<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS May 31, 1997 New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Municipal
Income Opportunities Trust (OIA) for the fiscal year ended May 31, 1997.
Economic growth moderated during the third quarter of 1996, causing fixed-income
yields to move lower through November. However, an acceleration of economic
activity led by consumer spending developed in the fourth quarter of 1996 and
continued into the first quarter of 1997. This contributed to rising interest
rates between December and April. On March 25, 1997, the Federal Reserve Board
raised the federal-funds rate 25 basis points to 5.50 percent in a preemptive
move against a possible acceleration in the rate of inflation. The fixed-income
markets recognized that additional rate hikes were possible, but rallied when
the Fed left short-term interest rates unchanged at its May meeting.
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields, but were less volatile.
Long-term insured revenue bond yields fell from 6.00 percent in May 1996 to as
low as 5.45 percent in November 1996, before rising to
BOND YIELDS 1994-1997
<TABLE>
<CAPTION>
Muni Yields Treasury Yields
<S> <C>
5.45 6.35
Jan '94 5.29 6.24
5.64 6.66
6.19 7.09
6.24 7.31
6.23 7.43
6.31 7.61
6.15 7.4
6.17 7.45
6.42 7.82
6.66 7.97
6.99 8
6.65 7.88
Jan '95 6.42 7.7
6.12 7.44
6.07 7.43
6.05 7.34
5.84 6.65
6 6.62
5.99 6.85
5.98 6.65
5.97 6.5
5.79 6.33
5.61 6.13
5.49 5.95
Jan '96 5.42 6.03
5.55 6.47
5.89 6.67
5.94 6.91
5.99 6.99
5.86 6.87
5.77 6.97
5.82 7.12
5.71 6.92
5.6 6.64
5.45 6.35
5.56 6.64
Jan '97 5.63 6.79
5.53 6.8
5.83 7.1
5.74 6.96
5.58 6.91
</TABLE>
<TABLE>
<CAPTION>
Ratio
<S> <C>
Dec '93 0.8586
0.8481
0.8468
0.8728
0.854
0.8387
Jun '94 0.8293
0.8314
0.828
0.8212
0.8356
0.8738
Dec '94 0.8438
0.834
0.8222
0.8167
0.8245
0.8784
Jun '95 0.9066
0.875
0.8997
0.9184
0.915
0.9151
Dec '95 0.923
0.8989
0.8577
0.8835
0.8601
0.8571
Jun '96 0.8529
0.8278
0.8176
0.8248
0.8431
0.8583
Dec '96 0.8372
0.8293
0.8129
0.8216
0.8251
0.8081
</TABLE>
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
5.85 percent in April 1997. The Index ended May at 5.60 percent. Similarly,
yields on one-year municipal notes moved from 3.70 to 3.90 percent over the past
twelve months. The yield curve pick-up by extending maturity from 1 to 30 years
was 170 basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
declined from 86 percent at the end of May 1996 to 81 percent in May 1997. A
declining ratio means that municipals have outperformed Treasuries, but have
become relatively more expensive. The annual range of the ratio has averaged
from 80 to 92 percent over the past three years. New-issue municipal volume was
down 5 percent during the first five months of 1997. However, underwriting
volume for the full year is expected to exceed bond maturities and redemptions.
PERFORMANCE
The Fund's net asset value (NAV) rose from $8.31 to $8.47 per share during the
fiscal year ended May 31, 1997. Based on this NAV change plus reinvestment of
tax-free dividends totaling $0.63 per share, the Fund's total NAV return was
9.40 percent. OIA's market price on the New York Stock Exchange declined from
$8.875 to $8.75 per share during the fiscal year. Based on this market price
change and reinvestment of tax-free dividends, the Fund's total market return
was 5.82 percent. OIA's market price represented a 3 percent premium to NAV on
May 31, 1997. Undistributed net investment income totaled $0.14 per share on May
31, 1997. Net assets exceeded $178 million.
CALL STRUCTURE AS OF MAY 31, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 6.1 YEARS
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1997 16.1%
1998 3.7%
1999 15.0%
2000 5.7%
2001 3.9%
2002 0.0%
2003 12.3%
2004 6.5%
2005 10.9%
2006 10.5%
2007+ 15.4%
</TABLE>
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 13 long-term sectors and 51
individual credits. Non-rated securities comprised 68 percent of the Fund's
portfolio. The Fund's average maturity was 18 years. The combination of older,
shorter-call issues and newer issues with longer call dates provided an average
of 6 years of call protection. Bond redemptions during the fiscal year of $7
million in market value with book yields of 8 to 10 percent were replaced by
purchases yielding in the 6 to 8 percent range. Three loans representing 6
percent of the Fund's net assets were not accruing interest. As of May 31,
1997, an additional four loans, totaling 14 percent of net assets, were
accruing income, but were also considered problem loans.
<TABLE>
<CAPTION>
FIVE LARGEST SECTORS AS OF MAY 31, 1997
(% OF NET ASSETS)
<S> <C>
ID/PCR* 24%
NURSING/HEALTH RELATED 23%
MORTGAGE 14%
RETIREMENT/LIFE CARE 7%
TRANSPORTATION 6%
ALL OTHERS 26%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
LOOKING AHEAD
Since the election year collapse of flat-tax proposals, municipal bonds have
improved relative to U.S. Treasury securities. Although tax-free yields are
currently somewhat expensive when compared with their historical relationship
with Treasury yields, the long-term benefits of tax-exempt income remain intact.
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
RESULTS OF ANNUAL AND SPECIAL MEETINGS (unaudited)
* * *
On December 27, 1996, an annual meeting of the Fund's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For................................................................ 15,619,420
Withheld........................................................... 442,647
Charles A. Fiumefreddo
For................................................................ 15,620,367
Withheld........................................................... 441,700
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent, Philip
J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................ 15,021,536
Against............................................................ 315,077
Abstain............................................................ 725,454
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 15,504,375
Against............................................................ 109,569
Abstain............................................................ 448,123
</TABLE>
On May 20, 1997, a special meeting of the Fund's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEE:
<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................ 16,774,040
Withheld........................................................... 489,706
</TABLE>
(2) APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................ 16,189,741
Against............................................................ 338,675
Abstain............................................................ 735,330
</TABLE>
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (92.9%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75% 08/15/10 $ 2,002,400
- -------- ------------
Educational Facilities Revenue (1.4%)
1,600 ABAG Finance Authority for Nonprofit Corporations, California, National
Center for International Schools COPs.................................. 7.50 05/01/11 1,599,984
1,000 New York State Dormitory Authority, State University Refg 1993 Ser A.... 5.25 05/15/15 942,300
- -------- ------------
2,600 2,542,284
- -------- ------------
Electric Revenue (2.5%)
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....... 5.00 07/01/21 4,550,400
- -------- ------------
Hospital Revenue (4.0%)
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/14 2,079,620
3,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/22 3,102,690
1,870 Buena Vista Industrial Development Authority, Virginia, Stonewall
Jackson Hospital Ser 1987.............................................. 8.375 11/01/14 1,924,884
- -------- ------------
6,870 7,107,194
- -------- ------------
Industrial Development/Pollution Control Revenue (24.0%)
480 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 483,936
1,545 Illinois Development Finance Authority, Custom Tapes Inc Refg Ser
1989................................................................... 10.50 05/01/19 1,573,675
1,500 Iowa Finance Authority, ISPCO Inc Ser 1997 (AMT) (WI)................... 6.00 06/01/27 1,500,000
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,951,310
3,820 Detroit Economic Development Corporation, Michigan, North Industrial
Park LP Ser 1989....................................................... 11.375 02/15/14 4,118,457
1,490 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT)................ 9.375 10/01/06 1,554,916
3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT)................ 9.00 12/01/19 3,877,488
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A......................... 12.50 10/01/09 2,189,060
1,040 Zanesville-Muskingum County Port Authority, Ohio, Anchor Glass
Container Corp Ser 1989 B (AMT)........................................ 10.25 12/01/08 796,838
2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995-B.................................... 7.75 05/01/20 2,194,560
3,225 East Hempfield Township Industrial Development Authority, Pennsylvania,
Herley Microwave System Inc Ser 1989 A................................. 10.40 06/01/04 3,342,970
4,000 Pennsylvania Economic Development Authority, McMillan Bloedel Ltd Ser
1995 (AMT)............................................................. 7.60 12/01/20 4,471,800
Lexington County, South Carolina,
2,565 Ellett Brothers Inc Refg Ser 1988...................................... 10.625 09/01/02 2,630,433
4,250 Ellett Brothers Inc Refg Ser 1988...................................... 10.625 09/01/08 4,358,970
4,500 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade of Pittsylvania County Ser 1994 A (AMT).................... 7.45 01/01/09 4,720,275
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,087,300
- -------- ------------
41,015 42,851,988
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Mortgage Revenue - Multi-Family (3.5%)
Washington County Housing & Redevelopment Authority, Minnesota,
$ 3,885 Courtly Park Ser 1989 A................................................ 9.75% 06/15/19 $ 2,350,425
1,165 Courtly Park Ser 1989 A (AMT).......................................... 10.25 06/15/19 704,825
24,080 Courtly Park Ser 1989 B................................................ 0.00 06/15/19 240,800
8,678 Courtly Park 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
22,401 White Bear Woods Apts Phase II Refg 1989 Ser B......................... 0.00 06/15/19 224,009
- -------- ------------
63,924 6,207,338
- -------- ------------
Mortgage Revenue - Single Family (10.2%)
3,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)................... 6.00 06/01/27 3,017,850
25,076 San Francisco, California, Ser 1982..................................... 0.00 10/01/14 3,995,816
370 Broward County Housing Finance Authority, Florida, Home Ser 1989 A...... 10.00 10/01/03 370,525
54,145 New Hampshire Housing Finance Authority, Residential 1983 Ser B......... 0.00 01/01/15 8,746,042
2,000 Ohio Housing Finance Agency, Residential 1996 Ser B-2 (AMT)............. 6.10 09/01/28 2,004,760
- -------- ------------
84,591 18,134,993
- -------- ------------
Nursing & Health Related Facilities Revenue (23.1%)
Vista, California,
973 Long-Term Care Foundation of America Ser 1994 A COPs (a) (b)........... 8.50 01/01/20 603,442
117 Long-Term Care Foundation of America Ser 1994 B COPs (a) (b)........... 0.00 01/01/20 1,167
Escambia County, Florida,
8,560 Pensacola Care Development Centers Ser 1989............................ 10.25 07/01/11 8,143,556
1,955 Pensacola Care Development Centers Ser 1989 A.......................... 10.25 07/01/11 1,859,889
8,720 Flagler County Industrial Development Authority, Florida, RHA/South
Florida Properties Inc Ser 1988 A...................................... 10.50 12/01/18 7,898,750
1,460 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,560,769
2,515 Jefferson County, Kentucky, AHF/Kentucky-Iowa Inc Ser 1990.............. 10.25 01/01/20 2,612,456
1,600 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,703,120
3,425 Massachusetts Industrial Finance Agency, Vinfen Corp Ser 1993........... 7.10 11/15/18 3,607,004
6,295 McCurtain County Development Authority, Oklahoma, Heartway Corp Ser 1989
A-2 (b)................................................................ 10.25 03/01/19 5,350,750
3,725 Allegheny County Hospital Development Authority, Pennsylvania, Allegheny
Valley School Ser 1990................................................. 8.50 02/01/15 3,916,241
4,715 Kirbyville Health Facilities Development Corporation, Texas, Heartway
III Corp Ser 1988 A (b)................................................ 11.25 03/20/21 4,007,750
- -------- ------------
44,060 41,264,894
- -------- ------------
Retirement & Lifecare Facilities Revenue (7.2%)
Connecticut Development Authority,
3,230 Seabury Life Care Ser 1991............................................. 10.00 09/01/04 3,460,654
600 Seabury Life Care Ser 1996............................................. 8.75 09/01/06 607,200
1,000 Seabury Life Care Ser 1991............................................. 10.00 09/01/16 1,071,410
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$ 5,701 Ann Arbor Economic Development Corporation, Michigan, Glacier Hills Inc
Ser 1989............................................................... 8.375% 01/15/19 $ 5,631,220
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove Ser 1996
(AMT).................................................................. 8.250 10/01/26 2,029,460
- -------- ------------
12,531 12,799,944
- -------- ------------
Tax Allocation (4.4%)
1,180 Bridgeview, Illinois, Ser 1995.......................................... 9.00 01/01/11 1,319,771
Crestwood, Illinois,
3,000 Refg Ser 1994.......................................................... 7.00 12/01/04 3,146,100
3,350 Refg Ser 1994.......................................................... 7.25 12/01/08 3,461,656
- -------- ------------
7,530 7,927,527
- -------- ------------
Transportation Facilities Revenue (6.2%)
2,000 San Joaquin Hills, California, Transportation Corridor, Toll Road Sr
Lien................................................................... 6.75 01/01/32 2,103,880
2,000 Foothills/Eastern Transportation Corridor Agency, California, Toll Road
Sr Lien Ser 1995 A..................................................... 0.00 01/01/13 1,321,400
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 2,011,520
1,700 Bi-State Development Agency of the Missouri-Illinois Metropolitan
District, Arch Parking Refg Ser 1997................................... 5.875 12/01/12 1,697,433
4,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 3,920,440
- -------- ------------
11,700 11,054,673
- -------- ------------
Other Revenue (2.3%)
2,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996 Ser A.... 6.40 09/01/11 2,084,500
2,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996A................................................... 7.30 08/01/27 2,069,340
- -------- ------------
4,000 4,153,840
- -------- ------------
Refunded (3.0%)
1,010 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C
(ETM).................................................................. 9.50 11/15/19 1,181,569
North Central Texas Health Facilities Development Corporation,
1,900 C C Young Memorial Home Ser 1988....................................... 10.50 12/01/98++ 2,123,820
1,850 C C Young Memorial Home Ser 1988....................................... 10.50 12/01/98++ 2,067,930
- -------- ------------
4,760 5,373,319
- -------- ------------
290,581 TOTAL MUNICIPAL BONDS (Identified Cost $173,132,653)........................................... 165,970,794
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS (3.7%)
$ 4,521 Volusia County Florida Health Facilities Authority, Florida, John Knox
Village Center 1988 Ser A.............................................. 11.125% 09/01/97++ $ 4,735,836
1,700 Ascension Parish, Louisiana, Shell Oil Co Ser 1993 (Demand 06/02/97).... 4.00* 09/01/23 1,700,000
200 Beltrami County, Minnesota, Northwood Panelboard Co Ser 1991 (Demand
- -------- 06/02/97).............................................................. 4.00* 12/01/21 200,000
------------
6,421 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $6,557,317)............................ 6,635,836
- -------- ------------
$297,002 TOTAL INVESTMENTS (Identified Cost 179,689,970) (c)................................... 96.6% 172,606,630
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 3.4 5,993,258
----- ------------
NET ASSETS............................................................................. 100.0% $178,599,888
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
WI Security purchased on a when issued basis.
+ Joint exemption in District of Columbia and Virginia.
++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(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 is $5,119,482 and the aggregate gross unrealized depreciation is $12,202,822,
resulting in net unrealized depreciation of $7,083,340.
<CAPTION>
Bond Insurance:
- ---------------
<S> <C>
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
May 31, 1997
<TABLE>
<S> <C>
Alaska................... 1.7%
California............... 5.4
Connecticut.............. 4.0
District of Columbia..... 0.3
Florida.................. 15.2
Illinois................. 6.0
Indiana.................. 0.9
Iowa..................... 0.8
Kentucky................. 1.5
Louisiana................ 1.9%
Massachusetts............ 6.6
Michigan................. 6.3
Minnesota................ 3.6
Missouri................. 1.0
New Hampshire............ 4.9
New York................. 2.8
Ohio..................... 7.2
Oklahoma................. 3.0
Pennsylvania............. 7.8%
South Carolina........... 3.9
Texas.................... 4.5
Utah..................... 2.5
Virginia................. 4.0
West Virginia............ 1.1
Joint Exemption.......... (0.3)+
----
Total.................... 96.6%
====
</TABLE>
- ---------------------
+ Joint exemption has been included in both geographic locations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $179,689,970)....................................... $172,606,630
Cash.................................................................. 98,692
Receivable for:
Interest.......................................................... 4,894,797
Investments sold.................................................. 2,741,935
Prepaid expenses...................................................... 22,758
------------
TOTAL ASSETS...................................................... 180,364,812
------------
LIABILITIES:
Payable for:
Investments purchased............................................. 1,501,000
Investment advisory fee........................................... 88,183
Administration fee................................................ 52,910
Accrued expenses...................................................... 122,831
------------
TOTAL LIABILITIES................................................. 1,764,924
------------
NET ASSETS:
Paid-in-capital....................................................... 199,754,364
Net unrealized depreciation........................................... (7,083,340)
Accumulated undistributed net investment income....................... 2,960,456
Accumulated net realized loss......................................... (17,031,592)
------------
NET ASSETS........................................................ $178,599,888
============
NET ASSET VALUE PER SHARE,
21,089,872 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $8.47
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended May 31, 1997
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $15,101,153
-----------
EXPENSES
Investment advisory fee................................................ 886,834
Administration fee..................................................... 532,100
Professional fees...................................................... 300,227
Transfer agent fees and expenses....................................... 93,895
Shareholder reports and notices........................................ 34,627
Registration fees...................................................... 32,204
Trustees' fees and expenses............................................ 15,251
Custodian fees......................................................... 9,285
Other.................................................................. 13,398
-----------
TOTAL EXPENSES..................................................... 1,917,821
LESS: EXPENSE OFFSET............................................... (9,253)
-----------
NET EXPENSES....................................................... 1,908,568
-----------
NET INVESTMENT INCOME.............................................. 13,192,585
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................................................... 883,533
Net change in unrealized depreciation.................................. 2,410,485
-----------
NET GAIN........................................................... 3,294,018
-----------
NET INCREASE........................................................... $16,486,603
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 13,192,585 $ 14,638,709
Net realized gain.................................... 883,533 864,697
Net change in unrealized depreciation................ 2,410,485 (6,396,850)
------------ ------------
NET INCREASE..................................... 16,486,603 9,106,556
Dividends from net investment income................. (13,180,877) (13,655,349)
------------ ------------
NET INCREASE (DECREASE).......................... 3,305,726 (4,548,793)
NET ASSETS:
Beginning of period.................................. 175,294,162 179,842,955
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,960,456 and $2,948,748, respectively)......... $178,599,888 $175,294,162
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997
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> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, 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, 1997 aggregated $31,710,220
and $32,247,802, respectively.
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $17,500.
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, 1997 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,477.
At May 31, 1997, the Fund had an accrued pension liability of $47,947 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
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, May 31, 1995, 1996 and 1997............................................ 21,089,872 $210,898 $199,543,466
========== ======== ============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At May 31, 1997, the Fund had a net capital loss carryover of approximately
$17,032,000 which may be used to offset future capital gains to the extent
provided by regulations, which is available through May 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ---------------------------
2002 2003 2004
- ------ ------- ------
<S> <C> <C>
$610 $11,179 $5,243
==== ======= ======
</TABLE>
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 27, 1997 $0.05 June 6, 1997 June 20, 1997
July 1, 1997 $0.05 July 11, 1997 July 25, 1997
</TABLE>
<PAGE> 16
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*
--------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the period....................... $ 8.31 $ 8.53 $ 8.47 $ 8.58 $ 8.97
-------- -------- -------- -------- ---------
Net investment income.......................................... 0.63 0.69 0.68 0.67 0.64
Net realized and unrealized gain (loss)........................ 0.16 (0.26) 0.01 (0.15) (0.34)
-------- -------- -------- -------- ---------
Total from investment operations............................... 0.79 0.43 0.69 0.52 0.30
-------- -------- -------- -------- ---------
Less dividends and distributions from:
Net investment income....................................... (0.63) (0.65) (0.63) (0.63) (0.66)
Net realized gain........................................... -- -- -- -- (0.03)
-------- -------- -------- -------- ---------
Total dividends and distributions.............................. (0.63) (0.65) (0.63) (0.63) (0.69)
-------- -------- -------- -------- ---------
Net asset value, end of period................................. $ 8.47 $ 8.31 $ 8.53 $ 8.47 $ 8.58
======== ======== ======== ======== =========
Market value, end of period.................................... $ 8.75 $ 8.875 $ 8.25 $ 8.125 $ 8.25
======== ======== ======== ======== =========
TOTAL INVESTMENT RETURN+....................................... 5.82% 15.95% 9.81% 6.17% (4.71)%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................... 1.08% 0.97% 1.04% 1.22% 1.15%
Net investment income.......................................... 7.44% 8.24% 8.10% 7.80% 7.27%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................ $178,600 $175,294 $179,843 $181,745 $184,100
Portfolio turnover rate........................................ 19% 8% 5% 16% 2%
</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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
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, 1997, 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,
1997 by correspondence with the custodian and a broker, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 3, 1997
--------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1997, the Fund paid to the
shareholders $0.63 per share from net investment income all of
which was exempt interest dividends, excludable from gross
income for Federal income tax purposes.
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<PAGE> 19
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<PAGE> 20
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
Barry Fink
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
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST
Annual Report
May 31, 1997
