<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS November 30, 1996
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Municipal
Income Opportunities Trust for the six-month period ended November 30, 1996.
Stronger economic growth and the potential threat of rising inflation shifted
the tone of the fixed-income markets from bullish to bearish early in 1996. This
change in market psychology was confirmed in March by a surprisingly large
increase in payroll employment. The rise in interest rates between February and
July may be attributed to market weakness on the days that strong monthly
employment figures were reported. The bond market sporadically pushed long-term
yields higher, in anticipation of a possible increase in the federal-funds rate
by the Federal Reserve Board. However, as employment growth and overall economic
activity slowed during the summer, the central bank left monetary policy
unchanged. As a result, the fixed-income markets regained an optimistic outlook
and rallied from September through November to lower yields last seen at the
beginning of the year.
MUNICIPAL MARKET CONDITIONS
Between February and July 1996, 30-year insured revenue bond yields rose 75
basis points from 5.40 percent to reach 6.15 percent in April and again in
mid-June. Subsequently, demand for municipal bonds improved and followed the
trend of Treasuries to lower rates. By the end of November, insured bond yields
stood at 5.50 percent. In November, the yield curve pickup for extending
maturities from 1 to 30 years was 190 basis points.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields moved
from 92 percent to 86 percent for the calendar year. A declining ratio means
that municipal bond prices outperformed U.S. Treasury prices. The relative
improvement in municipals occurred as flat-tax proposals failed to gain public
support.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS November 30, 1996, continued
The municipal market also benefited from steady demand. In addition to regular
maturities and calls for redemption this year, it has been estimated that
investors also faced the retirement of over $60 billion in debt that had been
previously refinanced. On the supply side, new issues increased 13 percent to
$160 billion for the first 11 months of 1996.
PERFORMANCE
The Fund's net asset value (NAV) moved from $8.31 to $8.49 per share over the
six-month period ended November 30, 1996. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.325 per share, the Fund's total
return was 5.79 percent. The Fund's market price on the New York Stock Exchange
began and ended the period at $8.875 per share. Based on this market price and
reinvestment of tax-free dividends the Fund's total return was 3.67 percent. On
November 30, 1996, the Fund was trading at a 4.7 percent premium to NAV.
Undistributed net investment income available for dividends declined from $0.14
to $0.12 per share over the past six months. Beginning with the November 1996
payment, the monthly dividend was reduced from $0.055 to $0.050 in an effort to
more closely reflect the Fund's anticipated income.
PORTFOLIO STRUCTURE
On November 30, 1996, the Fund's $179 million in net assets was diversified
among 14 long-term sectors and 54 credits. Four loans representing less than
five percent of the Fund's net assets were not accruing interest. In addition,
three loans, totaling four percent of net assets, were accruing income, but may
face difficulty meeting future debt service requirements.
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS November 30, 1996, continued
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities is
expected to remain positive for the municipal market. Long-term insured
municipal securities currently yield 86 percent of the yield on U.S. Treasury
securities and may be expected to follow the direction of the Treasury market.
Although municipal performance relative to Treasuries has improved, tax-exempt
investments could again be affected by market uncertainty if new tax-reduction
proposals resurface.
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. Over the past six-months the Fund did not
purchase shares of common stock.
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 November 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (95.7%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75% 08/15/10 $ 1,975,560
- -------- ----------
Educational Facilities Revenue (1.4%)
1,600 ABAG Finance Authority for Nonprofit California Corporations, National
Center for International Schools COPs.................................. 7.50 05/01/11 1,605,936
1,000 New York State Dormitory Authority, State University Refg 1993 Ser A.... 5.25 05/15/15 960,020
- -------- ----------
2,600 2,565,956
- -------- ----------
Electric Revenue (2.1%)
4,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 3,706,560
- -------- ----------
Hospital Revenue (6.8%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,248,860
1,010 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 1,153,087
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/14 2,104,040
3,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/22 3,121,080
1,500 North Central Texas Health Facilities Development Corporation,
University Medical Center Inc Ser 1987................................. 7.75 04/01/17 1,546,815
1,870 Buena Vista Industrial Development Authority, Virginia, Stonewall
Jackson Hospital Ser 1987.............................................. 8.375 11/01/14 1,947,250
- -------- ----------
11,380 12,121,132
- -------- ----------
Industrial Development/Pollution Control Revenue (24.7%)
480 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 483,797
1,555 Illinois Development Finance Authority, Custom Tapes Inc Refg Ser
1989................................................................... 10.50 05/01/19 1,590,143
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,954,220
3,890 Detroit Economic Development Corporation, Michigan, North Industrial
Park LP Ser 1989....................................................... 11.375 02/15/14 4,254,143
1,490 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT)................ 9.375 10/01/06 1,569,399
3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT)................ 9.00 12/01/19 3,836,484
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A......................... 12.50 10/01/09 2,234,160
1,090 Zanesville-Muskingum County Port Authority, Ohio, Anchor Glass
Container Corp Ser 1989 B (AMT)........................................ 10.25 12/01/08 830,002
2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995-B.................................... 7.75 05/01/20 2,191,140
2,089 Butler County Industrial Development Authority, Pennsylvania, Morgan
Management Co Ser 1976................................................. 8.75 11/15/03 2,100,326
3,525 East Hempfield Township Industrial Development Authority, Pennsylvania,
Herley Microwave System Inc Ser 1989 A................................. 10.40 06/01/04 3,802,276
4,000 Pennsylvania Economic Development Authority, McMillan Bloedel Ltd Ser
1995 (AMT)............................................................. 7.60 12/01/20 4,484,880
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Lexington County, South Carolina,
$ 2,565 Ellett Brothers Inc Refg Ser 1988...................................... 10.625% 09/01/02 $ 2,655,621
4,250 Ellett Brothers Inc Refg Ser 1988...................................... 10.625 09/01/08 4,400,747
4,500 Pittsylvania County Industrial Development Authority, Virginia, Multi
Trade of Pittsylvania County Ser 1994 A (AMT).......................... 7.45 01/01/09 4,723,020
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,087,840
- -------- ----------
42,034 44,198,198
- -------- ----------
Mortgage Revenue - Multi-Family (3.4%)
Washington County Housing & Redevelopment Authority, Minnesota,
3,885 Courtly Park Ser 1989 A................................................ 9.75 06/15/19 2,331,000
1,165 Courtly Park Ser 1989 A (AMT).......................................... 10.25 06/15/19 699,000
24,080 Courtly Park Refg Ser 1989 B........................................... 0.00 06/15/19 240,800
8,678 Courtly Park Refg 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
22,843 White Bear Woods Apts Phase II Refg 1989 Ser B......................... 0.00 06/15/19 228,425
- -------- ----------
64,366 6,186,504
- -------- ----------
Mortgage Revenue - Single Family (11.2%)
5,000 Alaska Housing Finance Corporation, Insured 1993 First Ser.............. 5.90 12/01/33 4,970,150
28,227 San Francisco, California, Ser 1982..................................... 0.00 10/01/14 4,293,547
405 Broward County Housing Finance Authority, Florida, Home Ser 1989 A...... 10.00 10/01/03 405,599
54,975 New Hampshire Housing Finance Authority, Residential 1983 Ser B......... 0.00 01/01/15 8,443,610
2,000 Ohio Housing Finance Agency, Residential 1996 Ser B-2 (AMT)............. 6.10 09/01/28 2,016,960
- -------- ----------
90,607 20,129,866
- -------- ----------
Nursing & Health Related Facilities Revenue (23.3%)
Vista, California,
973 Long-Term Care Foundation of America Ser 1994 A COPs (a) (b)........... 8.50 01/01/20 486,647
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 8,947,169
1,955 Pensacola Care Development Centers Ser 1989 A.......................... 10.25 07/01/11 2,043,425
8,825 Flagler County Industrial Development Authority, Florida, RHA/South
Florida Properties Inc Ser 1988 A...................................... 10.50 12/01/18 8,836,031
1,480 Winchester, Indiana, Hoosier Care II Inc Ser 1990....................... 10.375 06/01/20 1,587,300
2,540 Jefferson County, Kentucky, AHF/Kentucky-Iowa Inc Ser 1990.............. 10.25 01/01/20 2,637,003
1,600 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,699,136
3,425 Massachusetts Industrial Finance Agency, Vinfen Corp Ser 1993........... 7.10 11/15/18 3,478,053
6,295 McCurtain County Development Authority, Oklahoma, Heartway Corp Ser 1989
A-2 (b)................................................................ 10.25 03/01/19 4,406,500
4,715 Kirbyville Health Facilities Development Corporation, Texas, Heartway
III Corp Ser 1989 A (b)................................................ 11.25 03/20/21 3,206,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
North Central Texas Health Facilities Development Corporation,
$ 1,900 C C Young Memorial Home Ser 1988....................................... 10.50% 12/01/13 $ 2,180,744
1,890 C C Young Memorial Home Ser 1988....................................... 10.50 12/01/13 2,169,266
- -------- -----------
44,275 41,678,641
- -------- -----------
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 (7.1%)
Connecticut Development Authority,
3,230 Seabury Life Care Ser 1991............................................. 10.00 09/01/04 3,430,099
600 Seabury Life Care Ser 1996............................................. 8.75 09/01/06 605,562
1,000 Seabury Life Care Ser 1991............................................. 10.00 09/01/16 1,061,950
5,701 Ann Arbor Economic Development Corporation, Michigan, Glacier Hills Inc
Ser 1989............................................................... 8.375 01/15/19 5,592,795
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove Ser 1996
(AMT).................................................................. 8.25 10/01/26 2,019,340
- -------- -----------
12,531 12,709,746
- -------- -----------
Tax Allocation (4.4%)
1,200 Bridgeview, Illinois, Ser 1991.......................................... 9.00 01/01/11 1,318,692
Crestwood, Illinois,
3,000 Refg Ser 1994.......................................................... 7.00 12/01/04 3,092,850
3,350 Refg Ser 1994.......................................................... 7.25 12/01/08 3,408,860
- -------- -----------
7,550 7,820,402
- -------- -----------
Transportation Facilities Revenue (5.2%)
2,000 San Joaquin Hills, California, Transportation Corridor Toll Road Sr
Lien................................................................... 6.75 01/01/32 2,122,480
Foothills/Eastern Transportation Corridor Agency, California, Toll Road
2,000 Sr Lien Ser 1995 A..................................................... 0.00 01/01/13 1,281,480
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 2,013,440
4,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 3,970,880
- -------- -----------
10,000 9,388,280
- -------- -----------
Other Revenue (2.3%)
2,000 Northern Palm Beach & County Improvement District, Florida, Water
Control & Impr #9 A Ser 1996 A......................................... 7.30 08/01/27 2,074,680
2,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996 Ser A.... 6.40 09/01/11 2,059,740
- -------- -----------
4,000 4,134,420
- -------- -----------
Refunded (2.7%)
4,521 Volusia County Health Facilities Authority, Florida, John Knox Village
- -------- Center 1988 Ser A...................................................... 11.125 09/01/97++ 4,900,297
-----------
300,984 TOTAL MUNICIPAL BONDS (Identified Cost $177,868,720)............................................. 171,515,573
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS November 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (1.4%)
$ 2,500 Philadelphia Hospital & Higher Education Facilities Authority,
- -------- Pennsylvania, Children's Hospital of Philadelphia 1996 Ser A
(Demand 12/02/96)................................................... 4.00% * 03/01/27 $ 2,500,000
------------
$303,484 TOTAL INVESTMENTS (Identified Cost $180,368,720) (c).................................... 97.1% 174,015,573
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 2.9 5,113,987
------ ------------
NET ASSETS............................................................................... 100.0% $179,129,560
====== ============
</TABLE>
- ---------------------
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 is
$6,596,910 and the aggregate gross unrealized depreciation is
$12,950,057, resulting in net unrealized depreciation of
$6,353,147.
Bond Insurance:
MBIA Municipal Bond Investors Assurance Corporation.
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
November 30, 1996
<TABLE>
<S> <C>
Alaska................... 2.8%
California............... 6.7
Connecticut.............. 4.0
District of Columbia..... 0.3
Florida.................. 16.2
Illinois................. 5.9
Indiana.................. 0.9
Kentucky................. 1.5
Louisiana................ 0.9
Massachusetts............ 6.5%
Michigan................. 6.4
Minnesota................ 1.6
New Hampshire............ 4.7
New York................. 2.8
Ohio..................... 7.2
Oklahoma................. 2.5
Pennsylvania............. 8.3
South Carolina........... 3.9
Texas.................... 5.1%
Utah..................... 2.1
Virginia................. 4.0
Washington............... 1.9
West Virginia............ 1.2
Joint Exemption (1)...... (0.3)
---
Total.................... 97.1%
===
</TABLE>
(1) Joint exemptions have been included in both geographic locations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $180,368,720)....................................... $174,015,573
Cash.................................................................. 210,581
Receivable for:
Interest.......................................................... 4,881,295
Investments sold.................................................. 139,000
Prepaid expenses and other assets..................................... 121,680
----------
TOTAL ASSETS...................................................... 179,368,129
----------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 87,774
Administration fee................................................ 52,665
Accrued expenses and other payables................................... 98,130
----------
TOTAL LIABILITIES................................................. 238,569
----------
NET ASSETS:
Paid-in-capital....................................................... 199,754,364
Net unrealized depreciation........................................... (6,353,147)
Accumulated undistributed net investment income....................... 2,820,293
Accumulated net realized loss......................................... (17,091,950)
----------
NET ASSETS........................................................ $179,129,560
==========
NET ASSET VALUE PER COMMON SHARE
21,089,872 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $8.49
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended November 30, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $ 7,602,250
---------
EXPENSES
Investment management fee.............................................. 443,167
Administration fee..................................................... 265,900
Professional fees...................................................... 75,087
Transfer agent fees and expenses....................................... 45,750
Registration fees...................................................... 16,142
Custodian fees......................................................... 15,111
Shareholder reports and notices........................................ 15,006
Trustees' fees and expenses............................................ 8,147
Other.................................................................. 7,435
---------
TOTAL EXPENSES BEFORE EXPENSE OFFSET............................... 891,745
LESS: EXPENSE OFFSET............................................... (15,095)
---------
TOTAL EXPENSES AFTER EXPENSE OFFSET................................ 876,650
---------
NET INVESTMENT INCOME.............................................. 6,725,600
---------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain...................................................... 823,175
Net change in unrealized depreciation.................................. 3,140,678
---------
NET GAIN........................................................... 3,963,853
---------
NET INCREASE........................................................... $10,689,453
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1996 MAY 31, 1996
- ----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 6,725,600 $ 14,638,709
Net realized gain................................ 823,175 864,697
Net change in unrealized depreciation............ 3,140,678 (6,396,850)
----------- -----------
NET INCREASE................................. 10,689,453 9,106,556
Dividends from net investment income............. (6,854,055) (13,655,349)
----------- -----------
NET INCREASE (DECREASE)...................... 3,835,398 (4,548,793)
NET ASSETS:
Beginning of period.............................. 175,294,162 179,842,955
----------- -----------
END OF PERIOD
(Including undistributed net investment
income of
$2,820,293 and $2,948,748, respectively)..... $ 179,129,560 $175,294,162
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996 (unaudited)
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 November 30, 1996 (unaudited) 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 six months ended November 30, 1996 aggregated
$17,072,020 and $16,493,048, respectively.
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996 (unaudited) continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At November 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $20,000.
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 six months ended November 30, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $426. At November 30, 1996, the Fund had an accrued pension liability of
$48,460 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, 1995, 1996 & November 30, 1996................................. 21,089,872 $ 210,898 $199,543,466
========= ======= ===========
</TABLE>
6. FEDERAL INCOME TAX STATUS
At May 31, 1996, the Fund had a net capital loss carryover of approximately
$17,915,000 to offset future capital gains to the extent provided by regulations
through May 31 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ------------------------------------------
2002 2003 2004 TOTAL
- ------- -------- ------- --------
<S> <C> <C> <C>
$1,493 $11,179 $5,243 $17,915
======= ======== ======= ========
</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>
November 26, 1996 $0.05 December 6, 1996 December 20, 1996
December 31, 1996 $0.05 January 10, 1997 January 24, 1997
</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 SIX FOR THE YEAR ENDED MAY 31*
MONTHS ENDED -----------------------------------------
NOVEMBER 30, 1996* 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 8.31 $ 8.53 $ 8.47
---------- ----- -----
Net investment income..................................... 0.32 0.69 0.68
Net realized and unrealized gain (loss)................... 0.19 (0.26) 0.01
---------- ----- -----
Total from investment operations.......................... 0.51 0.43 0.69
---------- ----- -----
Less dividends and distributions from:
Net investment income.................................. (0.33) (0.65) (0.63)
Net realized gain...................................... -- -- --
---------- ----- -----
Total dividends and distributions......................... (0.33) (0.65) (0.63)
---------- ----- -----
Net asset value, end of period............................ $ 8.49 $ 8.31 $ 8.53
========== ===== =====
Market value, end of period............................... $8.875 $8.875 $ 8.25
========== ===== =====
TOTAL INVESTMENT RETURN+.................................. 3.67%(1) 15.95% 9.81%
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset...................... 1.01%(2)(3) 0.97% 1.04%
Net investment income..................................... 7.59%(2)(3) 8.24% 8.10%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $179,130 $175,294 $179,843
Portfolio turnover rate................................... 10%(1) 8% 5%
<CAPTION>
FOR THE YEAR ENDED MAY 31*
--------------------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 8.58 $ 8.97 $ 9.39
----- ----- -----
Net investment income..................................... 0.67 0.64 0.74
Net realized and unrealized gain (loss)................... (0.15) (0.34) (0.43)
----- ----- -----
Total from investment operations.......................... 0.52 0.30 0.31
----- ----- -----
Less dividends and distributions from:
Net investment income.................................. (0.63) (0.66) (0.73)
Net realized gain...................................... -- (0.03) --
----- ----- -----
Total dividends and distributions......................... (0.63) (0.69) (0.73)
----- ----- -----
Net asset value, end of period............................ $ 8.47 $ 8.58 $ 8.97
===== ===== =====
Market value, end of period............................... $8.125 $ 8.25 $9.325
===== ===== =====
TOTAL INVESTMENT RETURN+.................................. 6.17% (4.71)% 2.64%
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset...................... 1.22% 1.15% 1.08%
Net investment income..................................... 7.80% 7.27% 8.00%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $181,745 $184,100 $194,851
Portfolio turnover rate................................... 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) Not annualized.
(2) Annualized.
(3) The above ratios reflect the effect of expense offsets of 0.02%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
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<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 MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST
[PHOTO]
SEMIANNUAL REPORT
NOVEMBER 30, 1996
