-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VWvXqv2ZfiwP0PQ3SDvc3rdcTyx2FNBS7MunQgLLcBeqTewqAJPxKdlsy73R3LLW V8OeDGp8ETJJmk6D/zY5Vg== 0000950123-99-006861.txt : 19990728 0000950123-99-006861.hdr.sgml : 19990728 ACCESSION NUMBER: 0000950123-99-006861 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MSDW MUNICIPAL INCOME OPPORTUNITIES TRUST CENTRAL INDEX KEY: 0000835333 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133473972 STATE OF INCORPORATION: MA FISCAL YEAR END: 0530 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05597 FILM NUMBER: 99671086 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CTR STREET 2: C/O DEAN WITTER INTERCAPITAL INC CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123292550 FORMER COMPANY: FORMER CONFORMED NAME: MUNICIPAL INCOME OPPORTUNITIES TRUST/MA DATE OF NAME CHANGE: 19930721 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL INCOME OPPORTUNITIES TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL OPPORTUNITIES INCOME TRUST DATE OF NAME CHANGE: 19890206 N-30D 1 ANNUAL REPORT 1 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST Two World Trade Center LETTER TO THE SHAREHOLDERS May 31, 1999 New York, New York 10048 DEAR SHAREHOLDER: We are pleased to present the annual report on the operations of Morgan Stanley Dean Witter Municipal Income Opportunities Trust (OIA) for the fiscal year ended May 31, 1999. The financial markets have begun to recover from last year's global economic difficulties. The turmoil which included the Asian crisis, the Russian debt default and the near collapse of a major U.S. hedge fund has given way to more normal financial conditions. The major catalyst for this return to stability was the liquidity provided by the Federal Reserve Board's 75-basis-point reduction in the federal-funds rate during the fourth quarter of 1998. These international economic problems precipitated a "flight to quality" rally in fixed-income securities and U.S. Treasury yields reached 30-year lows in October 1998. As the world markets recovered, foreign investors repatriated funds and Treasury yields began to rise. Interest rates also rose in response to the surprisingly robust domestic economic growth reported over the second half of 1998. The bond market became concerned that the central bank might become more restrictive by taking back some of the liquidity provided during the crisis. On June 30, 1999, The Federal Reserve Board raised the Federal-Fund rate 25 basis points to 5.00 percent. MUNICIPAL MARKET CONDITIONS During 1998 municipal yields were less volatile than Treasury yields. This pattern of stability continued into 1999. Long-term insured municipal index yields stood at 5.30 percent at the end of May, only 30 basis points higher than November 1998. In contrast, Treasury bond yields rose 80 basis points from 5.05 to 5.85 percent. During the past six months, the yield pickup for extending tax-exempt maturities from one to 30 years averaged 225 basis points. The modest rally of municipals during 1998 created a more favorable relationship relative to Treasuries. Municipals underperformed 2 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST LETTER TO THE SHAREHOLDERS May 31, 1999, continued Treasuries, and the ratio of municipal yields to Treasury yields climbed to 99 percent by December. The higher the ratio, the more attractive municipals are relative to Treasuries. Municipals have outperformed Treasuries this year and the ratio declined to 91 percent by May. The high-to-low annual range of municipal/Treasury yields for the past five years has averaged from 93 to 84 percent. In addition to lagging 1998's Treasury rally, municipals also experienced a glut of new-issue supply. Underwriting volume of $284 billion was up 28 percent from the prior year and approached 1993's record. Issuers actively refinanced at lower interest rates and refundings were 29 percent of total volume. This year's rise in interest rates has reduced the amount of refunding activity. Refunding volume was down 45 percent in the first five months of 1999. Total underwriting declined 24 percent. 30-YEAR BOND YIELDS 1994 - 1999
Insured U.S. Insured Municipal Yields as a Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields 1994 5.40 6.34 85.17 5.40 6.24 86.54 5.80 6.66 87.09 6.40 7.09 90.27 6.35 7.32 86.75 6.25 7.43 84.12 6.50 7.61 85.41 6.25 7.39 84.57 6.30 7.45 84.56 6.55 7.81 83.87 6.75 7.96 84.80 7.00 8.00 87.50 6.75 7.88 85.66 1995 6.40 7.70 83.12 6.15 7.44 82.66 6.15 7.43 82.77 6.20 7.34 84.47 5.80 6.66 87.09 6.10 6.62 92.15 6.10 6.86 88.92 6.00 6.66 90.09 5.95 6.48 91.82 5.75 6.33 90.84 5.50 6.14 89.58 5.35 5.94 90.07 1996 5.40 6.03 89.55 5.60 6.46 86.69 5.85 6.66 87.84 5.95 6.89 86.36 6.05 6.99 86.55 5.90 6.89 85.63 5.85 6.97 83.93 5.90 7.11 82.98 5.70 6.93 82.25 5.65 6.64 85.09 5.50 6.35 86.61 5.60 6.63 84.46 1997 5.70 6.79 83.95 5.65 6.80 83.09 5.90 7.10 83.10 5.75 6.94 82.85 5.65 6.91 81.77 5.60 6.78 82.60 5.30 6.30 84.13 5.50 6.61 83.21 5.40 6.40 84.38 5.35 6.15 86.99 5.30 6.05 87.60 5.15 5.92 86.99 1998 5.15 5.80 88.79 5.20 5.92 87.84 5.25 5.93 88.53 5.35 5.95 89.92 5.20 5.80 89.66 5.20 5.65 92.04 5.18 5.71 90.72 5.03 5.27 95.45 4.95 5.00 99.00 5.05 5.16 97.87 5.00 5.06 98.81 5.05 5.10 99.02 1999 5.00 5.09 98.23 5.10 5.58 91.40 5.15 5.63 91.47 5.20 5.66 91.87 5.30 5.83 90.91
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group PERFORMANCE The Fund's total net asset value (NAV) return for the 12-month period ending May 31, 1999 was 5.13 percent. This return is based on the NAV change plus reinvestment of tax-free dividends totaling $0.59 per share. OIA's value on the New York Stock Exchange increased from $8.6875 per share to $9.4375 per share during the same period. Based on this change plus reinvestment of tax-free dividends, 2 3 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST LETTER TO THE SHAREHOLDERS May 31, 1999, continued [LARGEST SECTORS BAR GRAPH]
LARGEST SECTORS as of May 31, 1999 (% of Net Assets) IDR/PCR* 21% Mortgage 18% Nursing & Health 16% Hospital 8% Retirement & Life Care 8% Transportation 7% *Industrial Development/Pollution Control Revenue Portfolio structure is subject to change.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF MAY 31, 1999 (% OF TOTAL LONG-TERM PORTFOLIO) Aaa or AAA 15% Baa or BBB 14% Aa or AA 10% A or A 6% Ba or BB 4% N/R 51% As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp. Portfolio structure is subject to change.
[CALL STRUCTURE BAR GRAPH]
CALL STRUCTURE as of May 31, 1999 (% of Total Long-Term Portfolio) WEIGHTED AVERAGE CALL PROTECTION: 8 YEARS Years Bonds Callable Percent Callable 1999 8% 2000 5% 2001 0% 2002 2% 2003 8% 2004 5% 2005 9% 2006 11% 2007 7% 2008 16% 2009 7% 2010+ 22% Portfolio structure is subject to change.
3 4 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST LETTER TO THE SHAREHOLDERS May 31, 1999, continued OIA's total market return was 15.65 percent. As of May 31, 1999, share price was a 8.73 percent premium to its NAV. Monthly dividends for the second quarter of 1999 remained at $0.05 per share. The Fund's level of undistributed net investment income was $0.182 per share on May 31, 1999, versus $0.175 per share on November 30, 1998. PORTFOLIO STRUCTURE The Fund's investments were diversified among 15 long-term sectors and 64 credits. Non-rated securities comprise more than half of OIA's assets. All issues are currently accruing interest. However, 3 credits totaling 6.9 percent of net assets were accruing income but may experience difficulty with future debt service payments. At the end of May, the portfolio's average maturity was 19 years. Average duration, a measure of sensitivity to interest rate changes, was 8.3 years. The accompanying charts provide information on the Fund's call structure, largest sectors and distribution by credit quality. LOOKING AHEAD The combination of a "flight to quality" and the flood of new municipal issues made the municipal-to-Treasury yield relationship more favorable late last year than it had been in the previous 10 years. Although municipals have outperformed Treasuries thus far in 1999, we believe that municipals still offer investors considerable value versus their historical relationship with Treasuries. The Fund procedure for reinvestment of all dividends and distributions on common shares is through purchases in the open market. This method helps support the market value of the Trust'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. On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean Witter Funds. Mr. Merin is also the President and Chief Operating Officer of Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the Fund's Investment Advisor. He also serves as Chairman, Chief Executive Officer and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley Dean Witter Trust FSB. 4 5 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST LETTER TO THE SHAREHOLDERS May 31, 1999, continued We appreciate your ongoing support of Morgan Stanley Dean Witter Municipal Income Opportunities Trust and look forward to continuing to serve your investment needs. Very truly yours, /S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN CHARLES A. FIUMEFREDDO MITCHELL M. MERIN Chairman of the Board President 5 6 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST RESULTS OF ANNUAL MEETING (unaudited) * * * On December 17, 1998, 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 BY ALL SHAREHOLDERS: Edwin J. Garn For......................................................... 16,063,434 Withheld.................................................... 299,273 John R. Haire For......................................................... 16,077,178 Withheld.................................................... 285,529 Michael E. Nugent For......................................................... 16,089,538 Withheld.................................................... 273,169 Philip J. Purcell For......................................................... 16,089,322 Withheld.................................................... 273,385
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson, and John L. Schroeder. (2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS: For......................................................... 15,985,547 Against..................................................... 87,179 Abstain..................................................... 289,981
6 7 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT MUNICIPAL BONDS (97.3%) General Obligation (1.1%) $ 2,000 New York City, New York, 1994 Ser D......................... 5.75% 08/15/10 $ 2,093,760 - -------- ----------- Educational Facilities Revenue (2.5%) 1,600 ABAG Finance Authority for Nonprofit Corporations, California, National Center for International Schools COPs 7.50 05/01/11 1,729,104 1,750 New Jersey Educational Facilities Authority, Fairleigh Dickinson University 1998 Ser G............................ 5.70 07/01/28 1,740,043 1,000 New York State Dormitory Authority, State University 1993 Ser A...................................................... 5.25 05/15/15 1,020,620 - -------- ----------- 4,350 4,489,767 - -------- ----------- Electric Revenue (3.4%) 1,500 Alaska Industrial Development and Export Authority, Snettisham Hydroelectric 1st Ser (AMT) (AMBAC)............. 5.00 01/01/27 1,410,270 5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)....................................................... 5.00 07/01/21 4,799,550 - -------- ----------- 6,500 6,209,820 - -------- ----------- Hospital Revenue (7.9%) 2,000 Baxter County, Arkansas, Baxter County Regional Hospital Impr & Refg Ser 1999 B..................................... 5.625 09/01/28 1,966,540 1,000 Kentucky Economic Development Finance Authority, Appalachian Regional Healthcare Inc Refg & Impr Ser 1997............... 5.875 10/01/22 1,005,080 Massachusetts Health & Educational Facilities Authority, 2,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 2,146,780 3,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 3,246,150 1,250 New Hampshire Higher Educational & Health Facilities Authority, Littleton Hospital Assn Ser 1998 A.............. 6.00 05/01/28 1,221,425 Cuyahoga County, Ohio, 1,250 Cleveland Clinic Foundation Ser 1999 B..................... 5.25 01/01/15 1,258,300 1,000 Cleveland Clinic Foundation Ser 1999 B..................... 5.00 01/01/31 933,910 3,000 Metropolitan Government of Nashville & Davidson County, Health & Educational Facilities Board, Tennessee, Baptist Hospital Ser 1998 A (MBIA)................................. 4.875 11/01/28 2,769,030 - -------- ----------- 14,500 14,547,215 - -------- ----------- Industrial Development/Pollution Control Revenue (20.9%) 460 Metropolitan Washington Airports Authority, District of Columbia & Virginia, CaterAir International Corp Ser 1991 (AMT)++.................................................... 10.125 09/01/11 473,239 2,350 Chicago, Illinois, Chicago O'Hare Int'l Airport/United Airlines Inc Ser 1999 A.................................... 5.35 09/01/16 2,308,264 1,500 Iowa Finance Authority, ISPCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,572,480
SEE NOTES TO FINANCIAL STATEMENTS 7 8 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser 1993.............................................. 5.875% 08/01/08 $ 3,069,780 3,650 Detroit Economic Development Corporation, Michigan, North Industrial Park LP Ser 1989................................ 11.375 02/15/14 3,760,814 1,290 Michigan Strategic Fund, Kasle Steel Corp Ser 1989 (AMT).... 9.375 10/01/06 1,321,324 3,600 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT).... 9.00 12/01/19 3,739,464 2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1998 A............. 5.625 02/01/18 1,998,680 920 Zanesiville-Muskingum County Port Authority, Ohio, Anchor Glass Container Corp Ser 1989 B (AMT)...................... 10.25 12/01/08 924,563 2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo Edison Co Collateralized Ser 1995 B... 7.75 05/01/20 2,283,520 Lexington County, South Carolina, 1,815 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/02 1,835,963 4,250 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/08 4,334,108 2,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser 1995 C (AMT)........................................... 5.55 06/01/30 1,954,860 Pittsylvania County Industrial Development Authority, Virginia 4,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)........ 7.45 01/01/09 4,888,080 1,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)........ 7.50 01/01/14 1,630,650 2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)...................................................... 7.00 07/15/25 2,196,780 - -------- ----------- 36,835 38,292,569 - -------- ----------- Mortgage Revenue - Multi-Family (5.3%) 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 3,157,749 21,237 White Bear Woods Apts Phase II Refg 1989 Ser B............. 0.00 06/15/19 212,367 3,000 Brookhaven Industrial Development Agency, New York, Woodcrest Estates Ser 1998 A (AMT)......................... 6.375 12/01/37 2,962,230 - -------- ----------- 65,760 9,689,925 - -------- ----------- Mortgage Revenue - Single Family (12.8%) 3,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 3,149,580 9,912 San Francisco, California, Ser 1982......................... 0.00 10/01/14 1,884,197 3,000 Colorado Housing Finance Authority, Ser 1998 D-2 (AMT)...... 6.35 11/01/29 3,251,550
SEE NOTES TO FINANCIAL STATEMENTS 8 9 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 135 Broward County Housing Finance Authority, Florida, Home Ser 1989 A..................................................... 10.00% 10/01/03 $ 135,238 New Hampshire Housing Finance Authority, 47,275 Residential 1983 Ser B..................................... 0.00 01/01/15 9,129,747 1,330 1997 Ser D (AMT)........................................... 5.90 07/01/28 1,376,523 2,000 Ohio Housing Finance Agency, Residential 1996 Ser B-2 (AMT)...................................................... 6.10 09/01/28 2,109,580 2,260 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/22 2,325,156 - -------- ----------- 68,912 23,361,571 - -------- ----------- Nursing & Health Related Facilities Revenue (16.3%) Escambia County, Florida, 7,660 Pensacola Care Development Centers Ser 1989................ 10.25 07/01/11 7,644,910 1,755 Pensacola Care Development Centers Ser 1989 A.............. 10.25 07/01/11 1,751,543 1,405 Winchester, Indiana, Hoosier Care II Inc Ser 1990........... 10.375 06/01/20 1,479,142 2,455 Jefferson County, Kentucky, AHF/Kentucky-Iowa Inc Ser 1990....................................................... 10.25 01/01/20 2,569,378 1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,654,425 McCurtain County, Oklahoma, 4,950 Heartway Corp Ser 1997 A................................... 9.50 03/01/19 5,282,640 835 Heartway Corp Ser 1997 B................................... 0.00# 03/01/19 555,517 3,725 Allegheny County Hospital Development Authority, Pennsylvania, Allegheny Valley School Ser 1990............. 8.50 02/01/15 3,855,375 Kirbyville Health Facilities Development Authority, Texas, 642 Heartway III Corp Ser 1998 B............................... 0.00## 03/20/04 524,700 3,978 Heartway III Corp Ser 1998 A............................... 10.00 03/20/18 4,534,656 - -------- ----------- 28,905 29,852,286 - -------- ----------- Public Facilities Revenue (2.2%) 2,000 West Jefferson Amusement & Public Park Authority, Alabama, VisionLand Ser 1999........................................ 6.375 02/01/29 2,006,100 2,000 San Diego County, California, San Diego Natural History Museum COPs................................................ 5.70 02/01/28 1,943,740 - -------- ----------- 4,000 3,949,840 - -------- ----------- Retirement & Life Care Facilities Revenue (7.8%) 1,500 Massachusetts Development Finance Agency, Loomis Communities Ser 1999 A................................................. 5.75 07/01/23 1,465,515 5,552 Ann Arbor Economic Development Corporation, Michigan, Glacier Hills Inc Ser 1989................................. 8.375 01/15/19 6,294,802
SEE NOTES TO FINANCIAL STATEMENTS 9 10 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- New Jersey Economic Development Authority, $ 1,500 Fellowship Village Refg Ser 1998 A......................... 5.50% 01/01/25 $ 1,440,285 1,000 Franciscan Oaks Ser 1997................................... 5.70 10/01/17 1,004,730 2,000 United Methodist Homes of New Jersey, Ser 1998............. 5.125 07/01/25 1,832,040 2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove Ser 1996 (AMT)........................................ 8.25 10/01/26 2,244,040 - -------- ----------- 13,552 14,281,412 - -------- ----------- Tax Allocation Revenue (4.4%) 1,095 Bridgeview, Illinois, Tax Increment Ser 1995................ 9.00 01/01/11 1,249,187 Crestwood, Illinois, 3,000 Refg Ser 1994.............................................. 7.00 12/01/04 3,208,800 3,350 Refg Ser 1994.............................................. 7.25 12/01/08 3,567,817 - -------- ----------- 7,445 8,025,804 - -------- ----------- Transportation Facilities Revenue (6.9%) 2,000 Foothills/Eastern Transportation Corridor Agency, California, Toll Road Sr Lien Ser 1995 A................... 0.00 01/01/13 1,662,140 7,500 E-470 Public Highway Authority, Colorado, Ser 1997 B (MBIA)..................................................... 0.00 09/01/15 3,244,950 2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 2,158,240 2,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA)............................................... 5.00 01/01/37 1,874,780 1,700 Bi-State Development Agency of the Missouri-Illinois Metropolitan District, Arch Parking Refg Ser 1997.......... 5.875 12/01/12 1,794,826 2,000 Pocahontas Parkway Association, Virginia, Route 895 Connector Ser 1998 A....................................... 5.50 08/15/28 1,951,560 - -------- ----------- 17,200 12,686,496 - -------- ----------- Water & Sewer Revenue (1.8%) 2,000 Northern Palm Beach County Improvement District, Florida, Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 2,165,960 6,000 Pittsburgh Water & Sewer Authority, Pennsylvania, First Lien 1998 Ser B (FGIC).......................................... 0.00 09/01/30 1,120,080 - -------- ----------- 8,000 3,286,040 - -------- ----------- Other Revenue (2.2%) 2,000 Sacramento Financing Authority, California, Convention Center Hotel 1999 Ser A.................................... 6.25 01/01/30 1,982,600 Mashantucket (Western) Pequot Tribe, Connecticut, 1,010 Special 1996 Ser A (a)..................................... 6.40 09/01/11 1,096,951 1,000 Special 1997 Ser B (a)..................................... 5.75 09/01/27 1,010,710 - -------- ----------- 4,010 4,090,261 - -------- -----------
SEE NOTES TO FINANCIAL STATEMENTS 10 11 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- Refunded (1.8%) $ 3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)................. 5.50% 02/15/06+ $ 3,254,730 - -------- ----------- 284,969 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $182,054,051)................. 178,111,496 - -------- ----------- SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (0.4%) 800 Harris County Health Facilities Development Corporation, - -------- Texas, Methodist Hospital Ser 1994 (Demand 06/01/99) (Identified Cost $800,000)................................. 3.40* 12/01/25 800,000 ----------- $285,769 TOTAL INVESTMENTS (Identified Cost $182,854,051) (b)................... 97.7% 178,911,496 ======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 2.3 4,288,877 ----- ----------- NET ASSETS.............................................................. 100.0% $183,200,373 ===== ===========
- --------------------- AMT Alternative Minimum Tax. COPs Certificates of Participation. + Prerefunded to call date shown. ++ Joint exemption in locations shown. * Current coupon of variable rate demand obligation. # 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 03/20/00. (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 $7,251,976 and the aggregate gross unrealized depreciation is $11,194,531, resulting in unrealized depreciation of $3,942,555. Bond Insurance: - -------------------------------------- AMBAC AMBAC Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS 11 12 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST PORTFOLIO OF INVESTMENTS May 31, 1999, continued GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets May 31, 1999 Alabama.................. 1.1% Alaska................... 2.5 Arkansas................. 1.1 California............... 5.0 Colorado................. 3.5 Connecticut.............. 1.2 District of Columbia..... 0.3 Florida.................. 7.5 Illinois................. 5.6 Indiana.................. 0.8 Iowa..................... 0.9 Kentucky................. 2.0 Louisiana................ 0.9 Massachusetts............ 6.4 Michigan................. 6.2 Minnesota................ 3.7 Missouri................. 1.0 New Hampshire............ 6.4 New Jersey............... 3.3 New York................. 4.5 Ohio..................... 7.7 Oklahoma................. 3.2 Pennsylvania............. 4.0 South Carolina........... 3.4 Tennessee................ 1.5 Texas.................... 4.3 Utah..................... 2.6 Virginia................. 6.2 West Virginia............ 1.2 Joint Exemption*......... (0.3) ---- Total.................... 97.7% ====
- --------------------- * Joint exemptions have been included in each geographic location. SEE NOTES TO FINANCIAL STATEMENTS 12 13 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES May 31, 1999 ASSETS: Investments in securities, at value (identified cost $182,854,051)............................. $178,911,496 Cash........................................................ 114,304 Receivable for: Interest................................................. 3,938,043 Investments sold......................................... 525,781 Prepaid expenses and other assets........................... 22,759 ------------ TOTAL ASSETS............................................. 183,512,383 ------------ LIABILITIES: Payable for: Investment advisory fee.................................. 78,051 Administration fee....................................... 46,830 Accrued expenses and other payables......................... 187,129 ------------ TOTAL LIABILITIES........................................ 312,010 ------------ NET ASSETS............................................... $183,200,373 ============ COMPOSITION OF NET ASSETS: Paid-in-capital............................................. $199,765,973 Net unrealized depreciation................................. (3,942,555) Accumulated undistributed net investment income............. 3,840,791 Accumulated undistributed net realized loss................. (16,463,836) ------------ NET ASSETS............................................... $183,200,373 ============ NET ASSET VALUE PER SHARE, 21,089,872 shares outstanding (unlimited shares authorized of $0.01 par value)........... $8.69 ============
SEE NOTES TO FINANCIAL STATEMENTS 13 14 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST FINANCIAL STATEMENTS, continued STATEMENT OF OPERATIONS For the year ended May 31, 1999 NET INVESTMENT INCOME: INTEREST INCOME............................................. $14,582,283 ----------- EXPENSES Investment advisory fee..................................... 929,592 Administration fee.......................................... 557,755 Transfer agent fees and expenses............................ 85,637 Professional fees........................................... 82,441 Shareholder reports and notices............................. 42,507 Registration fees........................................... 32,689 Trustees' fees and expenses................................. 19,024 Custodian fees.............................................. 8,617 Other....................................................... 17,544 ----------- TOTAL EXPENSES........................................... 1,775,806 Less: expense offset........................................ (8,588) ----------- NET EXPENSES............................................. 1,767,218 ----------- NET INVESTMENT INCOME.................................... 12,815,065 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain........................................... 2,248,027 Net change in unrealized appreciation....................... (4,915,467) ----------- NET LOSS................................................ (2,667,440) ----------- NET INCREASE................................................ $10,147,625 ===========
SEE NOTES TO FINANCIAL STATEMENTS 14 15 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 1999 MAY 31, 1998 - ------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................. $12,815,065 $12,758,689 Net realized gain (loss)............................... 2,248,027 (1,687,435) Net change in unrealized appreciation/depreciation..... (4,915,467) 8,056,252 ----------- ----------- NET INCREASE....................................... 10,147,625 19,127,506 Dividends to shareholders from net investment income... (12,442,790) (12,231,856) ----------- ----------- NET INCREASE (DECREASE)............................ (2,295,165) 6,895,650 NET ASSETS: Beginning of period.................................... 185,495,538 178,599,888 ----------- ----------- END OF PERIOD (Including undistributed net investment income of $3,840,791 and $3,468,516, respectively)........... $183,200,373 $185,495,538 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS 15 16 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1999 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Dean Witter Municipal Income Opportunities Trust (the "Fund"), formerly Municipal Income Opportunities Trust, 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. 16 17 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued 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 (the "Investment Advisor"), 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 Advisor pays the salaries of all personnel, including officers of the Fund, who are employees of the Investment Advisor. 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. 17 18 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued 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, 1999 aggregated $29,356,440 and $30,729,108, respectively. Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At May 31, 1999 the Fund had transfer agent fees and expenses payable of approximately $4,000. 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 year ended May 31, 1999 included in Trustees' fees and expenses in the Statement of Operations amounted to $6,413. At May 31, 1999, the Fund had an accrued pension liability of $51,980 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:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ Balance, May 31, 1997....................................... 21,089,872 $210,898 $199,543,466 Reclassification due to permanent book/tax differences...... -- -- 11,609 ---------- -------- ------------ Balance, May 31, 1998 and May 31, 1999...................... 21,089,872 $210,898 $199,555,075 ========== ======== ============
6. FEDERAL INCOME TAX STATUS During the year end May 31, 1999, the Fund utilized approximately $1,268,000 of its net capital loss carryover. At May 31, 1999, the Fund had a net capital loss carryover of approximately $16,464,000, 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:
AMOUNTS IN THOUSANDS - ------------------------------------------- 2003 2004 2006 ------- ------ ---- $10,521 $5,243 $700 ======= ====== ====
18 19 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued 7. DIVIDENDS The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - -------------- --------- ----------------- ------------------ March 30, 1999 $0.05 June 4, 1999 June 18, 1999 June 29, 1999 $0.05 July 9, 1999 July 23, 1999 June 29, 1999 $0.05 August 6, 1999 August 20, 1999 June 29, 1999 $0.05 September 3, 1999 September 17, 1999
19 20 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED MAY 31* ---------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ SELECTED PER SHARE DATA: Net asset value, beginning of the period.................... $ 8.80 $ 8.47 $8.31 $ 8.53 $8.47 ------ ------ ----- ------ ----- Income (loss) from investment operations: Net investment income...................................... 0.61 0.60 0.63 0.69 0.68 Net realized and unrealized gain (loss).................... (0.13) 0.31 0.16 (0.26) 0.01 ------ ------ ----- ------ ----- Total income from investment operations..................... 0.48 0.91 0.79 0.43 0.69 ------ ------ ----- ------ ----- Less dividends from net investment income................... (0.59) (0.58) (0.63) (0.65) (0.63) ------ ------ ----- ------ ----- Net asset value, end of period.............................. $ 8.69 $ 8.80 $8.47 $ 8.31 $8.53 ====== ====== ===== ====== ===== Market value, end of period................................. $9.438 $8.688 $8.75 $8.875 $8.25 ====== ====== ===== ====== ===== TOTAL RETURN+............................................... 15.65% 5.87% 5.82% 15.95% 9.81% RATIOS TO AVERAGE NET ASSETS: Expenses.................................................... 0.96%(1) 1.04% 1.08% 0.97% 1.04% Net investment income....................................... 6.89% 6.98% 7.44% 8.24% 8.10% SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $183,200 $185,496 $178,600 $175,294 $179,843 Portfolio turnover rate..................................... 16% 20% 19% 8% 5%
- --------------------- * The per share amounts were computed using an average number of shares outstanding during the period. + Total return is based upon the current market value on the last day of each period reported. Dividends are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan. (1) Does not reflect the effect of expense offset of 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 20 21 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF MORGAN STANLEY DEAN WITTER 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 Morgan Stanley Dean Witter Municipal Income Opportunities Trust (the "Fund"), formerly Municipal Income Opportunities Trust, at May 31, 1999, 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 owned at May 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 July 6, 1999 1999 FEDERAL TAX NOTICE (unaudited) For the year ended May 31, 1999, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. 21 22 (This Page Intentionally Left Blank) 23 (This Page Intentionally Left Blank) 24 TRUSTEES - ---------------------------------- Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - ---------------------------------- Charles A. Fiumefreddo Chairman and Chief Executive Officer Mitchell M. Merin President 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 MANAGER - ---------------------------------- Morgan Stanley Dean Witter Advisors Inc. Two World Trade Center New York, New York 10048 MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST Annual Report May 31, 1999 -----END PRIVACY-ENHANCED MESSAGE-----