<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST Two World Trade Center, New York,
New York 10048
LETTER TO THE SHAREHOLDERS May 31, 1998
DEAR SHAREHOLDER:
We are pleased to present the annual report of Municipal Income Opportunities
Trust (OIA) for the fiscal year ended May 31, 1998.
The deflationary impact of the Asian financial crisis has begun to temper U.S.
economic growth. Although employment conditions in the United States
strengthened and unemployment declined to its lowest level since 1970, inflation
remained subdued. This was primarily the result of improved productivity, lower
oil costs and cheaper imports.
Foreign currency turmoil strengthened the value of the U.S. dollar and spurred
demand for U.S. Treasury securities. Municipal bonds followed the trend of
Treasuries with yields declining to a range not seen in over 20 years. The bond
market rally was also aided by prospects of the first federal budget surplus in
more than two decades.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal yields declined 45 basis points, from 5.65 percent
to 5.20 percent between May 1997 and May 1998. Over the
<TABLE>
<CAPTION>
BOND YIELDS 1994-1998
Insured Municipal
30-Year 30-Year Revenue Yields
Insured Municipal U.S. Treasury as Percentage of
Yields Yields U.S. Treasury Yields
<S> <C> <C> <C>
Dec '93 5.4% 6.34% 85.17%
5.4 6.24 86.54%
5.8 6.66 87.09%
6.4 7.09 90.27%
6.35 7.32 86.75%
6.25 7.43 84.12%
Jun '94 6.5 7.61 85.41%
6.25 7.39 84.57%
6.3 7.45 84.56%
6.55 7.81 83.87%
6.75 7.96 84.80%
7 8 87.50%
Dec '94 6.75 7.88 85.66%
6.4 7.7 83.12%
6.15 7.44 82.66%
6.15 7.43 82.77%
6.2 7.34 84.47%
5.8 6.66 87.09%
Jun '95 6.1 6.62 92.15%
6.1 6.86 88.92%
6 6.66 90.08%
5.95 6.48 91.82%
5.75 6.33 90.84%
5.5 6.14 89.56%
Dec '95 5.35 5.94 90.07%
5.4 6.03 89.55%
5.8 6.46 86.69%
5.85 6.66 87.84%
5.95 6.89 86.36%
6.05 6.99 86.55%
Jun '96 5.9 6.89 85.63%
5.85 6.97 83.93%
5.9 7.11 82.98%
5.7 6.93 82.25%
5.65 6.64 85.09%
5.5 6.35 86.61%
Dec '96 5.6 6.63 84.46%
5.7 6.79 83.95%
5.65 6.8 83.08%
5.9 7.1 83.10%
5.75 6.94 82.85%
5.65 6.91 81.77%
Jun '97 5.6 6.78 82.60%
5.3 6.3 84.00%
5.5 6.61 83.00%
5.4 6.4 84.40%
5.35 6.15 86.90%
5.3 6.05 87.60%
Dec '97 5.15 5.92 86.90%
Jan '98 5.15 5.8 88.80%
Feb '98 5.2 5.92 87.80%
Mar '98 5.25 5.93 88.50%
Apr '98 5.35 5.95 89.90%
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1998, continued
same time period the yield on one-year notes fell only 15 basis points, from
3.90 percent to 3.75 percent. Thus, the yield pickup or spread for extending
maturities from 1 to 30 years narrowed to 145 basis points.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, U.S. Treasury borrowing needs have declined with the
reduction in the budget deficit. Under these conditions the municipal rally
lagged the rally in Treasuries. The ratio of municipal yields to Treasury yields
improved during this period, from 82 percent of Treasuries in May 1997 to almost
90 percent a year later. A rising ratio means that municipals have
underperformed Treasuries and have become more attractive on a relative basis.
Total municipal volume increased 20 percent in 1997 and totaled $220 billion
last year. Half the underwritings were enhanced with bond insurance. Refundings
represented one-quarter of total new issues. For the year-to-date, underwriting
is up 60 percent with refunding issues comprising nearly one-third of total
issuance.
PERFORMANCE
During the fiscal year ended May 31, 1998, the Fund's net asset value (NAV)
improved from $8.47 to $8.80 per share. Based on this NAV change plus
reinvestment of tax-free dividends totaling $0.58 per share, the Fund's total
NAV return was 10.67 percent. OIA's price on the New York Stock Exchange (NYSE)
slipped from $8.75 to $8.6875 per share. Based on this change in market price
plus reinvestment of dividends and distributions, the Fund's total market return
was 5.87 percent. On May 31, 1998, OIA's market price was trading at a 1.3
percent discount (lower than) to NAV.
Monthly dividends for the second quarter were declared in March and remained
unchanged at $0.0475 per share. The level of undistributed net investment income
increased from $0.14 per share to $0.16 per share during the fiscal year.
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 may,
when appropriate, 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.
2
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1998, continued
PORTFOLIO STRUCTURE
On May 31, 1998, OIA's investments were diversified among 13 long-term sectors
and 57 credits. As illustrated in the accompanying chart, the distribution of
call dates produced 8 years of weighted average call protection. The Fund's
weighted average maturity was 18 years. Non-rated securities comprised more than
55 percent of the Fund's net assets. All the issues in the portfolio are
currently accruing interest. However, four credits, representing 12 percent of
net assets were accruing income, but may face difficulties meeting future
debt-service payments.
<TABLE>
LARGEST SECTORS AS OF MAY 31, 1998
(% OF NET ASSETS)
<S> <C>
IDR/PCR* 24%
NURSING & HEALTH 20%
ALL OTHERS 17%
MORTGAGE 15%
TRANSPORTATION 9%
HOSPITAL 8%
RETIREMENT & LIFE CARE 7%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CALL STRUCTURE AS OF MAY 31, 1998 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 8 YEARS
PERCENT CALLABLE
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE
<S> <C>
1998 2%
1999 9%
2000 5%
2001 4%
2002 3%
2003 10%
2004 6%
2005 12%
2007 7%
2008 10%
2009+ 22%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE
3
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST
LETTER TO THE SHAREHOLDERS May 31, 1998, continued
LOOKING AHEAD
The economic fundamentals remain in place for another year of solid economic
growth in the United States. Events in Asia have strengthened the U.S. dollar
and contributed to lower interest rates. Furthermore, the Asian crisis seems
likely to continue to moderate inflationary pressures and provide a favorable
outlook for municipal bonds. However, if labor costs accelerate it is still
possible that the Federal Reserve Board may tighten monetary policy.
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
4
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 18, 1997, an annual 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 TRUSTEES:
<TABLE>
<S> <C>
Wayne E. Hedien
For......................................................... 16,703,413
Withheld.................................................... 447,627
Dr. Manuel H. Johnson
For......................................................... 16,708,053
Withheld.................................................... 442,987
John L. Schroeder
For......................................................... 16,705,696
Withheld.................................................... 445,344
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael
E. Nugent and Philip J. Purcell.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP (THE SUCCESSOR
FIRM TO PRICE WATERHOUSE LLP) AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 16,638,951
Against..................................................... 111,527
Abstain..................................................... 400,562
</TABLE>
5
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (95.8%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D......................... 5.75% 08/15/10 $ 2,101,440
- -------- -----------
Educational Facilities Revenue (1.5%)
1,600 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 05/01/11 1,712,640
1,000 New York State Dormitory Authority, State University Refg
1993 Ser A................................................. 5.25 05/15/15 1,031,810
- -------- -----------
2,600 2,744,450
- -------- -----------
Electric Revenue (2.6%)
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)**..................................................... 5.00 07/01/21 4,853,150
- -------- -----------
Hospital Revenue (7.8%)
1,000 Kentucky Economic Development Finance Authority, Appalachian
Regional Healthcare Inc Refg & Impr Ser 1997................ 5.875 10/01/22 1,025,220
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 2,193,020
3,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 3,283,590
2,000 Reno, Nevada, St Mary's Regional Medical Center 1998 Ser A
(MBIA)..................................................... 5.00 05/15/21 1,936,280
1,250 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Assn Ser 1998 A.............. 6.00 05/01/28 1,258,925
3,000 Metropolitan Government of Nashville & Davidson County,
Health & Educational Facilities Board, Tennessee, Baptist
Hospital Ser 1998 A (MBIA)................................. 4.875 11/01/28 2,842,950
1,820 Buena Vista Industrial Development Authority, Virginia,
Stonewall Jackson Hospital Ser 1987........................ 8.375 11/01/14 1,860,459
- -------- -----------
14,070 14,400,444
- -------- -----------
Industrial Development/Pollution Control Revenue (23.9%)
480 Metropolitan Washington Airports Authority, District of
Columbia, CaterAir International Corp Ser 1991 (AMT)++..... 10.125 09/01/11 499,656
1,525 Illinois Development Finance Authority, Custom Tapes Inc
Refg Ser 1989.............................................. 10.50 05/01/19 1,547,478
1,500 Iowa Finance Authority, ISPCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,568,955
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 3,116,970
3,740 Detroit Economic Development Corporation, Michigan, North
Industrial Park LP Ser 1989................................ 11.375 02/15/14 3,924,831
1,394 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT).... 9.375 10/01/06 1,444,802
3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT).... 9.00 12/01/19 3,880,008
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1998 A (WI)........ 5.625 02/01/18 2,013,320
960 Zanesville-Muskingum County Port Authority, Ohio, Anchor
Glass Container Corp Ser 1989 B (AMT)...................... 10.25 12/01/08 971,453
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995 -B.. 7.75% 05/01/20 $ 2,321,800
2,890 East Hempfield Township Industrial Development Authority,
Pennsylvania, Herley Microwave System Inc Ser 1989 A....... 10.40 06/01/04 3,005,369
4,000 Pennsylvania Economic Development Authority, McMillan
Bloedel Ltd Ser 1995 (AMT)................................. 7.60 12/01/20 4,478,960
Lexington County, South Carolina,
2,220 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/02 2,265,754
4,250 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/08 4,391,057
Pittsylvania County Industrial Development Authority,
Virginia,
4,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)........ 7.45 01/01/09 4,974,210
1,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)........ 7.50 01/01/14 1,659,510
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995
(AMT)...................................................... 7.00 07/15/25 2,238,440
- -------- -----------
41,559 44,302,573
- -------- -----------
Mortgage Revenue - Multi-Family (3.6%)
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 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 3,157,750
21,839 White Bear Woods Apts Phase II Refg 1989 Ser B............. 0.00 06/15/19 218,389
- -------- -----------
63,362 6,733,718
- -------- -----------
Mortgage Revenue - Single Family (11.6%)
3,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)**..... 6.00 06/01/27 3,150,420
13,129 San Francisco, California, Ser 1982......................... 0.00 10/01/14 2,317,994
270 Broward County Housing Finance Authority, Florida, Home Ser
1989 A..................................................... 10.00 10/01/03 270,464
New Hampshire Housing Finance Authority,
50,875 Residential 1983 Ser B...................................... 0.00 01/01/15 9,126,975
2,000 1997 Ser D (AMT)........................................... 5.90 07/01/28 2,081,700
2,000 Ohio Housing Finance Agency, Residential 1996 Ser B -2
(AMT)...................................................... 6.10 09/01/28 2,107,880
2,260 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/22 2,371,056
- -------- -----------
73,534 21,426,489
- -------- -----------
Nursing & Health Related Facilities Revenue (19.9%)
Escambia County, Florida,
7,990 Pensacola Care Development Centers Ser 1989................ 10.25 07/01/11 7,774,829
1,830 Pensacola Care Development Centers Ser 1989 A.............. 10.25 07/01/11 1,780,718
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,445 Winchester, Indiana, Hoosier Care II Inc Ser 1990........... 10.375% 06/01/20 $ 1,555,340
2,485 Jefferson County, Kentucky, AHF/Kentucky-Iowa Inc Ser 1990.. 10.25 01/01/20 2,672,543
1,600 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993.......... 8.375 10/01/13 1,798,368
3,335 Massachusetts Industrial Finance Agency, Vinfen Corp Ser
1993...................................................... 7.10 11/15/18 3,693,279
New Jersey Economic Development Authority,
1,500 Fellowship Village Project Refg Ser 1998 A................ 5.50 01/01/25 1,482,360
1,000 Franciscan Oaks Project Ser 1997.......................... 5.70 10/01/17 1,009,870
McCurtain County, Oklahoma,
835 Heartway Corp Ser 1997 B#................................. 0.00 03/01/19 560,285
4,950 Heartway Corp Ser 1997 A.................................. 9.50 03/01/19 5,433,615
3,725 Allegheny County Hospital Development Authority,
Pennsylvania, Allegheny Valley School Ser 1990............. 8.50 02/01/15 3,945,110
Kirbyville Health Facilities Development Authority, Texas,
642 Heartway III Corp Ser 1988 B##............................ 0.00 03/20/04 511,552
4,052 Heartway III Corp Ser 1988 A.............................. 10.00 03/20/18 4,704,434
- -------- -----------
35,389 36,922,303
- -------- -----------
Retirement & Life Care Facilities Revenue (7.4%)
Connecticut Development Authority,
2,950 Seabury Life Care Ser 1991................................ 10.00 09/01/04 3,299,634
600 Seabury Life Care Ser 1996................................ 8.75 09/01/06 650,154
1,000 Seabury Life Care Ser 1991................................ 10.00 09/01/16 1,118,520
5,631 Ann Arbor Economic Development Corporation, Michigan,
Glacier Hills Inc Ser 1989................................ 8.375 01/15/19 6,495,922
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen
Cove Ser 1996 (AMT)....................................... 8.25 10/01/26 2,233,380
- -------- -----------
12,181 13,797,610
- -------- -----------
Tax Allocation Revenue (4.4%)
1,095 Bridgeview, Illinois, Ser 1995.............................. 9.00 01/01/11 1,275,084
Crestwood, Illinois,
3,000 Refg Ser 1994............................................. 7.00 12/01/04 3,247,020
3,350 Refg Ser 1994............................................. 7.25 12/01/08 3,607,146
- -------- -----------
7,445 8,129,250
- -------- -----------
Transportation Facilities Revenue (8.5%)
2,000 Foothills/Eastern Transportation Corridor Agency,
California, Toll Road Sr Lien Ser 1995 A.................. 0.00 01/01/13 1,556,760
7,500 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA).................................................... 0.00 09/01/15 3,103,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85% 10/01/13 $ 2,179,260
3,000 Massachusetts Turnpike Authority, Metropolitan Highway
System 1997 Ser A (MBIA)................................... 5.00 01/01/37 2,890,740
1,700 Bi-State Development Agency of the Missouri-Illinois
Metropolitan District, Arch Parking Refg Ser 1997.......... 5.875 12/01/12 1,807,491
4,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)**............... 5.50 02/15/26 4,130,280
- -------- ------------
20,200 15,667,731
- -------- ------------
Water & Sewer Revenue (0.6%)
6,000 Pittsburgh Water & Sewer Authority, Pennsylvania, First Lien
- -------- 1998 Ser B (FGIC).......................................... 0.00 09/01/30 1,109,400
------------
Other Revenue (2.3%)
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (a)..................................... 6.40 09/01/11 1,128,231
1,000 Special 1997 Ser B (a)..................................... 5.75 09/01/27 1,013,970
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A........................ 7.30 08/01/27 2,191,820
- -------- ------------
4,010 4,334,021
- -------- ------------
Refunded (0.6%)
960 Illinois Health Facilities Authority, Hinsdale Hospital Ser
1990 C (ETM)............................................... 9.50 11/15/19 1,121,818
- -------- ------------
288,310 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $176,768,536)................ 177,644,397
- -------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.7%)
1,000 Idaho Health Facilities Authority, St. Luke's Regional
Medical Center Ser 1995 (Demand 06/01/98).................. 3.95* 05/01/22 1,000,000
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A............. 12.50 10/01/98++ 2,097,680
2,000 Harris County Industrial Development Corporation, Texas,
Exxon Corp Ser 1984 B (Demand 06/01/98).................... 3.95* 03/01/24 2,000,000
- -------- ------------
5,000 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
$5,000,629).................................................................... 5,097,680
- -------- ------------
$293,310 TOTAL INVESTMENTS (Identified Cost $181,769,165)(b).................... 98.5% 182,742,077
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.5 2,753,461
----- ------------
NET ASSETS.............................................................. 100.0% $185,495,538
===== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
- ---------------------
<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.
++ Refunded to call date shown by forward delivery contract.
* Current coupon of variable rate demand obligation.
** Some of these securities are segregated in connection with
the purchase of "when-issued" securities.
# Currently a zero coupon bond; will convert to 10.00% on
09/01/99.
## Currently a zero coupon bond; will convert to 6.00% on
09/20/99.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $10,265,737 and the aggregate gross
unrealized depreciation is $9,292,825, resulting in net
unrealized appreciation of $972,912.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
May 31, 1998
<TABLE>
<S> <C>
Alaska................... 1.7%
California............... 3.0
Colorado................. 1.7
Connecticut.............. 3.9
District of Columbia..... 0.3
Florida.................. 7.7
Idaho.................... 0.5
Illinois................. 5.8
Indiana.................. 0.8
Iowa..................... 0.9
Kentucky................. 2.0
Louisiana................ 1.0
Massachusetts............ 8.2
Michigan................. 6.4
Minnesota................ 3.6
Missouri................. 1.0
Nevada................... 1.1
New Hampshire............ 6.7
New Jersey............... 1.3
New York................. 2.9
Ohio..................... 8.2
Oklahoma................. 3.2
Pennsylvania............. 8.0
South Carolina........... 3.6
Tennessee................ 1.5
Texas.................... 3.9
Utah..................... 2.6
Virginia................. 6.1
West Virginia............ 1.2
Joint Exemption*......... (0.3)
----
Total.................... 98.5%
====
</TABLE>
- ---------------------
* Joint exemptions have been included in each geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
ASSETS:
Investments in securities, at value
(identified cost $181,769,165)............................. $182,742,077
Cash........................................................ 119,239
Receivable for:
Interest................................................ 4,102,117
Investments sold........................................ 799,441
Prepaid expenses and other assets........................... 22,680
------------
TOTAL ASSETS............................................ 187,785,554
------------
LIABILITIES:
Payable for:
Investment purchased.................................... 2,000,000
Investment advisory fee................................. 93,715
Administration fee...................................... 56,229
Accrued expenses and other payables......................... 140,072
------------
TOTAL LIABILITIES....................................... 2,290,016
------------
NET ASSETS.............................................. $185,495,538
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $199,765,973
Net unrealized appreciation................................. 972,912
Accumulated undistributed net investment income............. 3,468,516
Accumulated net realized loss............................... (18,711,863)
------------
NET ASSETS.............................................. $185,495,538
============
NET ASSET VALUE PER SHARE,
21,089,872 shares outstanding
(unlimited shares authorized of $.01 par value)............ $8.80
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $14,649,010
-----------
EXPENSES
Investment advisory fee..................................... 913,726
Administration fee.......................................... 548,236
Professional fees........................................... 248,086
Transfer agent fees and expenses............................ 72,567
Shareholder reports and notices............................. 44,300
Registration fees........................................... 32,561
Trustees' fees and expenses................................. 13,154
Custodian fees.............................................. 8,971
Other....................................................... 17,599
-----------
TOTAL EXPENSES.......................................... 1,899,200
Less: expense offset........................................ (8,879)
-----------
NET EXPENSES............................................ 1,890,321
-----------
NET INVESTMENT INCOME................................... 12,758,689
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (1,687,435)
Net change in unrealized depreciation....................... 8,056,252
-----------
NET GAIN................................................ 6,368,817
-----------
NET INCREASE................................................ $19,127,506
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
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, 1998 MAY 31, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $12,758,689 $13,192,585
Net realized gain (loss)............................... (1,687,435) 883,533
Net change in unrealized depreciation.................. 8,056,252 2,410,485
------------ -----------
NET INCREASE....................................... 19,127,506 16,486,603
Dividends from net investment income................... (12,231,856) (13,180,877)
------------ -----------
NET INCREASE....................................... 6,895,650 3,305,726
NET ASSETS:
Beginning of period.................................... 178,599,888 175,294,162
------------ -----------
END OF PERIOD
(Including undistributed net investment income of
$3,468,516 and $2,960,456, respectively)........... $185,495,538 $178,599,888
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998
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.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
- --------------------------------- ------------------------------------------------
<S> <C>
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Services Company Inc. Morgan Stanley Dean Witter Services Company Inc.
</TABLE>
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.
14
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Adviser"), an affiliate of Morgan Stanley 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
15
<PAGE> 16
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
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, 1998 aggregated $36,219,013
and $35,291,655, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31 1998 the Fund had
transfer agent fees and expenses payable of approximately $2,939.
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, 1998 included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,772.
At May 31, 1998, the Fund had an accrued pension liability of $48,591 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, 1996 and 1997.............................. 21,089,872 $210,898 $199,543,466
Reclassification due to permanent book/tax differences...... -- -- 11,609
---------- -------- ------------
Balance, May 31, 1998....................................... 21,089,872 $210,898 $199,555,075
========== ======== ============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At May 31, 1998, the Fund had a net capital loss carryover of approximately
$17,732,000, 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 2005
- ---- ------- ------ ----
<S> <C> <C> <C>
$610 $11,179 $5,243 $700
==== ======= ====== ====
</TABLE>
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to
16
<PAGE> 17
MUNICIPAL INCOME OPPORTUNITIES TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
defer net capital losses of approximately $980,000 during fiscal 1998. As of May
31, 1998, the Fund had temporary book/tax differences primarily attributable to
post-October losses.
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>
March 24, 1998 $0.0475 June 5, 1998 June 19, 1998
June 30, 1998 $0.0475 July 10, 1998 July 24, 1998
June 30, 1998 $0.0475 August 7, 1998 August 21, 1998
June 30, 1998 $0.0475 September 4, 1998 September 18, 1998
</TABLE>
17
<PAGE> 18
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*
----------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of the period.................... $ 8.47 $ 8.31 $ 8.53 $ 8.47 $ 8.58
-------- -------- -------- -------- --------
Net investment income....................................... 0.60 0.63 0.69 0.68 0.67
Net realized and unrealized gain (loss)..................... 0.31 0.16 (0.26) 0.01 (0.15)
-------- -------- -------- -------- --------
Total from investment operations............................ 0.91 0.79 0.43 0.69 0.52
-------- -------- -------- -------- --------
Less dividends from net investment income................... (0.58) (0.63) (0.65) (0.63) (0.63)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 8.80 $ 8.47 $ 8.31 $ 8.53 $ 8.47
======== ======== ======== ======== ========
Market value, end of period................................. $8.688 $8.75 $8.875 $8.25 $8.125
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+.................................... 5.87% 5.82% 15.95% 9.81% 6.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.04% 1.08% 0.97% 1.04% 1.22%
Net investment income....................................... 6.98% 7.44% 8.24% 8.10% 7.80%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $185,496 $178,600 $175,294 $179,843 $181,745
Portfolio turnover rate..................................... 20% 19% 8% 5% 16%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
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, 1998, 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,
1998 by correspondence with the custodian and a broker, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 6, 1998
--------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended May 31, 1998, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
19
<PAGE> 20
TRUSTEES
- -------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MUNICIPAL
John R. Haire INCOME
Wayne E. Hedien OPPORTUNITIES
Dr. Manuel H. Johnson TRUST
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
- -------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
- -------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
Annual Report
May 31, 1998
