<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Fixed-income market conditions have improved steadily since late last year.
Bonds began to rally in November on signs of slower economic growth in the wake
of progressive tightening of monetary policy by the Federal Reserve Board. This
move toward lower long-term interest rates reversed the trend of most of 1994
when rapidly rising rates created a severe bear market in bonds.
Long-term municipal bond yields, as tracked by THE BOND BUYER Revenue Bond
Index*, dropped from a high of 7.37 percent in November to 6.00 percent at the
end of May. This 137 basis point decline in yield corresponded to a 13 percent
price increase for municipal bonds with 30-year maturities. Short-term yields
have remained basically unchanged over the past six months. Thus, the yield
spread or difference between long- and short-term municipal bond interest rates
narrowed as long rates declined.
The seasonal demand pattern for municipals in December more than offset the
uncertainty caused by the Orange County, California bankruptcy filing. During a
period of scarce supply, the market anticipated cash inflows in January from the
reinvestment of coupons and the proceeds from bond calls and maturities.
Tax-exempt bonds outperformed U.S. Treasury bonds through February. The
ratio of the Revenue Bond Index yield to the 30-year U.S. Treasury bond yield
fell from a high of 92 percent in November to 84 percent by the end of February.
A declining ratio means that municipal bond prices have been stronger than U.S.
Treasury prices. Tax reform proposals advancing the flat tax concept were
partially responsible for municipals underperforming Treasuries from March
through May. By the end of May, the Revenue Bond Index/Treasury bond yield ratio
had again risen to 91 percent.
The pace of new-issue underwriting over the first five months of 1995 was 36
percent below the same period last year. With bond maturities and calls for
redemption estimated to exceed new issues coming to market this year, the
outstanding supply of municipal securities is expected to decline. This scarcity
of municipal issues should strengthen market conditions.
FUND PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust (OIA) rose
from $8.47 to $8.53 per share during the fiscal year ended May 31, 1995. Based
on this NAV change plus reinvestment of tax-free dividends totaling $0.63 per
share, the Fund's total NAV return for the year was 8.91 percent. The Fund's
total return was aided by the resolution of several accruing and non-accruing
problem loans and the defensive nature of the portfolio's high-coupon structure.
The Fund's market price on the New York Stock Exchange improved slightly from
$8.125 to $8.25 per share during the fiscal year. Based on this change and
including reinvestment of dividends and capital gains, OIA's total market return
for the fiscal year was 9.81 percent. On May 31, 1995 the Fund had undistributed
net investment income of $0.093 per share. A year earlier, undistributed net
investment income totaled $0.044 per share. This dividend reserve or "cushion"
was available to maintain the Fund's monthly dividend at $0.0525 per share.
OIA's market price began the fiscal year trading at a 4.1 percent discount to
NAV and ended at a 3.3 percent discount to NAV.
- --------------------------------------------------------------------------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE>
PORTFOLIO STRUCTURE
Over the course of the fiscal year, more than $2 million in principal amount
was realized from the sale, liquidation and litigation of four non-accruing
loans. A favorable settlement involving La Salle County, Texas jail bonds was
received after the Fund and other plaintiffs won a jury verdict. At the end of
the fiscal year, two loans representing 0.3 percent of net assets were not
accruing interest. An additional four loans totaling 6.1 percent of net assets
that were accruing income may have difficulty meeting future debt-service
payments and face restructuring or sale. A year earlier, five loans aggregating
10 percent of net assets were in this category of problem loans.
As of May 31, 1995, the Fund had net assets totaling approximately $180
million. The portfolio was diversified among 12 specific municipal sectors and
50 separate issuers. The two largest municipal sectors nursing/health related
and industrial development/pollution control revenue-represented 48 percent of
net assets. The average maturity and call protection of the Fund's long-term
holdings were 19 and 6 years, respectively.
LOOKING AHEAD
Slower economic growth in 1995 and the extent of the Federal Reserve Board's
previous interest rate moves have improved bond market expectations. Investor
demand for municipal securities should also be sustained by significant bond
maturities, calls for redemption and diminished new-issue supply. Changing
market conditions and bond sales in anticipation of redemptions are among the
factors that will determine the Fund's future level of income and influence its
market price. Even with the move to higher yields that occurred last year, the
Fund cannot replace the yields of many older investments which may be called or
sold in the next few years. OIA continues to gradually upgrade its portfolio by
purchasing more investment-grade bonds than non-rated securities.
The Fund's procedures for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund, when
appropriate, may purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the fiscal year ended May 31, 1995, OIA
purchased and retired 370,300 shares of common stock at a weighted average
market discount of 9.1 percent.
We appreciate your ongoing support of Municipal Income Opportunities Trust
and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS MAY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (91.1%)
GENERAL OBLIGATION (1.1%)
$ 2,000 New York City, New York, 1994 Ser D................................. 5.75% 08/15/10 $ 1,915,740
---------------
- -----------
EDUCATIONAL FACILITIES REVENUE (2.1%)
3,000 New Jersey Educational Facilities Authority, Fairleigh Dickinson
University 1993 Ser C............................................. 6.625 07/01/23 2,919,720
1,000 New York State Dormitory Authority, State University Refg Ser 1993
A................................................................. 5.25 05/15/15 914,470
---------------
- -----------
3,834,190
4,000
---------------
- -----------
HOSPITAL REVENUE (4.0%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs....... 9.50 07/01/20 2,189,400
1,065 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990
C................................................................. 9.50 11/15/19 1,246,263
1,500 North Central Texas Health Facilities Development Corporation,
University Medical Center Inc Ser 1987............................ 7.75 04/01/17 1,541,610
1,945 Buena Vista Industrial Development Authority, Virginia, Stonewall
Jackson Hospital Ser 1987......................................... 8.375 11/01/14 2,138,469
---------------
- -----------
7,115,742
6,510
---------------
- -----------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (22.1%)
480 Metropolitan Washington Airports Authority, District of Columbia,
Caterair International Corp Ser 1991 (AMT)........................ 10.125 09/01/11 504,302
1,585 Illinois Development Finance Authority, Custom Tapes Inc Refg Ser
1989 ............................................................. 10.50 05/01/19 1,616,700
3,955 Detroit Economic Development Corporation, Michigan, North Industrial
Park LP Ser 1989.................................................. 11.375 02/15/14 4,371,224
1,660 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT)............ 9.375 10/01/06 1,800,136
3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT)............ 9.00 12/01/19 3,624,444
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A..................... 12.50 10/01/09 2,291,340
1,215 Zanesville - Muskingum County Port Authority, Ohio, Anchor Glass
Container Corp Ser 1989 B (AMT)................................... 10.25 12/01/08 1,308,774
1,000 Beaver County, Industrial Development Authority, Pennsylvania,
Cleveland Illuminating Co Refg Ser 1995........................... 7.625 05/01/25 1,022,290
2,229 Butler County, Industrial Development Authority, Pennsylvania,
Morgan Management Co Ser 1976..................................... 8.75 11/15/03 2,329,547
3,800 East Hempfield Township Industrial Development Authority,
Pennsylvania, Herley Microwave System Inc Ser 1989 A.............. 10.40 06/01/04 4,341,044
4,000 Pennsylvania Economic Development Authority, McMillan Bloedel Ltd
Ser 1995 (AMT).................................................... 7.60 12/01/20 4,315,640
Lexington County, South Carolina, Ellett Brothers Inc
2,850 Refg Ser 1988....................................................... 10.625 09/01/02 3,007,007
4,250 Refg Ser 1988....................................................... 10.625 09/01/08 4,484,048
4,500 Pittslyvania County Industrial Development Authority, Virginia,
Multi Trade Ser 1994 A (AMT)...................................... 7.45 01/01/09 4,703,895
---------------
- -----------
39,720,391
37,124
---------------
- -----------
MORTGAGE REVENUE - MULTI-FAMILY (3.8%)
Washington County Housing & Redevelopment Authority, Minnesota,
3,885 Ser 1989 A.......................................................... 9.75 06/15/19 2,331,000
1,165 Ser 1989 A (AMT).................................................... 10.25 06/15/19 699,000
24,080 Ser 1989 B.......................................................... 0.00 06/15/19 481,599
8,678 Ser 1989 B (AMT).................................................... 0.00 06/15/19 173,557
</TABLE>
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS MAY 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
White Bear Lake, Minnesota, White Bear Woods Apts Phase II
$ 3,715 Refg 1989 Ser A..................................................... 9.75% 06/15/19 $ 2,600,500
23,786 Refg 1989 Ser B..................................................... 0.00 06/15/19 475,718
---------------
- -----------
6,761,374
65,309
---------------
- -----------
MORTGAGE REVENUE - SINGLE FAMILY (10.5%)
5,000 Alaska Housing Finance Corporation, Insured 1993 First Ser.......... 5.90 12/01/33 4,760,050
42,504 San Francisco, California, Ser 1982................................. 0.00 10/01/14 5,303,649
565 Broward County Housing Finance Authority, Florida, Home Ser 1989
A ................................................................ 10.00 10/01/03 577,328
58,425 New Hampshire Housing Finance Authority, Residental 1983 Ser B...... 0.00 01/01/15 7,503,523
770 Rhode Island Housing & Mortgage Finance Corporation, Homeownership
1988 Ser 1-B (AMT)................................................ 8.40 10/01/22 806,244
---------------
- -----------
18,950,794
107,264
---------------
- -----------
NURSING & HEALTH RELATED FACILITIES REVENUE (26.3%)
Vista, California, Long-Term Care Foundation of America
986 Ser 1994 A COPs (a)................................................. 8.50 01/01/20 788,499
125 Ser 1994 B COPs (a)................................................. 0.00 01/01/20 1,256
Escambia County, Florida, Pensacola Care Development Centers
9,025 Ser 1989............................................................ 10.25 07/01/11 9,840,228
2,060 Ser 1989 A.......................................................... 10.25 07/01/11 2,246,080
8,930 Flager County Industrial Development Authority, Florida, RHA/South
Florida Properties Inc Ser 1988 A................................. 10.50 12/01/18 9,626,004
1,500 Winchester, Indiana, Hoosier Care II Inc Ser 1990................... 10.375 06/01/20 1,601,190
2,565 Jefferson County, Kentucky, AHF/Kentucky - Iowa Inc Ser 1990........ 10.25 01/01/20 2,606,194
1,600 Westside Habilitation Center, Louisiana, Intermediate Care Facility
for the Mentally Retarded Refg Ser 1993........................... 8.375 10/01/13 1,660,800
3,555 Massachusetts Industrial Finance Agency, Vinfen Corp Ser 1993....... 7.10 11/15/18 3,417,812
6,295 McCurtain County Development Authority, Oklahoma, Heartway Corp Ser
1989 A -2......................................................... 10.25 03/01/19 6,106,150
1,455 Maury County Health & Educational Facilities Board, Tennessee,
Southern Healthcare/Heritage Manor of Monteagle, Ser 1990 E....... 10.50 03/01/20 1,557,796
4,715 Kirbyville Health Facilities Development Corporation, Texas,
Heartway III Corp Ser 1988 A...................................... 11.25 03/20/21 3,441,950
3,900 North Central Texas Health Facilities Development Corporation, C C
Young Memorial Home Ser 1988...................................... 10.50 12/01/13 4,333,485
---------------
- -----------
47,227,444
46,711
---------------
- -----------
PUBLIC FACILITIES REVENUE (0.0%)
1,120 La Salle County Jail Facilities Finance Corporation, Texas, Criminal
Detention Center Ser 1989 (b)..................................... 9.75 08/01/09 11
---------------
- -----------
RESOURCE RECOVERY REVENUE (1.7%)
Greater Detroit Resource Recovery Authority, Michigan,
1,000 Ser A............................................................... 9.25 12/13/08 1,045,800
2,000 Ser G............................................................... 9.25 12/13/08 2,091,600
---------------
- -----------
3,137,400
3,000
---------------
- -----------
RETIREMENT & LIFECARE FACILITIES REVENUE (9.1%)
1,000 Colorado Health Facilities Authority, Liberty Heights 1990 Ser A
(b)............................................................... 10.00 07/01/19 550,000
Connecticut Development Authority, Seabury Life Care
3,230 Ser 1991............................................................ 10.00 09/01/04 3,420,215
1,000 Ser 1991............................................................ 10.00 09/01/16 1,058,890
</TABLE>
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS MAY 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- ---------------
<C> <S> <C> <C> <C>
$ 4,965 Volusia County Health Facilities Authority, Florida, John Knox
Village Center 1988 Ser A......................................... 11.125% 09/01/17 $ 4,468,500
5,822 Ann Arbor Economic Development Corporation, Michigan, Glacier Hills
Inc Ser 1989...................................................... 8.375 01/15/19 5,472,680
1,500 Charlotte Housing Authority, North Carolina, Merrywood Senior Adult
Community Ser 1989 A (AMT)........................................ 9.75 05/01/19 1,500,000
---------------
- -----------
16,470,285
17,517
---------------
- -----------
TAX ALLOCATION (5.7%)
Bridgeview, Illinois,
1,200 Ser 1991............................................................ 9.00 01/01/11 1,266,900
2,000 Ser 1991............................................................ 9.50 01/01/11 2,437,780
Crestwood, Illinois,
3,000 Refg Ser 1994....................................................... 7.00 12/01/04 3,083,700
3,350 Refg Ser 1994....................................................... 7.25 12/01/08 3,423,667
---------------
- -----------
10,212,047
9,550
---------------
- -----------
REFUNDED (4.7%)
3,500 Wilmington, Delaware, Osteopathic Hospital Association of
Delaware/Riverside Hospital Ser A 1988............................ 10.20 10/01/18 4,163,845
Illinois Health Facilities Authority,
1,600 Delnor Community Hospital Ser 1989.................................. 8.00 05/15/19 1,827,760
1,915 Hinsdale Hospital Ser 1990 C........................................ 9.50 11/15/19 2,393,214
---------------
- -----------
8,384,819
7,015
---------------
- -----------
307,120 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $166,827,212)....................................... 163,730,237
---------------
- -----------
SHORT-TERM MUNICIPAL OBLIGATIONS (6.1%)
6,600 Louisiana Offshore Terminal Authority, LOOP Inc Ser 1992 A
(Demand 06/01/95)................................................... 4.10* 09/01/08 6,600,000
4,400 Harris County Health Facilities Development Corporation, Texas,
Methodist Hospital 1994 (Demand 06/01/95)......................... 4.50* 12/01/25 4,400,000
---------------
- -----------
11,000 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (IDENTIFIED COST $11,000,000)....................... 11,000,000
---------------
- -----------
$ 318,120 TOTAL INVESTMENTS (IDENTIFIED COST $177,827,212) (C).................. 97.2% 174,730,237
- -----------
- -----------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................ 2.8 5,112,718
---------- -------------
NET ASSETS............................................................ 100.0% $ 179,842,955
---------- -------------
---------- -------------
<FN>
- ----------------
AMT ALTERNATIVE MINIMUM TAX.
COPS CERTIFICATES OF PARTICIPATION.
* CURRENT COUPON OF VARIABLE RATE SECURITY.
(A) RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(B) NON-INCOME PRODUCING, BOND IN DEFAULT.
(C) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $178,157,212; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $8,340,185 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $11,767,160, RESULTING IN NET UNREALIZED
DEPRECIATION OF $3,426,975.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS MAY 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percentage of Net Assets
MAY 31, 1995
<TABLE>
<S> <C>
Alaska................. 2.7%
California............. 4.6
Colorado............... 0.3
Connecticut............ 2.5
Delaware............... 2.3
District of Columbia... 0.3
Florida................ 14.9
Illinois............... 9.6
Indiana................ 0.9
Kentucky............... 1.4%
Louisiana.............. 4.6
Massachusetts.......... 1.9
Michigan............... 8.2
Minnesota.............. 3.8
New Hampshire.......... 4.2
New Jersey............. 1.6
New York............... 1.6
North Carolina......... 0.8
Ohio................... 4.0%
Oklahoma............... 3.4
Pennsylvania........... 6.7
Rhode Island........... 0.4
South Carolina......... 4.2
Tennessee.............. 0.9
Texas.................. 7.6
Virginia............... 3.8
---
Total.................. 97.2%
---
---
</TABLE>
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $177,827,212).......... $ 174,730,237
Cash...................................... 335,355
Receivable for:
Interest................................ 4,569,812
Investments sold........................ 421,526
Prepaid expenses and other assets......... 23,314
-------------
TOTAL ASSETS...................... 180,080,244
-------------
LIABILITIES:
Payable for:
Investment advisory fee................. 80,823
Administration fee...................... 48,494
Accrued expenses and other payables....... 107,972
-------------
TOTAL LIABILITIES................. 237,289
-------------
NET ASSETS:
Paid-in-capital........................... 199,754,364
Net unrealized depreciation............... (3,096,975)
Accumulated undistributed net investment
income.................................. 1,965,388
Accumulated net realized loss............. (18,779,822)
-------------
NET ASSETS........................ $ 179,842,955
-------------
-------------
NET ASSET VALUE PER SHARE, 21,089,872
shares outstanding (unlimited shares
authorized of $.01 par value)...........
$8.53
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 16,254,488
EXPENSES
Investment advisory fee................ 892,299
Administration fee..................... 535,379
Professional fees...................... 125,463
Transfer agent fees and expenses....... 104,630
Shareholder reports and notices........ 34,063
Registration fees...................... 32,713
Trustees' fees and expenses............ 29,744
Other.................................. 91,830
------------
TOTAL EXPENSES..................... 1,846,121
------------
NET INVESTMENT INCOME.............. 14,408,367
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................... (6,508,935)
Net change in unrealized
depreciation......................... 6,376,453
------------
NET LOSS........................... (132,482)
------------
NET INCREASE....................... $ 14,275,885
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
MAY 31, 1995 MAY 31, 1994
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................. $ 14,408,367 $ 14,337,038
Net realized loss..................................................... (6,508,935) (12,233,056)
Net change in unrealized depreciation................................. 6,376,453 9,061,207
------------------ ------------------
Net increase...................................................... 14,275,885 11,165,189
------------------ ------------------
Dividends to shareholders from net investment income.................... (13,394,825) (13,519,844)
Net decrease from transactions in shares of beneficial interest......... (2,783,099) --
------------------ ------------------
Total decrease.................................................... (1,902,039) (2,354,655)
NET ASSETS:
Beginning of period..................................................... 181,744,994 184,099,649
------------------ ------------------
END OF PERIOD (including undistributed net investment income of
$1,965,388 and $943,596, respectively)................................. $ 179,842,955 $ 181,744,994
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Municipal Income Opportunities Trust
(the "Fund") is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Fund was
organized as a Massachusetts business trust on June 22, 1988 and commenced
operations on September 19, 1988.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund
by an outside independent pricing service approved by the Trustees. The
pricing service has informed the Fund that in valuing the Fund's portfolio
securities, it uses both a computerized matrix of tax-exempt securities and
evaluations by its staff, in each case based on information concerning
market transactions and quotations from dealers which reflect the bid side
of the market each day. The Fund's portfolio securities are thus valued by
reference to a combination of transactions and quotations for the same or
other securities believed to be comparable in quality, coupon, maturity,
type of issue, call provisions, trading characteristics and other features
deemed to be relevant. Short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market
basis until sixty days prior to maturity and thereafter at amortized cost
based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined on the identified cost
method. The Fund amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. Interest income is
accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement with Dean Witter InterCapital Inc. (the "Investment Adviser"), the
Fund pays its Investment Adviser an advisory fee, calculated weekly and payable
monthly, by applying the annual rate of 0.50% to the Fund's average weekly net
assets.
Under the terms of the Advisory Agreement, in addition to managing the
Fund's investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT -- Pursuant to an Administration Agreement with
Dean Witter Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, calculated weekly and
payable monthly, by applying the annual rate of 0.30% to the Fund's average
weekly net assets.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Fund's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Fund
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended May 31, 1995 aggregated $10,860,440 and
$8,001,161, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $12,000.
The Fund established an unfunded noncontributory defined benefit pension
plan covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended May 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $8,164. At May 31, 1995, the Fund had an accrued pension liability of $49,637
which is included in accrued expenses in the Statement of Assets and
Liabilities.
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID
IN EXCESS
PAR VALUE OF OF PAR
SHARES SHARES VALUE
----------- -------------- -----------
<S> <C> <C> <C>
Balances, May 31, 1993 and May 31, 1994.......................... 21,460,172 $ 214,601 $202,322,908
Treasury shares purchased and retired (weighted average discount
9.12%)*......................................................... (370,300) (3,703) (2,779,442)
----------- -------------- -----------
Balance May 31, 1995............................................. 21,089,872 $ 210,898 $199,543,466
----------- -------------- -----------
----------- -------------- -----------
<FN>
- ---------
* THE TRUSTEES HAVE VOTED TO RETIRE THE SHARES PURCHASED.
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At May 31, 1995, the Fund had a net capital
loss carryover of approximately $12,672,000 of which $1,493,000 will be
available through May 31, 2002 and $11,179,000 will be available through May 31,
2003 to offset future capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $5,778,000 during fiscal 1995. As of May 31, 1995, the Fund had
temporary book/tax differences primarily attributable to post-October losses and
capital loss deferrals on wash sales.
7. DIVIDENDS -- The Fund has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT
DECLARATION DATE PER SHARE RECORD DATE PAYABLE DATE
- ----------------- --------- ----------------- -----------------
<S> <C> <C> <C>
June 6, 1995 $ 0.0525 June 16, 1995 June 30, 1995
July 3, 1995 $ 0.0525 July 14, 1995 July 28, 1995
</TABLE>
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. SELECTED QUARTERLY FINANCIAL DATA -- (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------
5/31/95 2/28/95 11/30/94 8/31/94
-------------------- -------------------- -------------------- --------------------
TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............. $ 4,108 $ 0.20 $ 4,067 $ 0.19 $ 4,001 $ 0.19 $ 4,078 $ 0.19
Net investment income............... 3,765 0.17 3,638 0.18 3,482 0.16 3,523 0.17
Net realized and unrealized gain
(loss)............................. 13,045 0.61 (7,325) (0.34) (5,434) (0.25) (418) (0.01)
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------
5/31/94 2/28/94 11/30/93 8/31/93
-------------------- -------------------- -------------------- --------------------
TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE TOTAL* PER SHARE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............. $ 4,138 $ 0.19 $ 4,139 $ 0.19 $ 3,999 $ 0.19 $ 4,298 $ 0.20
Net investment income............... 3,364 0.16 3,675 0.17 3,506 0.16 3,792 0.18
Net realized and unrealized gain
(loss)............................. (1,390) (0.07) (2,373) (0.11) (23) -- 614 0.03
<FN>
- ---------
* TOTALS EXPRESSED IN THOUSANDS.
</TABLE>
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31
-----------------------------------------------------
1995* 1994* 1993* 1992* 1991*
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 8.47 $ 8.58 $ 8.97 $ 9.39 $ 9.44
--------- --------- --------- --------- ---------
Net investment
income.......... 0.68 0.67 0.64 0.74 0.79
Net realized and
unrealized
loss............. 0.01 (0.15) (0.34) (0.43) (0.02)
--------- --------- --------- --------- ---------
Total from
investment
operations...... 0.69 0.52 0.30 0.31 0.77
--------- --------- --------- --------- ---------
Less dividends
and
distributions
from:
Net investment
income........ (0.63) (0.63) (0.66) (0.73) (0.82)
Net realized
gain.......... -- -- (0.03) -- --
--------- --------- --------- --------- ---------
Total dividends
and
distributions... (0.63) (0.63) (0.69) (0.73) (0.82)
--------- --------- --------- --------- ---------
Net asset value,
end of period... $ 8.53 $ 8.47 $ 8.58 $ 8.97 $ 9.39
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Market value, end
of period....... $ 8.25 $ 8.125 $ 8.25 $ 9.325 $ 9.875
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN+......... 9.81% 6.17% (4.71)% 2.64% 4.99%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $179,843 $181,745 $184,100 $194,851 $202,418
Ratios to average
net assets:
Expenses....... 1.04% 1.22% 1.15% 1.08% 1.10%
Net investment
income........ 8.10% 7.80% 7.27% 8.00% 8.37%
Portfolio
turnover rate... 5% 16% 2% 4% 7%
<FN>
- ------------
+ TOTAL INVESTMENT RETURN IS BASED UPON THE CURRENT MARKET VALUE ON THE LAST DAY
OF EACH PERIOD REPORTED. DIVIDENDS AND DISTRIBUTIONS, IF ANY ARE ASSUMED TO BE
REINVESTED AT THE PRICES OBTAINED UNDER THE FUND'S DIVIDEND REINVESTMENT PLAN.
TOTAL INVESTMENT RETURN DOES NOT REFLECT SALES CHARGES OR BROKERAGE
COMMISSIONS.
* PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING
DURING THE PERIOD.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
MUNICIPAL INCOME OPPORTUNITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Municipal Income Opportunities Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Income Opportunities
Trust (the "Fund") at May 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1995 by correspondence with the custodian provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
July 10, 1995
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended May 31, 1995, the Fund paid to the shareholders $0.63 per
share from net investment income. All of the Fund's dividends from net
investment income were exempt interest dividends, excludable from gross income
for Federal income tax purposes.
<PAGE>
TRUSTEES
- ---------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo MUNICIPAL
Edwin J. Garn INCOME
John R. Haire OPPORTUNITIES
Dr. Manuel H. Johnson TRUST
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ---------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Sheldon Curtis
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
James F. Willison
VICE PRESIDENT
Thomas F. Caloia
TREASURER
TRANSFER AGENT
- ---------------------------------------
Dean Witter Trust Company
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ---------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
- ---------------------------------------
Dean Witter InterCapital Inc. ANNUAL REPORT
Two World Trade Center MAY 31, 1995
New York, New York 10048
