir International Corp Ser 1991 (AMT) (c)
     10.125       09/01/11       673,649  
       
 
                      
       
 
                        
       
Florida (17.5%)
                        
  500    
Alachua County, North Florida Retirement Village Ser 2007
     5.875       11/15/36       287,905  
  480    
Bellalago Educational Facilities Benefits District, Bellalago Charter School Ser 2004 B
     5.80       05/01/34       311,597  
  295    
Brevard County Health Facilities Authority, Buena Vida Estates, Inc Ser 2007
     6.75       01/01/37       199,146  
  1,550    
Broward County Professional Sports Facilities, Civic Arena Refg Ser 2006 A (FSA Insd) (b)
     5.00       09/01/23       1,532,502  
  500    
Fiddlers Creek Community Development District # 1 Ser 2005
     6.00       05/01/38       299,335  
  250    
Fountainbleau Lakes Community Development District Ser 2007 B
     6.00       05/01/15       198,115  
  1,000    
Grand Bay at Doral Community Development District Ser 2007 A
     6.00       05/01/39       520,020  
  250    
Miami Beach, Health Facilities Authority Hospital Refg Ser 2004
     6.75       11/15/21       196,163  
  1,000    
Midtown Miami Community Development District, Parking Garage Ser 2004 A
     6.25       05/01/37       624,869  
  1,100    
Orange County Health Facilities Authority, Orlando Lutheran Towers, Inc Ser 2005
     5.375       07/01/20       772,530  
  2,000    
Orange County Health Facilities Authority, Westminister Community Care Services Inc Ser 1999
     6.75       04/01/34       1,372,039  
  1,000    
Pinellas County Health Facilities Authority, Oaks of Clearwater Ser 2004
     6.25       06/01/34       796,949  
  1,500    
South Miami Health Facilities Authority, Baptist Health South Florida Obligated Group Ser 2007 (b)
     5.00       08/15/32       1,272,533  
  1,000    
St Johns County Industrial Development Authority, Glenmoor Ser 1999 A
     8.00       01/01/10 (d)     1,081,080  
  300    
Tolomato Community Development District, Special Assessment Ser 2007
     6.55       05/01/27       188,628  
       
 
                      
       
 
                     9,653,411  
       
 
                      
       
 
                        
       
Georgia (0.6%)
                        
  500    
Atlanta Eastside Ser 2005 B
     5.60       01/01/30       310,005  
       
 
                      
       
 
                        
       
Hawaii (1.2%)
                        
  640    
Hawaii State Ser 2008 DK (b)
     5.00       05/01/23       653,419  
       
 
                      
       
 
                        
       
Illinois (4.7%)
                        
  500    
Bolingbrook Sales Tax Ser 2005
     6.25       01/01/24       361,535  
  500    
Chicago Lake Shore East Ser 2002
     6.75       12/01/32       325,350  
  260    
Hampshire Special Service Area #18 Ser 2007 A
     6.00       03/01/44       131,417  
  500    
Illinois Finance Authority, Elmhurst Memorial Healthcare Ser 2008 A
     5.625       01/01/37       311,055  
  500    
Illinois Finance Authority, Landing at Plymouth Ser 2005 A
     6.00       05/15/37       290,735  
  500    
Illinois Finance Authority, Montgomery Place Ser 2006 A
     5.75       05/15/38       276,910  
  750    
Illinois Health Facilities Authority, Villa St Benedict Ser 2003 A-1
     6.90       11/15/33       406,875  
  497    
Pingree Grove Special Service Area # 7, Cambridge Lakes Ser 2006-1
     6.00       03/01/36       286,665  
  300    
Will-Kankakee Regional Development Authority, Senior Estates Supportive Living Ser 2007 (AMT)
     7.00       12/01/42       213,360  
       
 
                      
       
 
                     2,603,902  
       
 
                      
       
 
                        
       
Indiana (2.9%)
                        
  275    
Saint Joseph County, Indiana, Holy Cross Village at Notre Dame Ser 2006 A
     6.00       05/15/26       179,325  
  1,500    
Upland, Taylor University Ser 2002
     6.25       09/01/28       1,442,145  
       
 
                      
       
 
                     1,621,470  
       
 
                      

 

 

                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
       
Iowa (2.0%)
                        
  915    
Iowa Health Facilities Development Financing Authority, Care Initiatives Ser 1996
     9.25       07/01/11 (d)     1,098,320  
       
 
                      
       
 
                        
       
Kansas (2.5%)
                        
  500    
Olathe Catholic Care Ser 2006 A
     6.00       11/15/38       291,595  
  1,000    
Overland Park Development Corporation, Convention Center Hotel Ser 2000 A
     7.375       01/01/11 (d)     1,110,619  
       
 
                      
       
 
                     1,402,214  
       
 
                      
       
 
                        
       
Louisiana (1.0%)
                        
  447    
Lakeshore Villages Master Community Development District, Special Assessment Ser 2007
     5.25       07/01/17       329,917  
  300    
Louisiana Public Facilities Authority, Lake Charles Memorial Hospital Refg Ser 2007
     6.375       12/01/34       193,083  
       
 
                      
       
 
                     523,000  
       
 
                      
       
Maryland (2.3%)
                        
  1,235    
Maryland Industrial Development Financing Authority, Medical Waste Associates LP 1989 Ser (AMT)
     8.75       11/15/10       1,047,700  
  500    
Maryland State Health & Higher Educational Facilities Authority, King Farm Presbyterian Community 2007 Ser A
     5.30       01/01/37       245,665  
       
 
                      
       
 
                     1,293,365  
       
 
                      
       
 
                        
       
Massachusetts (3.8%)
                        
  645    
Massachusetts Development Finance Agency, Kennedy-Donovan Center Inc 1990 Issue
     7.50       06/01/10       627,656  
  1,425    
Massachusetts Development Finance Agency, Loomis Communities Ser 1999 A
     5.625       07/01/15       1,291,207  
  300    
Massachusetts Development Finance Authority, Evergreen Center Ser 2005
     5.50       01/01/35       188,250  
       
 
                      
       
 
                     2,107,113  
       
 
                      
       
Michigan (1.4%)
                        
  250    
Dearborn Economic Development Corporation Ser 1989
     7.00       11/15/28       189,115  
  1,000    
Michigan Tobacco Settlement Finance Authority, Ser 2007 A
     6.00       06/01/48       584,600  
       
 
                      
       
 
                     773,715  
       
 
                      
       
Minnesota (2.1%)
                        
  750    
Aitkin, Riverwood Healthcare Center Ser 2006
     5.60       02/01/32       442,463  
  500    
Buffalo Central Minnesota Senior Housing Ser 2006 A
     5.50       09/01/33       283,525  
  300    
City of Minneapolis, Health Care System, Fairview Health Services, Ser 2008 A
     6.75       11/15/32       299,262  
  250    
North Oaks Presbyterian Homes of North Oaks Ser 2007
     6.125       10/01/39       146,900  
       
 
                      
       
 
                     1,172,150  
       
 
                      
       
Mississippi (0.3%)
                        
  200    
Mississippi Business Finance Corporation, System Energy Resources, Inc. Ser 1998
     5.875       04/01/22       140,908  
       
 
                      
       
Missouri (4.0%)
                        
  250    
Branson Regional Airport Transportation Development District Ser 2007 B (AMT)
     6.00       07/01/37       147,508  
  1,000    
Des Peres, West County Center Ser 2002
     5.75       04/15/20       809,930  
  250    
Kansas City Industrial Development Authority, Bishop Spencer 2004 Ser I
     6.25       01/01/24       172,693  
  1,000    
Kansas City Industrial Development Authority, Plaza Library Ser 2004
     5.90       03/01/24       749,730  
  250    
St. Louis Industrial Development Authority, Health Facilities Ranken Jordan Ser 2007
     5.00       11/15/22       145,190  
  250    
St. Louis Industrial Development Authority, St. Andrews Resources for Seniors Ser 2007 A
     6.375       12/01/41       162,098  
       
 
                      
       
 
                     2,187,149  
       
 
                      
       
Nevada (1.7%)
                        
  490    
Clark County Special Improvement District #142, Mountain’s Edge Ser 2003
     6.375       08/01/23       305,192  
  500    
Henderson, Local Improvement District #T-18, Ser 2006
     5.30       09/01/55       180,960  
  1,000    
Nevada Department of Business & Industry, Las Vegas Monorail 2nd Tier Ser 2000
     7.375       01/01/40       226,480  
  300    
Sparks Local Improvement District # 3 Ser 2008
     6.50       09/01/20       239,001  
       
 
                      
       
 
                     951,633  
       
 
                      
       
New Jersey (4.6%)
                        
  1,000    
New Jersey Economic Development Authority, Franciscan Oaks Ser 1997
     5.75       10/01/17       804,300  
  1,000    
New Jersey Economic Development Authority, Franciscan Oaks Ser 1997
     5.75       10/01/23       705,500  
  500    
New Jersey Economic Development Authority, Lions Gate Ser 2005 A
     5.875       01/01/37       287,815  
  1,000    
New Jersey Health Care Facilities Financing Authority, Raritan Bay Medical Center Ser 1994
     7.25       07/01/27       761,720  
       
 
                      
       
 
                     2,559,335  
       
 
                      
       
New York (2.0%)
                        
  1,000    
Mount Vernon Industrial Development Agency, Meadowview at the Wartburg Ser 1999
     6.20       06/01/29       686,220  
  700    
New York City Industrial Development Agency, 7 World Trade Center LLC Ser 2005 A
     6.50       03/01/35       420,294  
       
 
                      
       
 
                     1,106,514  
       
 
                      
       
 
                        
       
North Carolina (0.5%)
                        
  200    
North Carolina Medical Care Commission Healthcare Facilities, Pennybyrn Ser 2005 A
     6.125       10/01/35       120,336  
  250    
North Carolina Medical Care Commission Healthcare Facilities, Southminster Ser 2007 A
     5.75       10/01/37       141,095  
       
 
                      
       
 
                     261,431  
       
 
                      
       
North Dakota (0.3%)
                        
  250    
Ward County Health Care Facilities, Trinity Obligated Group Ser 2006
     5.125       07/01/29       156,380  
       
 
                      
       
 
                        
       
Ohio (2.2%)
                        
  1,000    
Buckeye Tobacco Settlement Financing Authority, Asset Backed Ser 2007 A-2
     5.875       06/01/30       629,250  
  300    
Centerville Health Care, Bethany Lutheran Village Continuing Care Facility, Ser 2007 A
     6.00       11/01/38       170,691  
  450    
Cuyahoga County Health Care and Independent Living Facilities, Eliza Jennings Senior Care Ser 2007 A
     5.75       05/15/27       288,374  
  200    
Tuscarawas County Hospital Facilities, Twin City Hospital Ser 2007
     6.35       11/01/37       126,524  
       
 
                      
       
 
                     1,214,839  
       
 
                      
       
Oklahoma (1.8%)
                        
  300    
Chickasaw Nation Health Systems Ser 2007
     6.25       12/01/32       195,399  
  1,000    
Oklahoma Development Finance Authority, Comanche County Hospital 2000 Ser B
     6.60       07/01/31       809,210  
       
 
                      
       
 
                     1,004,609  
       
 
                      

 

 

                                 
PRINCIPAL                        
AMOUNT IN         COUPON     MATURITY        
THOUSANDS         RATE     DATE     VALUE  
       
Pennsylvania (5.5%)
                        
  1,100    
Allegheny County Development Authority, West Penn Ser 2007 A
     5.375       11/15/40       525,525  
  500    
Allegheny County Redevelopment Authority, Pittsburgh Mills Ser 2004
     5.60       07/01/23       351,380  
  750    
Bucks County Industrial Development Authority, Ann’s Choice Ser 2005 A
     6.25       01/01/35       463,868  
  1,000    
Harrisburg Authority, Harrisburg University of Science & Technology Ser 2007 B
     6.00       09/01/36       649,820  
  500    
Montgomery County Industrial Development Authority, Whitemarsh Community Ser 2005
     6.25       02/01/35       299,890  
  500    
Pennsylvania Economic Development Financing Authority, Reliant Energy Inc Ser 2001 A (AMT)
     6.75       12/01/36       322,235  
  500    
Pennsylvania Housing Finance Agency Ser 2007-100A (AMT)
     5.10       10/01/22       427,585  
       
 
                      
       
 
                     3,040,303  
       
 
                      
       
South Carolina (3.0%)
                        
  750    
Myrtle Beach, Air Force Base Redevelopment Ser 2006 A
     5.30       11/01/35       394,845  
  1,100    
South Carolina Jobs — Economic Development Authority, Lutheran Homes of South Carolina, Ser 2007
     5.50       05/01/28       686,114  
  750    
South Carolina Jobs — Economic Development Authority, Wesley Commons Ser 2006
     5.30       10/01/36       397,110  
  325    
South Carolina Jobs — Economic Development authority, Woodlands At Furman Ser 2007 A
     6.00       11/15/37       192,270  
       
 
                      
       
 
                     1,670,339  
       
 
                      
       
Tennessee (2.0%)
                        
  400    
Johnson City Health & Educational Facilities, Mountain States Health Alliance Ser 2006 A
     5.50       07/01/31       263,816  
  500    
Shelby County Health, Educational & Housing Facilities Board, Trezevant Manor Ser 2006 A
     5.75       09/01/37       294,820  
  750    
Shelby County Health, Educational & Housing Facilities Board, Village at Germantown Ser 2003 A
     7.25       12/01/34       530,655  
       
 
                      
       
 
                     1,089,291  
       
 
                      
       
Texas (5.9%)
                        
  500    
Austin Convention Enterprises Inc, Convention Center Hotel Ser 2006 B
     5.75       01/01/34       291,465  
  500    
Decatur Hospital Authority, Wise Regional Health Ser 2004 A
     7.125       09/01/34       361,480  
  500    
HFDC Central Texas Inc, Legacy at Willow Bend, Ser 2006 A
     5.75       11/01/36       274,815  
  1,000    
Lubbock Health Facilities Development Corporation, Carillon Senior Lifecare Ser 2005 A
     6.50       07/01/26       705,540  
  250    
Tarrant County Cultural Education Facilities Finance Corporation, Northwest Senior Housing, Ser 2006 A
     6.00       11/15/36       143,480  
  1,760    
Texas Department of Housing and Community Affairs 2007 Ser B (AMT) (b)
     5.15       09/01/27       1,467,269  
       
 
                      
       
 
                     3,244,049  
       
 
                      
       
Utah (0.4%)
                        
  350    
Emery County Enviromental Improvement, Pacificorp Ser 1996 (AMT)
     6.15       09/01/30       245,056  
       
 
                      
       
Virginia (4.6%)
                        
  2,527    
Chesterfield County Industrial Development Authority, Brandermill Woods, Ser 1998
     6.50       01/01/28       1,778,462  
  1,000    
Peninsula Ports Authority of Virginia, Baptist Homes, Ser 2006 C
     5.40       12/01/33       571,350  
  300    
Peninsula Town Center Community Development Authority, Ser 2007
     6.45       09/01/37       179,598  
       
 
                      
       
 
                     2,529,410  
       
 
                      
       
Washington (1.7%)
                        
  250    
Port of Seattle Industrial Development Corporation, Special Facilities, Northwest Airlines, Inc. Ser 2001
     7.25       04/01/30       141,073  
  280    
Washington Housing Finance Commission, FNMA Collateralized Refg Ser 1990 A
     7.50       07/01/23       280,305  
  1,000    
Washington Housing Finance Commission, Skyline at First Hill Ser 2007 A
     5.625       01/01/38       542,480  
       
 
                      
       
 
                     963,858  
       
 
                      
       
West Virginia (0.5%)
                        
  425    
West Virginia Hospital Finance Authority, Thomas Health Ser 2008
     6.50       10/01/38       278,328  
       
 
                      
       
 
                        
       
Wyoming (2.0%)
                        
  1,500    
Teton County Hospital District, Wyoming, St John’s Medical Center Ser 2002
     6.75       12/01/27       1,097,774  
       
 
                      
       
 
                        
       
Total Tax-Exempt Municipal Bonds
(Cost $78,667,628)
                     56,548,538  
       
 
                      
                         
NUMBER OF                      
SHARES(000)                      
       
Short-Term Tax-Exempt Municipal Obligation (e) (0.7%) Investment Company
                
  412    
Morgan Stanley Institutional Liquidity Funds — Tax-Exempt Portfolio - Institutional Class
(Cost $412,003)
             412,003  
       
 
              
                         
PRINCIPAL                      
AMOUNT IN                      
THOUSANDS                      
       
Floating Rate Note and Dealer Trusts Obligations Related to Securities Held (-4.9%)
                
$ (2,725 )  
Notes with interest rates ranging from 1.20% to 1.75% at December 31, 2008 and contractual maturities of collateral ranging from 05/01/23 to 08/15/32 (f) (Cost $(2,725,000))
             (2,725,000 )
       
 
              
       
 
                
       
Total Net Investments
(Cost $76,354,631) (g)
     98.2 %     54,235,541  
       
 
            
       
Other Assets in Excess of Liabilities
     1.8       998,433  
       
 
            
       
 
                
       
Net Assets
     100.0 %   $ 55,233,974  
       
 
            

 

 

 
AMT   Alternative Minimum Tax.
 
COPs   Certificates of Participation.
 
(a)   Resale is restricted to qualified institutional investors.
 
(b)   Underlying security related to inverse floater entered into by the Fund.
 
(c)   Joint exemption.
 
(d)   Prerefunded to call date shown.
 
(e)   The Fund invests in Morgan Stanley Institutional Liquidity Funds — Tax-Exempt Portfolio - Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Tax-Exempt Portfolio - Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Funds - Tax-Exempt Portfolio — Institutional Class.
 
(f)   Floating rate note obligations related to securities held — The Fund enters into transactions in which it transfers to Dealer Trusts (“Dealer Trusts”), fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts’ assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interest in the bonds. The Fund enters into shortfall agreements with the Dealer Trusts which commit the Fund to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trusts to the Fund, thereby collapsing the Dealer Trusts. The Fund accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Fund’s investment assets, and the related floating rate notes reflected as Fund liabilities. The notes issued by the Dealer Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. At December 31, 2008, Fund investments with a value of $4,925,723 are held by the Dealer Trusts and serve as collateral for the $2,725,000 in floating rate note obligations outstanding at that date.
 
(g)   The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.
     
Bond Insurance:
FSA  
Financial Security Assurance Inc.

 

 

MS Municipal Income Opportunities Trust III
Notes to the Portfolio of Investments
FAS 157
12/31/2008
The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective April 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
  •   Level 1 — quoted prices in active markets for identical investments
 
  •   Level 2 — other significant observable inputs (including quoted prices for similar
investments, interest rates, prepayment speeds, credit risk, etc.)
 
  •   Level 3 — significant unobservable inputs (including the Fund’s own assumptions
in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used as of December 31, 2008 in valuing the Fund’s investments carried at value:
                                 
            Fair Value Measurements at December 31, 2008 Using  
            Quoted Prices In     Significant     Significant  
            Active Market for     Other Observable     Unobservable  
            Identical Assets     Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)  
Investments in Securities
   $ 54,235,540     $ 412,003     $ 53,823,537       —  
 
                        
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 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; (3) interest rate swaps are marked- to-market daily based upon quotations from market makers; (4) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (5) 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.

 

 

Item 2. 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-Q 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.
(b) There were no changes in the Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 3. Exhibits.
(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

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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/ Randy Takian
Randy Takian
Principal Executive Officer
February 19, 2009
     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/ Randy Takian
Randy Takian
Principal Executive Officer
February 19, 2009
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 19, 2009

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