UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05597
Morgan Stanley Municipal Income Opportunities Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: May 31, 2003
Date of reporting period: May 31, 2003
Item 1. Report to Stockholders.
Morgan Stanley Municipal Income Opportunities Trust
LETTER TO THE SHAREHOLDERS - MAY 31, 2003
Dear Shareholder:
During the 12-month period ended May 31, 2003, U.S. economic growth was positive
but below potential. The pattern of the recovery remained uneven with a number
of indicators fluctuating between strength and weakness. The relatively brief
military conflict in Iraq and the ongoing war against terrorism cast a shadow
over the economy and the financial markets. The sluggish economy and uncertain
geopolitical outlook favored bonds and led to record low interest rates.
Throughout the period, consumer spending was the best-performing economic
sector. Mortgage refinancing and low auto loan rates helped keep Americans
buying. However, early this year concern about Iraq dominated investor sentiment
and consumer confidence waned. Confidence was also shaken when unemployment
reached an eight-year high. To guard against further downside risks, in early
November the Federal Reserve Board lowered the federal funds rate from 1.75 to
1.25 percent. This marked the first change by the central bank in almost a year.
Resolution of the Iraqi conflict prompted the financial markets to focus on the
economy. In an effort to stimulate growth, President Bush signed the $350
billion Jobs and Growth Tax Relief Reconciliation Act of 2003 in May. Tax
reductions originally scheduled to be phased in through 2006 were accelerated.
In June, the Federal Reserve again lowered the fed funds rate by 25 basis points
to 1.00 percent.
Municipal Market Conditions
The yield on the 30-year insured municipal bond index continued to trend lower
over the 12-month period ended May 31, 2003. The yield declined from a high of
5.29 percent in May 2002 to a low of 4.44 percent in May 2003. Throughout the
period, the municipal yield spread between BBB rated general obligation bonds
and AAA rated bonds provided an average of 80 basis points of additional yield.
The ratio of municipal yields as a percentage of U.S. Treasury yields gauges the
relative value of municipals. In August 2002, the ratio of 30-year insured
municipal bond yields to 30-year Treasuries moved above 100 percent and remained
there for much of this year. This high ratio signaled that municipals were
relatively cheap in comparison to Treasuries.
Long-term municipal volume increased to a record $357 billion in 2002 as state
and local governments took advantage of lower interest rates to meet cash flow
needs and refinance outstanding debt. In the first five months of 2003,
new-issue volume was ahead 14 percent to $146 billion. Many analysts expect this
pace to continue throughout the year as budgetary pressures force states and
municipalities to actively borrow. California's share of national volume
Morgan Stanley Municipal Income Opportunities Trust
LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued
was 18 percent of the total. New York, Texas, Florida and Pennsylvania, the next
largest states, aggregated an additional 29 percent.
Performance
The net asset value (NAV) of Morgan Stanley Municipal Income Opportunities Trust
(OIA) increased from $7.88 to $7.91 per share for the 12 months ended May 31,
2003. Based on this change plus the reinvestment of tax-free dividends totaling
$0.55 per share, the Fund's total NAV return was 7.75 percent. OIA's price on
the New York Stock Exchange (NYSE) decreased from $8.08 to $7.76 per share
during the same period. Based on this change plus the reinvestment of
distributions, OIA's total market return was 3.09 percent. On May 31, 2003,
OIA's market price was at a 1.90 percent discount to its NAV. Past performance
is no guarantee of future results.
Monthly dividends for the third quarter of 2003, declared in June, were
unchanged at $0.045 per share. The dividend reflects the level of the Fund's
undistributed net investment income and projected earnings. The Fund's level of
undistributed net investment income was $0.075 per share on May 31, 2003, versus
$0.085 per share last year.
Portfolio Structure
The Fund's net assets of $164 million were diversified among 11 long-term
sectors and 73 credits. Issues in three sectors, IDR/PCR, mortgage and
hospitals, accounted for 48 percent of the net assets. The six states with the
largest holdings -- New Hampshire, Florida, New York, Virginia, Massachusetts
and Missouri -- represented 41 percent of net assets. The portfolio holds three
non-income producing issues, which represent less than three percent of net
assets. OIA's duration, a measure of sensitivity to interest rate changes, was
7.1 years. At the end of May, the portfolio's long-term holdings had an average
maturity of 18 years.
The accompanying charts provide current information on long-term credit ratings,
maturity distribution and sector concentrations. Optional redemption provisions
by year of call and respective cost (book) yields are also charted.
The Fund's 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 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
2
Morgan Stanley Municipal Income Opportunities Trust
LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued
the time of purchase. During the 12-month period ended May 31, 2003 the Fund
purchased and retired 175,800 shares of common stock at a weighted average
market discount of 5.83 percent.
We appreciate your ongoing support of Morgan Stanley 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
3
Morgan Stanley Municipal Income Opportunities Trust
LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued
[LARGEST SECTORS BAR GRAPH]
LARGEST SECTORS AS OF MAY 31, 2003
(% of Net Assets)
IDR/PCR* 17%
MORTGAGE 16%
HOSPITAL 15%
NURSING & HEALTH RELATED 12%
RETIREMENT & LIFE CARE 12%
TAX ALLOCATION 8%
RECREATIONAL FACILITIES 8%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF MAY 31, 2003
(% OF LONG-TERM PORTFOLIO)
Aaa/AAA 4%
Aa/AA 9%
A/A 5%
Baa/BBB 21%
Ba/BB 7%
NR 54%
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[DISTRIBUTION BY MATURITY BAR GRAPH]
DISTRIBUTION BY MATURITY
(% OF LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE
MATURITY: 18 YEARS
1-5 Years 7%
5-10 Years 17%
10-20 Years 36%
20-30 Years 37%
30+ Years 3%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
Morgan Stanley Municipal Income Opportunities Trust
LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
MAY 31, 2003
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
PERCENT CALLABLE
2003 9.0%*
2004 6.0%
2005 10.0%
2006 6.0%
2007 3.0%
2008 14.0%
2009 10.0%
2010 8.0%
2011 9.0%
2012 10.0%
2013+ 15.0%
*APPROXIMATELY 65% WERE PREVIOUSLY CALLABLE.
WEIGHTED AVERAGE
COST (BOOK) YIELD** BOOK YIELD: 7.5%
2003 9.5%
2004 9.7%
2005 6.7%
2006 7.4%
2007 5.9%
2008 6.5%
2009 6.5%
2010 7.1%
2011 6.9%
2012 7.0%
2013+ 8.6%
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING EXPENSES. FOR
EXAMPLE, THE FUND IS EARNING A BOOK YIELD OF 9.5% ON 9% OF THE LONG-TERM
PORTFOLIO THAT IS CALLABLE IN 2003.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
Morgan Stanley Municipal Income Opportunities Trust
RESULTS OF ANNUAL MEETING
* * *
On December 18, 2002, an annual meeting of the Fund's shareholders was held for
the purpose of voting on one matter, the results of which were as follows:
(1) Election of Trustees:
Michael Bozic
For.................................................. 16,554,284
Withheld............................................. 352,713
Charles A. Fiumefreddo
For.................................................. 16,414,955
Withheld............................................. 492,042
James F. Higgins
For.................................................. 16,434,005
Withheld............................................. 472,992
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent and Philip J.
Purcell.
6
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (96.0%)
Educational Facilities Revenue (1.1%)
$ 1,200 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs.................................................... 7.50% 05/01/11 $ 1,305,372
500 San Diego County, California, The Burnham Institute
COPs.................................................... 6.25 09/01/29 529,375
-------- ------------
1,700 1,834,747
-------- ------------
Hospital Revenue (14.8%)
2,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1999 B.................................. 5.625 09/01/28 2,031,900
2,000 Hawaii Department of Budget & Finance, Kuakini Health 2002
Ser A................................................... 6.375 07/01/32 2,093,140
1,000 Illinois Health Facilities Authority, Riverside Health Ser
2000.................................................... 6.85 11/15/29 1,107,980
1,000 Indiana Health Facility Financing Authority, Riverview
Hospital Ser 2002....................................... 6.125 08/01/31 1,046,510
2,000 Kentucky Economic Development Finance Authority,
Appalachian Regional Healthcare Inc Refg & Impr Ser
1997.................................................... 5.875 10/01/22 1,784,460
2,000 Maryland Health & Higher Educational Facilities Authority,
University of Maryland Medical Center Ser 2000.......... 6.75 07/01/30 2,251,240
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1.................... 6.25 12/01/14 2,149,840
3,000 Dana Farber Cancer Institute Ser G-1.................... 6.25 12/01/22 3,195,780
3,000 Henderson, Nevada, Catholic Health West 1998 Ser A........ 5.375 07/01/26 2,862,570
1,500 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Assn Ser 1998 A........... 6.00 05/01/28 1,223,055
2,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994..................... 7.25 07/01/27 2,090,820
1,330 Nassau County Industrial Development Agency, New York,
North Shore Health Ser B................................ 5.875 11/01/11 1,338,871
1,000 Knox County Health, Educational & Housing Facility Board,
Tennessee, Baptist Health of East Tennessee Ser 2002.... 6.50 04/15/31 1,063,580
-------- ------------
23,830 24,239,746
-------- ------------
Industrial Development/Pollution Control Revenue (16.5%)
2,000 Los Angeles, California, American Airlines Inc Terminal 4
Ser 2002 C (AMT)........................................ 7.50 12/01/24 1,600,000
360 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser
1991 (AMT)++............................................ 10.125 09/01/11 358,679
2,000 Chicago, Illinois, Chicago O'Hare Int'l Airport/United
Airlines Inc Refg Ser 2001 C (a)........................ 6.30 05/01/16 240,000
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT).......... 6.00 06/01/27 1,357,140
562 Michigan Strategic Fund, Kasle Steel Corp Ser 1989
(AMT)................................................... 9.375 10/01/06 562,545
1,500 Dayton, Ohio, Emery Air Freight Corp Refg Ser 1998 A...... 5.625 02/01/18 1,230,300
See Notes to Financial Statements
7
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 600 Zanesville-Muskingum County Port Authority, Ohio, Anchor
Glass Container Corp Ser 1989 B (AMT)................... 10.25% 12/01/08 $ 600,036
2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995
B....................................................... 7.75 05/01/20 2,181,060
3,745 Carbon County Industrial Development Authority,
Pennsylvania, Panther Creek Partners Refg 2000 Ser
(AMT)................................................... 6.65 05/01/10 3,936,257
3,825 Lexington County, South Carolina, Ellett Brothers Inc Refg
Ser 1988................................................ 7.50 09/01/08 3,747,697
Brazos River Authority, Texas,
1,000 TXU Electric Co Refg Ser 1999 A (AMT)................... 7.70 04/01/33 1,106,020
1,000 TXU Electric Co Refg Ser 2001 C (AMT)................... 5.75 05/01/36 1,020,670
1,000 Chesterfield County Industrial Development Authority,
Virginia, Virginia Electric & Power Company Ser 1985.... 5.50 10/01/09 1,078,690
Pittsylvania County Industrial Development Authority,
Virginia,
4,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)..... 7.45 01/01/09 4,485,195
1,500 Multi-Trade of Pittsylvania County Ser 1994 A (AMT)..... 7.50 01/01/14 1,495,965
2,000 Upshur County, West Virginia, TJ International Inc Ser
1995 (AMT).............................................. 7.00 07/15/25 2,102,080
-------- ------------
29,092 27,102,334
-------- ------------
Mortgage Revenue - Multi-Family (6.8%)
Washington County Housing & Redevelopment Authority,
Minnesota,
3,885 Courtly Park Ser 1989 A................................. 9.75 06/15/19 3,158,855
1,165 Courtly Park Ser 1989 A (AMT)........................... 10.25 06/15/19 946,469
24,080 Courtly Park Ser 1989 B................................. 0.00 06/15/19 359,996
8,678 Courtly Park Ser 1989 B (AMT)........................... 0.00 06/15/19 129,734
White Bear Lake, Minnesota,
3,715 White Bear Woods Apts Phase II Refg 1989 Ser A.......... 9.75 06/15/19 3,375,969
19,771 White Bear Woods Apts Phase II Refg 1989 Ser B.......... 0.00 06/15/19 295,583
3,000 Brookhaven Industrial Development Agency, New York,
Woodcrest Estates Ser 1998 A (AMT)...................... 6.375 12/01/37 2,886,960
-------- ------------
64,294 11,153,566
-------- ------------
Mortgage Revenue - Single Family (9.3%)
Colorado Housing & Finance Authority,
495 1996 Ser B (AMT)........................................ 7.65 11/01/26 505,454
1,775 Ser 1998 D-2 (AMT)...................................... 6.35 11/01/29 1,867,069
39,165 New Hampshire Housing Finance Authority, Residential 1983
Ser B................................................... 0.00 01/01/15 12,926,408
-------- ------------
41,435 15,298,931
-------- ------------
Nursing & Health Related Facilities Revenue (11.7%)
Escambia County, Florida,
6,000 Pensacola Care Development Centers Ser 1989............. 10.25 07/01/11 6,010,440
1,375 Pensacola Care Development Centers Ser 1989 A........... 10.25 07/01/11 1,377,392
See Notes to Financial Statements
8
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 1,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999....... 6.75% 04/01/34 $ 794,030
2,000 Iowa Health Facilities Development Financing Authority,
Care Initiatives Ser 1996............................... 9.25 07/01/25 2,379,640
2,330 Jefferson County, Kentucky, AHF/Kentucky-Iowa Inc Ser 1990
(a)..................................................... 10.25 01/01/20 1,059,078
1,300 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........ 8.375 10/01/13 1,344,239
1,900 Massachusetts Development Finance Agency, New England
Center for Children Ser 1998............................ 5.875 11/01/18 1,740,020
1,000 Massachusetts Health & Educational Facilities Authority,
The Learning Center for Deaf Children Ser C............. 6.125 07/01/29 930,760
1,040 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999..................... 6.00 06/01/09 1,057,254
Kirbyville Health Facilities Development Authority, Texas,
3,661 Heartway III Corp Ser 1998 A (b)........................ 10.00 03/20/18 2,563,126
642 Heartway III Corp Ser 1998 B (b)........................ 6.00 03/20/04 32,036
-------- ------------
22,248 19,288,015
-------- ------------
Recreational Facilities Revenue (7.5%)
2,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A................................. 6.25 01/01/30 1,981,700
1,000 San Diego County, California, San Diego Natural History
Museum COPs............................................. 5.70 02/01/28 1,035,430
2,000 Elk Valley Public Improvement Corporation, Colorado, Ser
2001 A.................................................. 7.35 09/01/31 2,072,500
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (c).................................. 6.40 09/01/11 1,102,779
1,000 Special 1997 Ser B (c).................................. 5.75 09/01/27 1,038,130
1,750 American National Fish & Wildlife Museum District,
Missouri, Ser 1999...................................... 7.00 09/01/19 943,197
2,000 St Louis Industrial Development Authority, Missouri, St
Louis Convention Center Headquarters Hotel Ser 2000
(AMT)................................................... 6.875 12/15/20 2,011,840
2,000 Austin Convention Enterprises, Texas, Convention Center
Hotel Senior Ser 2000 A................................. 6.70 01/01/32 2,098,460
-------- ------------
12,760 12,284,036
-------- ------------
Retirement & Life Care Facilities Revenue (11.8%)
1,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A..................................... 8.00 01/01/30 1,000,500
1,000 Hawaii Department of Budget & Finance, Kahala Nui 2003 Ser
A....................................................... 8.00 11/15/33 1,008,090
1,500 Lenexa, Kansas, Lakeview Village - Southridge Ser 2002
C....................................................... 6.875 05/15/32 1,584,375
1,500 Massachusetts Development Finance Agency, Loomis
Communities Ser 1999 A.................................. 5.75 07/01/23 1,364,250
See Notes to Financial Statements
9
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
New Jersey Economic Development Authority,
$ 1,000 Cedar Crest Village Inc Ser 2001 A...................... 7.25% 11/15/31 $ 1,041,580
1,000 Franciscan Oaks Ser 1997................................ 5.70 10/01/17 927,780
1,000 The Presbyterian Home at Montgomery Ser 2001 A.......... 6.375 11/01/31 1,015,270
2,000 United Methodist Homes of New Jersey Ser 1998........... 5.125 07/01/25 1,807,640
1,980 Glen Cove Housing Authority, New York, Mayfair at Glen
Cove Ser 1996 (AMT)..................................... 8.25 10/01/26 2,120,857
3,250 Suffolk County Industrial Development Agency, New York,
Jefferson's Ferry Ser 1999.............................. 7.25 11/01/28 3,427,418
1,000 Chester County Health & Education Facilities Authority,
Pennsylvania, Jenner's Pond Inc Ser 2002................ 7.625 07/01/34 1,009,500
2,100 Vermont Economic Development Authority, Wake Robin Corp
Ser 1999 A.............................................. 6.75 03/01/29 2,103,465
1,000 Peninsula Ports Authority of Virginia, Virginia Baptist
Homes Ser 2003 A........................................ 7.375 12/01/32 1,035,760
-------- ------------
19,330 19,446,485
-------- ------------
Tax Allocation Revenue (7.7%)
2,000 Chicago, Illinois, Lake Shore East Ser 2002............... 6.75 12/01/32 2,017,500
2,000 Anne Arundel County, Maryland, National Business Park Ser
2000.................................................... 7.375 07/01/28 2,183,020
2,000 Des Peres, Missouri, West County Center Ser 2002.......... 5.75 04/15/20 2,033,200
4,000 Fenton, Missouri, Gravois Bluffs Redevelopment Ser 2001 A
Refg.................................................... 7.00 10/01/21 4,368,640
2,000 Las Vegas, Nevada, District No 808 Summerlin Area Ser
2001.................................................... 6.75 06/01/21 2,073,920
-------- ------------
12,000 12,676,280
-------- ------------
Transportation Facilities Revenue (5.2%)
6,500 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA).................................................. 0.00 09/01/15 3,973,190
1,935 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (Ambac)...................................... 5.85 10/01/13 2,281,636
1,000 Nevada Department of Business & Industry, Las Vegas
Monorail 2nd Tier Ser 2000.............................. 7.375 01/01/40 904,600
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector Ser 1998 A.................................... 5.50 08/15/28 1,350,060
-------- ------------
11,435 8,509,486
-------- ------------
Refunded (3.6%)
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Impr #9A Ser 1996 A..................... 7.30 08/01/06+ 2,384,140
3,350 Crestwood, Illinois, Refg Ser 1994........................ 7.25 12/01/03+ 3,481,186
-------- ------------
5,350 5,865,326
-------- ------------
243,474 Total Tax-Exempt Municipal Bonds (Cost $169,660,388)......................... 157,698,952
-------- ------------
See Notes to Financial Statements
10
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Short-Term Tax-Exempt Municipal Obligations (1.7%)
$ 1,265 University of North Carolina, Hospitals at Chapel Hill Ser
2001 A (Demand 06/02/03)................................ 1.27*% 02/15/31 $ 1,265,000
1,500 Washington Health Care Facilities Authority, Virginia
Mason Medical Center Ser 1997 B (MBIA) (Demand
06/02/03)............................................... 1.30* 02/15/27 1,500,000
------------
--------
2,765 Total Short-Term Tax-Exempt Municipal Obligations (Cost $2,765,000).......... 2,765,000
------------
--------
$246,239 Total Investments (Cost $172,425,388) (d).......................... 97.7% 160,463,952
========
Other Assets in Excess of Liabilities.............................. 2.3 3,743,571
----- ------------
Net Assets......................................................... 100.0% $164,207,523
===== ============
---------------------------------------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
(a) Issuer in bankruptcy; non-income producing security.
(b) Issuer in default; non-income producing security.
(c) Resale is restricted to qualified institutional investors.
(d) The aggregate cost for federal income tax purposes is
$172,358,913. The aggregate gross unrealized appreciation is
$7,136,982 and the aggregate gross unrealized depreciation
is $19,031,943, resulting in net unrealized depreciation of
$11,894,961.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
11
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
Arkansas............... 1.2%
California............. 3.9
Colorado............... 5.1
Connecticut............ 1.3
District of Columbia... 0.2
Florida................ 8.4
Hawaii................. 1.9
Illinois............... 4.2
Indiana................ 0.6
Iowa................... 2.3
Kansas................. 1.0
Kentucky............... 1.7
Louisiana.............. 0.8
Maryland............... 2.7
Massachusetts.......... 5.7
Michigan............... 0.3
Minnesota.............. 5.0
Missouri............... 5.7
Nevada................. 3.6
New Hampshire.......... 8.6
New Jersey............. 4.2
New York............... 6.6
North Carolina......... 0.8
Ohio................... 1.1
Pennsylvania........... 4.3
South Carolina......... 2.3
Tennessee.............. 0.7
Texas.................. 4.2
Vermont................ 1.3
Virginia............... 6.0
Washington............. 0.9
West Virginia.......... 1.3
Joint Exemption*....... (0.2)
-----
Total.................. 97.7%
=====
---------------------
* Joint exemptions have been included in each geographic location.
See Notes to Financial Statements
12
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
May 31, 2003
Assets:
Investments in securities, at value
(cost $172,425,388)....................................... $160,463,952
Cash........................................................ 49,637
Receivable for:
Interest................................................ 3,298,912
Investments sold........................................ 643,110
Prepaid expenses and other assets........................... 16,198
------------
Total Assets............................................ 164,471,809
------------
Liabilities:
Payable for:
Investment advisory fee................................. 80,755
Administration fee...................................... 48,453
Accrued expenses............................................ 135,078
------------
Total Liabilities....................................... 264,286
------------
Net Assets.............................................. $164,207,523
============
Composition of Net Assets:
Paid-in-capital............................................. $187,136,335
Net unrealized depreciation................................. (11,961,436)
Accumulated undistributed net investment income............. 1,555,984
Accumulated net realized loss............................... (12,523,360)
------------
Net Assets.............................................. $164,207,523
============
Net Asset Value Per Share,
20,756,472 shares outstanding (unlimited shares
authorized of $.01 par value).......................... $7.91
============
See Notes to Financial Statements
13
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended May 31, 2003
Net Investment Income:
Interest Income............................................. $12,780,936
-----------
Expenses
Investment advisory fee..................................... 822,101
Administration fee.......................................... 493,261
Transfer agent fees and expenses............................ 90,421
Professional fees........................................... 35,952
Shareholder reports and notices............................. 29,540
Trustees' fees and expenses................................. 20,909
Registration fees........................................... 11,167
Custodian fees.............................................. 8,441
Other....................................................... 15,996
-----------
Total Expenses.......................................... 1,527,788
Less: expense offset........................................ (8,407)
-----------
Net Expenses............................................ 1,519,381
-----------
Net Investment Income................................... 11,261,555
-----------
Net Realized and Unrealized Gain (Loss):
Net realized loss........................................... (746,486)
Net change in unrealized depreciation....................... 1,447,725
-----------
Net Gain................................................ 701,239
-----------
Net Increase................................................ $11,962,794
===========
See Notes to Financial Statements
14
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2003 MAY 31, 2002
------------ ------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 11,261,555 $ 11,589,419
Net realized loss........................................... (746,486) (734,744)
Net change in unrealized depreciation....................... 1,447,725 (1,966,899)
------------ ------------
Net Increase............................................ 11,962,794 8,887,776
Dividends to shareholders from net investment income........ (11,477,477) (11,931,193)
Decrease from transactions in shares of beneficial
interest.................................................. (1,296,401) --
------------ ------------
Net Decrease............................................ (811,084) (3,043,417)
Net Assets:
Beginning of period......................................... 165,018,607 168,062,024
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $1,555,984 and $1,771,748, respectively)................. $164,207,523 $165,018,607
============ ============
See Notes to Financial Statements
15
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003
1. Organization and Accounting Policies
Morgan Stanley 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 following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid 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; (2) futures are valued
at the latest sale price on the commodities exchange on which they trade unless
it is determined that such price does not reflect their market value, in which
case they will be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees; and (3)
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 Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
16
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued
D. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
E. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. Use of Estimates -- 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.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Advisor"), 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.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Advisor, 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.
3. 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, 2003 aggregated $12,867,040
and $17,408,171, respectively.
Morgan Stanley Trust, an affiliate of the Investment Advisor and Administrator,
is the Fund's transfer agent. At May 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $8,300.
17
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued
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, 2003 included in
Trustees' fees and expenses in the Statement of Operations amounted to $7,360.
At May 31, 2003, the Fund had an accrued pension liability of $59,311 which is
included in accrued expenses in the Statement of Assets and Liabilities.
4. 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, 2001....................................... 20,932,272 $209,322 $198,360,115
Reclassification due to permanent book/tax differences...... -- -- (144)
---------- -------- ------------
Balance, May 31, 2002....................................... 20,932,272 209,322 198,359,971
Treasury shares purchased and retired (weighted average
discount 5.83%)*.......................................... (175,800) (1,758) (1,294,643)
Reclassification due to permanent book/tax differences...... -- -- (10,136,557)
---------- -------- ------------
Balance, May 31, 2003....................................... 20,756,472 $207,564 $186,928,771
========== ======== ============
---------------------
* The Trustees have voted to retire the shares purchased.
5. Federal Income Tax Status
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 tax purposes, are reported as distributions of paid-in-capital.
18
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued
The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2003 MAY 31, 2002
------------- -------------
Tax-exempt income.................................. $11,477,477 $11,931,193
As of May 31, 2003, the tax-basis components of accumulated losses were as
follows:
Undistributed tax-exempt income............................. $ 1,630,213
Undistributed ordinary income............................... 867
------------
Net accumulated earnings.................................... 1,631,080
Capital loss carryforward*.................................. (12,523,360)
Temporary differences....................................... (141,571)
Net unrealized depreciation................................. (11,894,961)
------------
Total accumulated losses.................................... ($22,928,812)
============
* As of May 31, 2003, the Fund had a net capital loss carryforward of
$12,523,360 of which $5,243,406 will expire on May 31, 2004, $700,037 will
expire on May 31, 2006, $87,017 will expire on May 31, 2008, $4,628,820 will
expire on May 31, 2009 and $1,864,080 will expire on May 31, 2011 to offset
future capital gains to the extent provided by regulations.
As of May 31, 2003, the Fund had temporary book/tax differences attributable to
book amortization of discount on debt securities and a non-deductible expense
and permanent book/tax differences primarily attributable to an expired capital
loss carryforward. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged $10,136,557, accumulated undistributed
net investment income was credited $158 and accumulated net realized loss was
credited $10,136,399.
6. Dividends
The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
-------------- --------- ------------------ ------------------
March 25, 2003 $0.045 June 6, 2003 June 20, 2003
June 30, 2003 $0.045 July 11, 2003 July 25, 2003
June 30, 2003 $0.045 August 8, 2003 August 22, 2003
June 30, 2003 $0.045 September 5, 2003 September 19, 2003
19
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued
7. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.
8. Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
At May 31, 2003, the Fund did not hold positions in residual interest bonds.
To hedge against adverse interest rate changes, the Fund may invest in financial
futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities.
At May 31, 2003, the Fund had no outstanding futures contracts.
20
Morgan Stanley 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
----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Selected Per Share Data:
Net asset value, beginning of the period................... $7.88 $8.03 $7.79 $8.69 $ 8.80
----- ----- ----- ----- ------
Income (loss) from investment operations:
Net investment income*................................. 0.54 0.55 0.55 0.57 0.61
Net realized and unrealized gain (loss)................ 0.04 (0.13) 0.28 (0.85) (0.13)
----- ----- ----- ----- ------
Total income (loss) from investment operations............. 0.58 0.42 0.83 (0.28) 0.48
----- ----- ----- ----- ------
Less dividends from net investment income.................. (0.55) (0.57) (0.59) (0.62) (0.59)
----- ----- ----- ----- ------
Net asset value, end of period............................. $7.91 $7.88 $8.03 $7.79 $ 8.69
===== ===== ===== ===== ======
Market value, end of period................................ $7.76 $8.08 $8.53 $8.25 $9.438
===== ===== ===== ===== ======
Total Return+.............................................. 3.09% 1.42% 10.78% (5.94)% 15.65%
Ratios to Average Net Assets:
Expenses (before expense offset)........................... 0.93%(1) 0.92% 0.93% 0.93% 0.96%(1)
Net investment income...................................... 6.85% 6.92% 6.95% 6.95% 6.89%
Supplemental Data:
Net assets, end of period, in thousands.................... $164,208 $165,019 $168,062 $163,910 $183,200
Portfolio turnover rate.................................... 8% 7% 16% 13% 16%
---------------------
* 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
21
Morgan Stanley Municipal Income Opportunities Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Morgan Stanley Municipal Income Opportunities Trust:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Municipal Income Opportunities Trust (the "Fund"), including the
portfolio of investments, as of May 31, 2003, and the related statements of
operations for the year then ended and changes in 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. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 2003, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Municipal Income Opportunities Trust as of May 31, 2003, 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 accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
July 8, 2003
2003 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended May 31, 2003, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
22
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
Number of
Term of Portfolios in
Position(s) Office and Fund Complex
Name, Age and Address of Held with Length of Overseen by
Independent Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years Trustee**
------------------------------------- ----------- -------------- ------------------------------------------- -------------
Michael Bozic (62) Trustee Since April Retired; Director or Trustee of the Morgan 123
c/o Mayer, Brown, Rowe & Maw 1994 Stanley Funds and TCW/DW Term Trust 2003;
Counsel to the Independent Trustees formerly Vice Chairman of Kmart Corporation
1675 Broadway (December 1998-October 2000), Chairman and
New York, NY Chief Executive Officer of Levitz Furniture
Corporation (November 1995-November 1998)
and President and Chief Executive Officer
of Hills Department Stores (May 1991-July
1995); formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck & Co.
Edwin J. Garn (70) Trustee Since January Director or Trustee of the Morgan Stanley 123
c/o Summit Ventures LLC 1993 Funds and TCW/DW Term Trust 2003; formerly
1 Utah Center United States Senator (R-Utah) (1974-1992)
201 S. Main Street and Chairman, Senate Banking Committee
Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake
City, Utah (1971-1974), Astronaut, Space
Shuttle Discovery (April 12-19, 1985) and
Vice Chairman, Huntsman Corporation
(chemical company); member of the Utah
Regional Advisory Board of Pacific Corp.
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee of the Morgan 123
c/o Mayer, Brown, Rowe & Maw September 1997 Stanley Funds and TCW/DW Term Trust 2003;
Counsel to the Independent Trustees formerly associated with the Allstate
1675 Broadway Companies (1966- 1994), most recently as
New York, NY Chairman of The Allstate Corporation (March
1993-December 1994) and Chairman and Chief
Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company
(July 1989-December 1994).
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
------------------------------------- -----------------------------------
Michael Bozic (62) Director of Weirton Steel
c/o Mayer, Brown, Rowe & Maw Corporation.
Counsel to the Independent Trustees
1675 Broadway
New York, NY
Edwin J. Garn (70) Director of Franklin Covey (time
c/o Summit Ventures LLC management systems), BMW Bank of
1 Utah Center North America, Inc. (industrial
201 S. Main Street loan corporation), United Space
Salt Lake City, UT Alliance (joint venture between
Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific
(multilevel marketing); member of
the board of various civic and
charitable organizations.
Wayne E. Hedien (69) Director of The PMI Group Inc.
c/o Mayer, Brown, Rowe & Maw (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The
1675 Broadway Field Museum of Natural History;
New York, NY director of various other business
and charitable organizations.
23
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
Number of
Term of Portfolios in
Position(s) Office and Fund Complex
Name, Age and Address of Held with Length of Overseen by
Independent Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years Trustee**
------------------------------------- ----------- -------------- ------------------------------------------- -------------
Dr. Manuel H. Johnson (54) Trustee Since July Chairman of the Audit Committee and 123
c/o Johnson Smick International, Inc. 1991 Director or Trustee of the Morgan Stanley
2099 Pennsylvania Avenue, N.W. Funds and TCW/DW Term Trust 2003; Senior
Suite 950 Partner, Johnson Smick International, Inc.,
Washington, D.C. a consulting firm; Co-Chairman and a
founder of the Group of Seven Council
(G7C), an international economic
commission; formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (67) Trustee Since July Chairman of the Insurance Committee and 214
c/o Triumph Capital, L.P. 1991 Director or Trustee of the Morgan Stanley
445 Park Avenue Funds and TCW/DW Term Trust 2003;
New York, NY director/trustee of various investment
companies managed by Morgan Stanley
Investment Management Inc. and Morgan
Stanley Investments LP (since July 2001);
General Partner, Triumph Capital, L.P., a
private investment partnership; formerly
Vice President, Bankers Trust Company and
BT Capital Corporation (1984-1988).
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
------------------------------------- -----------------------------------
Dr. Manuel H. Johnson (54) Director of NVR, Inc. (home
c/o Johnson Smick International, Inc. construction); Chairman and Trustee
2099 Pennsylvania Avenue, N.W. of the Financial Accounting
Suite 950 Foundation (oversight organization
Washington, D.C. of the Financial Accounting
Standards Board); Director of RBS
Greenwich Capital Holdings
(financial holding company).
Michael E. Nugent (67) Director of various business
c/o Triumph Capital, L.P. organizations.
445 Park Avenue
New York, NY
24
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
Interested Trustees:
Number of
Term of Portfolios in
Position(s) Office and Fund Complex
Name, Age and Address of Held with Length of Overseen by
Interested Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years Trustee**
------------------------------------- ----------- -------------- ------------------------------------------- -------------
Charles A. Fiumefreddo (70) Chairman of Since July Chairman and Director or Trustee of the 123
c/o Morgan Stanley Trust the Board 1991 Morgan Stanley Funds and TCW/DW Term Trust
Harborside Financial Center, and Trustee 2003; formerly Chairman, Chief Executive
Plaza Two, Officer and Director of the Investment
Jersey City, NJ Manager, the Distributor and Morgan Stanley
Services, Executive Vice President and
Director of Morgan Stanley DW, Chairman and
Director of the Transfer Agent, and
Director and/or officer of various Morgan
Stanley subsidiaries (until June 1998) and
Chief Executive Officer of the Morgan
Stanley Funds and the TCW/DW Term Trusts
(until September 2002).
James F. Higgins (55) Trustee Since June Director or Trustee of the Morgan Stanley 123
c/o Morgan Stanley Trust 2000 Funds and TCW/DW Term Trust 2003 (since
Harborside Financial Center, June 2000); Senior Advisor of Morgan
Plaza Two, Stanley (since August 2000); Director of
Jersey City, NJ the Distributor and Dean Witter Realty
Inc.; Director of AXA Financial, Inc. and
The Equitable Life Assurance Society of the
United States (financial services);
previously President and Chief Operating
Officer of the Private Client Group of
Morgan Stanley (May 1999-August 2000),
President and Chief Operating Officer of
Individual Securities of Morgan Stanley
(February 1997-May 1999).
Philip J. Purcell (59) Trustee Since April Director or Trustee of the Morgan Stanley 123
1585 Broadway 1994 Funds and TCW/DW Term Trust 2003; Chairman
New York, NY of the Board of Directors and Chief
Executive Officer of Morgan Stanley and
Morgan Stanley DW; Director of the
Distributor; Chairman of the Board of
Directors and Chief Executive Officer of
Novus Credit Services Inc.; Director and/or
officer of various Morgan Stanley
subsidiaries.
Name, Age and Address of
Interested Trustee Other Directorships Held by Trustee
------------------------------------- -----------------------------------
Charles A. Fiumefreddo (70) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
James F. Higgins (55) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
Philip J. Purcell (59) Director of American Airlines, Inc.
1585 Broadway and its parent company, AMR
New York, NY Corporation.
---------------------
* Each Trustee serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all open and closed-end funds (including all of
their portfolios) advised by Morgan Stanley Investment Advisors Inc. and any
funds that have an investment advisor that is an affiliated person of Morgan
Stanley Investment Advisors Inc. (including but not limited to, Morgan
Stanley Investment Management Inc., Morgan Stanley Investments LP and Van
Kampen Asset Management Inc.).
25
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
Officers:
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years
------------------------------ --------------- -------------- ------------------------------------------------------------
Mitchell M. Merin (49) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management (since December 1998); President,
New York, NY Director (since April 1997) and Chief Executive Officer
(since June 1998) of the Investment Manager and Morgan
Stanley Services; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998); Chairman
(since June 1998) and Director (since January 1998) of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President (since May 1999) of the Morgan
Stanley Funds and TCW/DW Term Trust 2003; Trustee (since
December 1999) and President and Chief Executive Officer
(since October 2002) of the Van Kampen Open-End Funds and
President and Chief Executive Officer (since December 2002)
of the Van Kampen Closed-End Funds; previously Chief
Strategic Officer of the Investment Manager and Morgan
Stanley Services and Executive Vice President of the
Distributor (April 1997-June 1998), Chief Executive Officer
(September 2002-April 2003) and Vice President (May
1997-April 1999) of the Morgan Stanley Funds and the TCW/DW
Term Trusts, and Executive Vice President of Morgan Stanley.
Ronald E. Robison (64) Executive Vice Since April Managing Director, Chief Administrative Officer and Director
1221 Avenue of the Americas President and 2003 (since February 1999) of the Investment Manager and Morgan
New York, NY Principal Stanley Services, Chief Executive Officer and Director of
Executive the Transfer Agent and Executive Vice President and
Officer Principal Executive Officer of the Morgan Stanley Funds and
TCW/DW Term Trust 2003 (since April 2003); previously
Managing Director of the TCW Group Inc.
Barry Fink (48) Vice President, Since February General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas Secretary and 1997 (since December 2000) of Morgan Stanley Investment
New York, NY General Counsel Management; Managing Director (since December 2000), and
Director (since July 1998) of the Investment Manager and
Morgan Stanley Services; Assistant Secretary of Morgan
Stanley DW; Vice President, Secretary and General Counsel of
the Morgan Stanley Funds and TCW/DW Term Trust 2003 (since
February 1997); Managing Director, Director and Secretary of
the Distributor; previously, Vice President and Assistant
General Counsel of the Investment Manager and Morgan Stanley
Services (February 1997-December 2001).
Joseph J. McAlinden (60) Vice President Since July Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas 1995 Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of the Van Kampen
Funds.
Francis Smith (37) Vice President Since Vice President and Chief Financial Officer of the Morgan
c/o Morgan Stanley Trust and Chief September 2002 Stanley Funds and TCW/DW Term Trust 2003 (since September
Harborside Financial Center, Financial 2002); Executive Director of the Investment Manager and
Plaza Two, Officer Morgan Stanley Services (since December 2001); previously
Jersey City, NJ Vice President of the Investment Manager and Morgan Stanley
Services (August 2000-November 2001) and Senior Manager at
PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (57) Treasurer Since April Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust 1989 Treasurer of the Investment Manager, the Distributor and
Harborside Financial Center, Morgan Stanley Services; previously First Vice President of
Plaza Two, the Investment Manager, the Distributor and Morgan Stanley
Jersey City, NJ Services; Treasurer of the Morgan Stanley Funds.
---------------------
* Each Officer serves an indefinite term, until his or her successor is elected.
26
(This Page Intentionally Left Blank)
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Joseph J. McAlinden
Vice President
Francis Smith
Vice President and Chief Financial Officer
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Investments and services offered through Morgan Stanley DW Inc., member SPIC.
MORGAN STANLEY
MUNICIPAL INCOME
OPPORTUNITIES TRUST
Annual Report
May 31, 2003
38538RPT-11551G03-AP-7/03
ITEM 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
The Fund's and its Investment Advisor's Proxy Voting Policies and Procedures are
as follows:
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
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Proxy Research Services - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.
Voting Proxies for certain Non-US Companies - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
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1. When voting on routine ballot items the following proposals are generally
voted in support of management, subject to the review and approval of
the Proxy Review Committee, as appropriate.
- Selection or ratification of auditors.
- Approval of financial statements, director and auditor reports.
- Election of Directors.
- Limiting Directors' liability and broadening indemnification of
Directors.
- Requirement that a certain percentage (up to 66 2/3%) of its
Board's members be comprised of independent and unaffiliated
Directors.
- Requirement that members of the company's compensation, nominating
and audit committees be comprised of independent or unaffiliated
Directors.
- Recommendations to set retirement ages or require specific levels
of stock ownership by Directors.
- General updating/corrective amendments to the charter.
- Elimination of cumulative voting.
- Elimination of preemptive rights.
- Provisions for confidential voting and independent tabulation of
voting results.
- Proposals related to the conduct of the annual meeting except those
proposals that relate to the "transaction of such other business
which may come before the meeting."
2. The following non-routine proposals, which potentially may have a substantive
financial or best interest impact on a shareholder, are generally voted
in support of management, subject to the review and approval of the
Proxy Review Committee, as appropriate.
Capitalization changes
- Capitalization changes that eliminate other classes of stock and
voting rights.
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- Proposals to increase the authorization of
existing classes of common stock (or securities convertible into
common stock) if: (i) a clear and legitimate business purpose is
stated; (ii) the number of shares requested is reasonable in
relation to the purpose for which authorization is requested; and
(iii) the authorization does not exceed 100% of shares currently
authorized and at least 30% of the new authorization will be
outstanding.
- Proposals to create a new class of preferred
stock or for issuances of preferred stock up to 50% of issued
capital.
- Proposals for share repurchase plans.
- Proposals to reduce the number of authorized
shares of common or preferred stock, or to eliminate classes of
preferred stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if
management proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits that do not
adjust proportionately to the authorized share amount will
generally be approved if the resulting increase in authorized
shares coincides with the proxy guidelines set forth above for
common stock increases.
Compensation
- Director fees, provided the amounts are not excessive relative to
other companies in the country or industry.
- Employee stock purchase plans that permit discounts up to 15%, but
only for grants that are part of a broad based employee plan,
including all non-executive employees.
- Establishment of Employee Stock Option Plans and other employee
ownership plans.
Anti-Takeover Matters
- Modify or rescind existing supermajority vote requirements to amend
the charters or bylaws.
- Adoption of anti-greenmail provisions provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by
disinterested
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shareholders; and (iii) contains no anti-takeover measures or other
provisions restricting the rights of shareholders.
3. The following non-routine proposals, which potentially may have a substantive
financial or best interest impact on the shareholder, are generally
voted against (notwithstanding management support), subject to the
review and approval of the Proxy Review Committee, as appropriate.
- Capitalization changes that add classes of stock that which
substantially dilute the voting interests of existing shareholders.
- Proposals to increase the authorized number of shares of existing
classes of stock that carry preemptive rights or supervoting
rights.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted stock options that
have not been offered to employees in general.
- Amendments to bylaws that would require a supermajority shareholder
vote to pass or repeal certain provisions.
- Proposals to indemnify auditors.
4. The following types of non-routine proposals, which potentially may have a
potential financial or best interest impact on an issuer, are voted as
determined by the Proxy Review Committee.
Corporate Transactions
- Mergers, acquisitions and other special corporate transactions
(i.e., takeovers, spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined on a
case-by-case basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates' research and
analysis, based on, among other things, MSIM internal
company-specific knowledge.
- Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements that benefit
management and would be costly to shareholders if triggered.
- Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions that
prevent legitimate offers from proceeding.
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- Executive/Director stock option plans. Generally, stock option
plans should meet the following criteria:
(i) Whether the stock option plan is incentive based;
(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;
(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.
Anti-Takeover Provisions
- Proposals requiring shareholder ratification of poison pills.
- Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or
effectively deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported, subject
to the review and approval of the Proxy Review Committee, as
appropriate:
- Requiring auditors to attend the annual meeting of
shareholders.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of
independent or unaffiliated Directors.
- Requirement that a certain percentage of its Board's
members be comprised of independent and unaffiliated
Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote
requirements.
2. The following shareholder proposals will be voted as determined by
the Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
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- Proposals requiring directors to own large amounts of
stock to be eligible for election.
- Restoring cumulative voting in the election of directors.
- Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations.
- Proposals that limit retirement benefits or executive
compensation.
- Requiring shareholder approval for bylaw or charter
amendments.
- Requiring shareholder approval for shareholder rights plan
or poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related provisions.
- Prohibit payment of greenmail.
3.The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as
appropriate.
- Requirements that the issuer prepare reports that are
costly to provide or that would require duplicative
efforts or expenditures that are of a non-business nature
or would provide no pertinent information from the
perspective of institutional shareholders.
- Restrictions related to social, political or special
interest issues that impact the ability of the company to
do business or be competitive and that have a significant
financial or best interest impact to the shareholders.
- Proposals that require inappropriate endorsements or
corporate actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
Following are some of the functions and responsibilities of
the Committee.
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(a) The Committee, which will consist of members
designated by MSIM's Chief Investment Officer, is
responsible for establishing MSIM's proxy voting
policies and guidelines and determining how MSIM will
vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the
authority to amend as necessary MSIM's proxy voting
policies and guidelines (as expressed in these Proxy
Voting Policy and Procedures) and establish and
direct voting positions consistent with the Client
Proxy Standard.
(c) The Committee will meet at least monthly to
(among other matters): (1) address any outstanding
issues relating to MSIM's Proxy Voting Policy and
Procedures; and (2) generally review proposals at
upcoming shareholder meetings of MSIM portfolio
companies in accordance with this Policy and
Procedures including, as appropriate, the voting
results of prior shareholder meetings of the same
issuer where a similar proposal was presented to
shareholders. The Committee, or its designee, will
timely communicate to ISS MSIM's Proxy Voting Policy
and Procedures (and any amendments to them and/or any
additional guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are
the subject of the same proxy solicitation and held
by one or more MSIM portfolios to be voted
differently than other shares) and/or "override
voting" (i.e., voting all MSIM portfolio shares in a
manner contrary to the Procedures); (2) review and
approve upcoming votes, as appropriate, for matters
for which specific direction has been provided in
Sections I, II, and III above; and (3) determine how
to vote matters for which specific direction has not
been provided in Sections I, II and III above. Split
votes will generally not be approved within a single
Global Investor Group team. The Committee may take
into account ISS recommendations and the research
provided by IRRC as well as any other relevant
information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of
interest, the Committee will designate a special
committee to review, and recommend a course of action
with respect to, the conflict(s) in question
("Special Committee"). The Special Committee may
request the assistance of the Law and Compliance
Departments and will have sole discretion to cast a
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vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special
Committee, or their designee(s) for a period of at
least 6 years. To the extent these decisions relate
to a security held by a MSIM U.S. registered
investment company, the Committee and Special
Committee, or their designee(s), will report their
decisions to each applicable Board of
Trustees/Directors of those investment companies at
each Board's next regularly Scheduled Board meeting.
The report will contain information concerning
decisions made by the Committee and Special Committee
during the most recently ended calendar quarter
immediately preceding the Board meeting.
(g) The Committee and Special Committee, or their designee(s),
will timely communicate to applicable PMs, the
Compliance Departments and, as necessary to ISS,
decisions of the Committee and Special Committee so
that, among other things, ISS will vote proxies
consistent with their decisions.
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Item 9 - Controls and Procedures
The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
Item 10b Exhibits
A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
Items 2 - 6 and Items 8 and 10a are not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Municipal Income Opportunities Trust
Ronald E. Robison
Principal Executive Officer
July 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Ronald E. Robison
Principal Executive Officer
July 22, 2003
Francis Smith
Principal Financial Officer
July 22, 2003
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