<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST Two World Trade Center,
New York, New York 10048
LETTER TO THE SHAREHOLDERS May 31, 1996
DEAR SHAREHOLDER:
Between June 1995 and January 1996 -- the first eight months of Municipal Income
Opportunities Trust's (OIA) fiscal year -- interest rates declined. Beginning in
February 1996, interest rates reversed direction and moved higher over the
remainder of OIA's fiscal year. Last year's favorable bond market environment
was created by proposals to achieve a balanced federal budget within five to
seven years and by continued easing of Federal Reserve Board monetary policy.
However, budget negotiations reached a political impasse early in 1996 and
federal offices were partially closed. This had an adverse impact on bonds.
Concerns also developed about an increase in the pace of the economic recovery,
which was marked by strong job growth in March and rising commodity prices. The
bond market reacted to these developments by pushing yields sharply higher.
MUNICIPAL MARKET CONDITIONS
Long-term municipal revenue bond yields as tracked by The Bond Buyer Revenue
Bond Index* moved from 6.00 percent in May 1995 to a low of 5.63 percent in
January 1996. Interest rates subsequently began to rise in mid-February on signs
of stronger economic growth and renewed inflationary fears. The Index yield
reached 6.17 percent in May. Yields on one-year municipal notes declined from
3.87 percent to 3.73 percent over the past year. The yield curve pickup by
extending maturities from 1 to 30 years was 244 basis points in May.
The risk of flat-tax legislation caused the ratio of Revenue Bond Index yields
to 30-year U.S. Treasury bond yields to rise from 85 to 94 percent between March
and September 1995. However, as the prospects of a flat tax faded, the ratio
improved to 89 percent by the end of May 1996. A declining ratio means that
municipal bond prices have outperformed U.S. Treasury prices. It is interesting
to note that long-term
- ---------------------
*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 Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1996, continued
municipal yields averaged 89 percent of U.S. Treasury yields over the previous
eight-year period prior to the flat-tax debate.
Municipal underwriting activity was fueled by the trend of lower interest rates
in 1995. During the first five months of 1996, new issue volume increased 39
percent versus the same period a year ago. Despite a resurgence in underwriting,
dealers have continued to announce their withdrawal from the municipal business.
PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust declined from
$8.53 to $8.31 per share during the fiscal year ended May 31, 1996. Based on
this NAV change plus reinvestment of tax-free dividends totaling $0.65 per
share, the Fund's total return was 4.88 percent. Over the same period, the
Fund's share price on the New York Stock Exchange rose from $8.25 to $8.875 per
share. Based on this market price change and reinvestment of tax-free dividends,
the Fund's total return was 15.95 percent. The Fund's shares began the fiscal
year trading at a three percent discount to NAV and ended at a seven percent
premium. Undistributed net investment income improved to $0.14 per share on May
31, 1996, versus $0.093 per share a year earlier.
PORTFOLIO STRUCTURE
On May 31, 1996, the Fund had $175 million in net assets which were diversified
among 12 long-term municipal sectors and 51 credits. The five largest sectors
represented 79 percent of the Fund's net assets. Credit quality was upgraded
over the fiscal year by reducing non-rated holdings from 75 to 72 percent of the
long-term portfolio.
Four loans representing less than 4.5 percent of the Fund's net assets were not
accruing interest. An additional five loans, totaling 11 percent of net assets,
were accruing income but face difficulty meeting future debt service payments.
FIVE LARGEST SECTORS AS OF MAY 31, 1996
(% OF NET ASSETS)
<TABLE>
<S> <C>
IDR/PCR* 25%
Nursing/Health Related 25%
Mortgage 13%
Retirement/Life Care 9%
Hospital 7%
Other 21%
</TABLE>
* Industrial Development/Pollution Control Portfolio Structure is subject to
change.
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1996, continued
LOOKING AHEAD
Tax-reduction proposals may receive additional publicity. However, the balance
between the supply of new issues and demand created by maturities and calls for
redemption should remain positive for the municipal market. Long-term municipal
securities currently yield 89 percent of the yield on U.S. Treasury securities
and may be expected to move in tandem with the Treasury market.
The Fund's procedure 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.
We appreciate your ongoing support of Municipal Income Opportunities Trust and
look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (94.8%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 1,862,020
- -------- ----------
Educational Facilities Revenue (2.1%)
3,000 New Jersey Educational Facilities Authority, Fairleigh Dickinson
University
1993 Ser C............................................................. 6.625 07/01/23 2,802,180
1,000 New York State Dormitory Authority, State University Refg Ser 1993 A.... 5.25 05/15/15 885,740
- -------- ----------
4,000 3,687,920
- -------- ----------
Electric Revenue (1.4%)
3,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 2,542,380
- -------- ----------
Hospital Revenue (6.8%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,178,260
1,050 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 1,197,283
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G -1.................................. 6.25 12/01/14 1,984,860
3,000 Dana Farber Cancer Institute Ser G -1.................................. 6.25 12/01/22 2,961,780
1,500 North Central Texas Health Facilities Development Corporation,
University Medical Center Inc Ser 1987................................. 7.75 04/01/17 1,546,395
1,905 Buena Vista Industrial Development Authority, Virginia, Stonewall
Jackson Hospital Ser 1987.............................................. 8.375 11/01/14 1,996,211
- -------- ----------
11,455 11,864,789
- -------- ----------
Industrial Development/Pollution Control Revenue (25.4%)
480 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 474,542
1,565 Illinois Development Finance Authority, Custom Tapes Inc Refg Ser
1989................................................................... 10.50 05/01/19 1,594,234
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,871,600
3,890 Detroit Economic Development Corporation, Michigan, North Industrial
Park LP Ser 1989....................................................... 11.375 02/15/14 4,279,117
1,579 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT)................ 9.375 10/01/06 1,674,264
3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT)................ 9.00 12/01/19 3,641,436
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A......................... 12.50 10/01/09 2,262,100
1,175 Zanesville - Muskingum County Port Authority, Ohio, Anchor Glass
Container Corp Ser 1989 B (AMT)........................................ 10.25 12/01/08 1,078,485
2,000 Beaver County Industrial Development Authority, Pennsylvania,
Toledo Edison Co Collateralized Ser 1995 -B............................ 7.75 05/01/20 2,030,040
2,137 Butler County Industrial Development Authority, Pennsylvania, Morgan
Management Co Ser 1976................................................. 8.75 11/15/03 2,176,793
3,525 East Hempfield Township Industrial Development Authority, Pennsylvania,
Herley Microwave System Inc Ser 1989 A................................. 10.40 06/01/04 3,886,736
4,000 Pennsylvania Economic Development Authority, McMillan Bloedel Ltd Ser
1995 (AMT)............................................................. 7.60 12/01/20 4,363,760
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Lexington County, South Carolina,
$ 2,850 Ellett Brothers Inc Refg Ser 1988...................................... 10.625% 09/01/02 $ 2,947,898
4,250 Ellett Brothers Inc Refg Ser 1988...................................... 10.625 09/01/08 4,396,540
4,500 Pittslyvania County Industrial Development Authority, Virginia, Multi
Trade of Pittslyvania County Ser 1994 A (AMT).......................... 7.45 01/01/09 4,735,125
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,026,760
- -------- ----------
42,551 44,439,430
- -------- ----------
Mortgage Revenue - Multi-Family (3.5%)
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 06/15/19 240,800
8,678 Ser 1989 B (AMT)....................................................... 0.00 06/15/19 86,779
White Bear Lake, Minnesota,
3,715 White Bear Woods Apts Phase II Refg 1989 Ser A......................... 9.75 06/15/19 2,600,500
22,842 White Bear Woods Apts Phase II Refg 1989 Ser B......................... 0.00 06/15/19 228,425
- -------- ----------
64,365 6,186,504
- -------- ----------
Mortgage Revenue - Single Family (9.8%)
5,000 Alaska Housing Finance Corporation, Insured 1993 First Ser.............. 5.90 12/01/33 4,652,850
32,658 San Francisco, California, Ser 1982..................................... 0.00 10/01/14 4,382,965
475 Broward County Housing Finance Authority, Florida, Home Ser 1989 A...... 10.00 10/01/03 477,689
55,855 New Hampshire Housing Finance Authority, Residential 1983 Ser B......... 0.00 01/01/15 7,702,963
- -------- ----------
93,988 17,216,467
- -------- ----------
Nursing & Health Related Facilities Revenue (24.9%)
Vista, California,
974 Long-Term Care Foundation of America Ser 1994 A COPs (a)............... 8.50 01/01/20 779,505
117 Long-Term Care Foundation of America Ser 1994 B COPs (a)............... 0.00 01/01/20 1,167
Escambia County, Florida,
8,805 Pensacola Care Development Centers Ser 1989............................ 10.25 07/01/11 9,098,911
2,010 Pensacola Care Development Centers Ser 1989 A.......................... 10.25 07/01/11 2,077,094
8,825 Flagler County Industrial Development Authority, Florida, RHA/South
Florida Properties Inc Ser 1988 A...................................... 10.50 12/01/18 9,246,129
1,480 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,578,331
2,540 Jefferson County, Kentucky, AHF/Kentucky - Iowa Inc Ser 1990............ 10.25 01/01/20 2,603,170
1,600 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,665,328
3,475 Massachusetts Industrial Finance Agency, Vinfen Corp Ser 1993........... 7.10 11/15/18 3,413,666
6,295 McCurtain County Development Authority, Oklahoma, Heartway Corp
Ser 1989 A-2 (b)....................................................... 10.25 03/01/19 4,091,750
1,450 Maury County Health & Educational Facilities Board, Tennessee, Southern
Healthcare/Heritage Manor of Monteagle, Rogersville & Columbus
Ser 1990 E............................................................. 10.50 03/01/20 1,605,571
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,715 Kirbyville Health Facilities Development Corporation, Texas, Heartway
III Corp Ser 1988 A (b)................................................ 11.25 % 03/20/21 $ 3,206,200
North Central Texas Health Facilities Development Corporation,
1,900 C C Young Memorial Home Ser 1988....................................... 10.50 12/01/13 2,107,385
1,965 C C Young Memorial Home Ser 1988....................................... 10.50 12/01/13 2,179,480
- -------- ----------
46,151 43,653,687
- -------- ----------
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
----------
Retirement & Lifecare Facilities Revenue (9.0%)
1,000 Colorado Health Facilities Authority, Liberty Heights 1990 Ser A (b).... 10.00 07/01/19 500,000
Connecticut Development Authority,
3,230 Seabury Life Care Ser 1991............................................. 10.00 09/01/04 3,214,754
600 Seabury Life Care Ser 1996............................................. 8.75 09/01/06 594,678
1,000 Seabury Life Care Ser 1991............................................. 10.00 09/01/16 1,023,600
4,965 Volusia County Health Facilities Authority, Florida, John Knox Village
Center 1988 Ser A...................................................... 11.125 09/01/17 4,965,000
5,765 Ann Arbor Economic Development Corporation, Michigan, Glacier Hills Inc
Ser 1989............................................................... 8.375 01/15/19 5,479,978
- -------- ----------
16,560 15,778,010
- -------- ----------
Tax Allocation (4.4%)
1,200 Bridgeview, Illinois, Ser 1991.......................................... 9.00 01/01/11 1,305,072
Crestwood, Illinois,
3,000 Refg Ser 1994......................................................... 7.00 12/01/04 3,052,170
3,350 Refg Ser 1994......................................................... 7.25 12/01/08 3,367,889
- -------- ----------
7,550 7,725,131
- -------- ----------
Transportation Facilities Revenue (2.8%)
Foothills/Eastern Transportation Corridor Agency, California,
2,000 Toll Road Sr Lien Ser 1995 A........................................... 0.00 01/01/13 1,181,160
2,000 Toll Road Sr Lien Ser 1995 A........................................... 6.00 01/01/34 1,859,920
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 1,930,920
- -------- ----------
6,000 4,972,000
- -------- ----------
Refunded (3.6%)
3,500 Wilmington, Delaware, Osteopathic Hospital Association of
Delaware/Riverside Hospital Ser A 1988................................. 10.20 10/01/98++ 3,988,880
1,985 Bridgeview, Illinois, Tax Increment Ser 1991............................ 9.50 01/01/01++ 2,345,694
- -------- ----------
5,485 6,334,574
- -------- ----------
304,225 TOTAL MUNICIPAL BONDS (Identified Cost $175,756,748)............................................. 166,262,923
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS (1.1%)
$ 300 Harris County Health Facilities Development Corporation, Texas,
Methodist Hospital Ser 1994 (Demand 06/03/96).......................... 3.65*% 12/01/25 $ 300,000
1,600 Sabine River Authority, Texas, Texas Utilities Co Ser 1996 A
(Demand 06/03/96)...................................................... 3.70* 03/01/26 1,600,000
------------
- -------- TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $1,900,000)..............................
1,900 1,900,000
- -------- ------------
$306,125 TOTAL INVESTMENTS (Identified Cost $177,656,748) (c).................................... 95.9% 168,162,923
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 4.1 7,131,239
----- ------------
NET ASSETS .............................................................................. 100.0% $175,294,162
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Joint exemption in District of Columbia and Virginia.
++ Prerefunded to call date shown.
* 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 approximates identified cost. The aggregate gross
unrealized appreciation was $5,691,702 and the aggregate gross unrealized depreciation was $15,185,527,
resulting in net unrealized depreciation of $9,493,825.
</TABLE>
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
May 31, 1996
<TABLE>
<S> <C>
Alaska................... 2.7%
California............... 5.9
Colorado................. 0.3
Connecticut.............. 2.8
Delaware................. 2.3
District of Columbia..... 0.3
Florida.................. 15.8
Illinois................. 7.3
Indiana.................. 0.9
Kentucky................. 1.5
Louisiana................ 0.9%
Massachusetts............ 6.4
Michigan................. 6.5
Minnesota................ 3.5
New Hampshire............ 4.4
New Jersey............... 1.6
New York................. 1.6
Ohio..................... 4.0
Oklahoma................. 2.3
Pennsylvania............. 7.1
South Carolina........... 4.2%
Tennessee................ 0.9
Texas.................... 6.2
Utah..................... 1.5
Virginia................. 4.1
West Virginia............ 1.2
Joint Exemption.......... (0.3)
---
Total.................... 95.9%
===
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $177,656,748)....................................... $168,162,923
Cash.................................................................. 137,473
Receivable for:
Interest.......................................................... 4,986,305
Investments sold.................................................. 2,150,579
Prepaid expenses and other assets..................................... 97,863
----------
TOTAL ASSETS...................................................... 175,535,143
----------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 83,961
Administration fee................................................ 50,377
Accrued expenses and other payables................................... 106,643
----------
TOTAL LIABILITIES................................................. 240,981
----------
NET ASSETS:
Paid-in-capital....................................................... 199,754,364
Net unrealized depreciation........................................... (9,493,825)
Accumulated undistributed net investment income....................... 2,948,748
Accumulated net realized loss......................................... (17,915,125)
----------
NET ASSETS........................................................ $175,294,162
==========
NET ASSET VALUE PER SHARE
21,089,872 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $8.31
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended May 31, 1996
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $16,357,518
---------
EXPENSES
Investment advisory fee................................................ 893,319
Administration fee..................................................... 535,991
Transfer agent fees and expenses....................................... 95,550
Professional fees...................................................... 92,637
Registration fees...................................................... 32,874
Shareholder reports and notices........................................ 29,133
Trustees' fees and expenses............................................ 23,274
Custodian fees......................................................... 8,848
Other.................................................................. 15,984
---------
TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 1,727,610
LESS: EXPENSE OFFSET............................................... (8,801)
---------
TOTAL EXPENSES AFTER EXPENSE OFFSET................................ 1,718,809
---------
NET INVESTMENT INCOME.............................................. 14,638,709
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain...................................................... 864,697
Net change in unrealized depreciation.................................. (6,396,850)
---------
NET LOSS........................................................... (5,532,153)
---------
NET INCREASE........................................................... $ 9,106,556
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1996 MAY 31, 1995
------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 14,638,709 $ 14,408,367
Net realized gain (loss)............................... 864,697 (6,508,935)
Net change in unrealized depreciation.................. (6,396,850) 6,376,453
------------ ------------
NET INCREASE....................................... 9,106,556 14,275,885
Dividends from net investment income................... (13,655,349) (13,394,825)
Net decrease from transactions in shares of beneficial
interest.............................................. -- (2,783,099)
------------ ------------
TOTAL DECREASE..................................... (4,548,793) (1,902,039)
NET ASSETS:
Beginning of period.................................... 179,842,955 181,744,994
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,948,748 and $1,965,388, respectively)........... $175,294,162 $179,842,955
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996
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'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 June 22, 1988 and commenced
operations on September 19, 1988.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), an affiliate of Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays an advisory fee, calculated weekly and
payable monthly, by applying the annual rate of 0.50% to the Fund's weekly net
assets.
Under the terms of the 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 the Administrator, 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.
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, 1996 aggregated $20,121,370
and $13,928,164, respectively.
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $8,500.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended May 31, 1996 included in
Trustees' fees and expenses in the Statement of Operations amounted to $2,059.
At May 31, 1996, the Fund had an accrued pension liability of $49,598 which is
included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, 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 and May 31, 1996.......................................... 21,089,872 $210,898 $199,543,466
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. FEDERAL INCOME TAX STATUS
At May 31, 1996, the Fund had a net capital loss carryover of approximately
$17,915,000 of which $1,493,000 will be available through May 31, 2002,
$11,179,000 will be available through May 31, 2003 and $5,243,000 will be
available through May 31, 2004 to offset future capital gains to the extent
provided by regulations. To the extent that this carryover loss is used to
offset future capital gains, it is probable that the gains so offset will not be
distributed to shareholders.
7. DIVIDENDS
The Fund declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------- --------- ------------ -------------
<S> <C> <C> <C>
May 28, 1996 $ 0.055 June 7, 1996 June 21, 1996
June 25, 1996 $ 0.055 July 5, 1996 July 19, 1996
</TABLE>
<PAGE> 14
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*
-----------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 8.53 $ 8.47 $ 8.58 $ 8.97 $ 9.39
------ ------ ------ ------ ------
Net investment income............................................ 0.69 0.68 0.67 0.64 0.74
Net realized and unrealized gain (loss).......................... (0.26) 0.01 (0.15) (0.34) (0.43)
------ ------ ------ ------ ------
Total from investment operations................................. 0.43 0.69 0.52 0.30 0.31
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income......................................... (0.65) (0.63) (0.63) (0.66) (0.73)
Net realized gain............................................. -- -- -- (0.03) --
------ ------ ------ ------ ------
Total dividends and distributions................................ (0.65) (0.63) (0.63) (0.69) (0.73)
------ ------ ------ ------ ------
Net asset value, end of period................................... $ 8.31 $ 8.53 $ 8.47 $ 8.58 $ 8.97
====== ====== ====== ====== ======
Market value, end of period...................................... $ 8.875 $ 8.25 $ 8.125 $ 8.25 $ 9.325
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+......................................... 15.95% 9.81% 6.17% (4.71)% 2.64%
RATIOS TO AVERAGE NET ASSETS:
Expenses before expense offset................................... 0.97%(1) 1.04% 1.22% 1.15% 1.08%
Net investment income............................................ 8.24% 8.10% 7.80% 7.27% 8.00%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......................... $175,294 $179,843 $181,745 $184,100 $194,851
Portfolio turnover rate.......................................... 8% 5% 16% 2% 4%
</TABLE>
- ---------------------
+ Total investment 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 investment return does not reflect brokerage commissions.
* The per share amounts were computed using an average number of shares
outstanding during the period.
(1) The above annualized expense ratio would have been 0.97% after expense
offset.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
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, 1996, 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,
1996 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 10036
July 3, 1996
--------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1996, the Fund paid to the
shareholders $0.65 per share from net investment income all of
which was exempt interest dividends, excludable from gross
income for Federal income tax purposes.
<PAGE> 16
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
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.
Two World Trade Center
New York, New York 10048
DEAN WITTER
MUNICIPAL INCOME OPPORTUNITIES TRUST
[PHOTO]
ANNUAL REPORT
MAY 31, 1996
