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, 2005
Date of reporting period: November 30, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Municipal Income Opportunities Trust performed during the semiannual period. We
will provide an overview of the market conditions, and discuss some of the
factors that affected performance during the reporting period. In addition, this
report includes the Fund's financial statements and a list of Fund investments.
Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Fund will achieve its investment objective. The Fund is
subject to market risk, which is the possibility that market values of
securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
FUND REPORT
For the six-month period ended November 30, 2004
MARKET CONDITIONS
The economy continued to grow through the six-month period ending November 30,
2004. During the spring and summer it hit what Federal Reserve Board Chairman
Alan Greenspan described as a "soft patch." Oil prices almost doubled, reaching
record highs, and employment growth weakened. However, by November,
disappointment over weak payroll numbers proved short-lived after the release of
a strong October report and an upward revision to previous months. Oil prices
also backed off from their peak.
By April 2004, the market had begun to anticipate that the Federal Reserve Board
(the Fed) would begin to increase short-term interest rates in response to
higher commodity prices and reduced concern about the risk of deflation. In a
series of four measured moves between June and the end of November, the Fed did
increase the federal funds rate, from 1.00 to 2.00 percent.
Rising inflation fears led to rising bond yields from April to June. The market
changed course in July, however, with yields falling from July through October
as investors became concerned with slower growth. With the improvement in
employment the market again reversed direction and long-term municipal bond
yields rose in November. Higher short-term interest rates reduced the yield
pickup for extending to longer maturities, and the yield curve flattened.
Lower-quality municipal bonds performed strongly in this environment, as the
difference in yields (known as the "yield spread") between AAA and BBB rated
bonds narrowed.
The ratio of municipal yields to Treasury yields, which serves as a gauge of
relative performance, indicated that municipals generally remained attractive
relative to Treasuries during the period. As a result, taxable investors such as
insurance companies and hedge funds that normally focus on other sectors of the
bond market supported municipal bond prices by "crossing over" to purchase
municipal bonds.
PERFORMANCE ANALYSIS
For the six-month period ended November 30, 2004, Morgan Stanley Municipal
Income Opportunities Trust's (OIA) total NAV return was 5.95%. The Fund's total
market return was 9.66%. OIA's share price was trading at a 4.20% discount to
its NAV on November 30, 2004. Past performance is no guarantee of future
results.
Monthly dividends for the fourth quarter of 2004, declared in September, were
increased from $0.04 to $0.0425 per share to reflect the Fund's current and
projected earnings level. The Fund's level of undistributed net investment
income was $0.111 per share on November 30, 2004, versus $0.092 per share six
months earlier.
OIA is a non-leveraged closed-end fund that invests primarily in higher-yielding
municipal bonds. As a result, more than 50 percent of the portfolio is invested
in nonrated issues. Currently, OIA has only one holding, representing less than
1 percent of net assets that is nonperforming.
OIA's duration,* a measure of interest-rate sensitivity, has been targeted to be
shorter than its benchmark index, thus reducing interest-rate volatility. This
2
positioning reduced upside performance as rates declined but helped performance
when interest rates rose. The Fund's duration was 6.8 years. The Fund's net
assets of $157 million were diversified across 85 credits in 12 long-term
sectors.
The Fund's procedure for reinvesting all dividends and distributions in 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 the time
of purchase.
----------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. Investment return, net asset value and common share market price will
fluctuate and fund shares, when sold, may be worth more or less than their
original cost.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the Fund in the future.
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates. The
longer a bond's duration, the greater the effect of interest-rate movements on
its price. Typically, funds with shorter durations perform better in
rising-interest-rate environments, while funds with longer durations perform
better when rates decline.
LARGEST SECTORS
Hospital Revenue 14.9%
Retirement and Life Care Facilities Revenue 14.8%
IDR/PCR* 14.2%
Tax Allocation Revenue 11.1%
Nursing and Health Related Facilities Revenue 10.7%
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 3.3%
Aa/AA 7.1%
A/A 6.5%
Baa/BBB 20.2%
Ba/BB 9.9%
N/R 53.0%
* Industrial Development/Pollution Control Revenue.
Data as of November 30, 2004. Subject to change daily. All percentages for
largest sectors are as a percentage of net assets. All percentages for long-term
credit analysis are as a percentage of total long-term investments. These data
are provided for informational purposes only and should not be deemed a
recommendation to buy or sell the securities mentioned. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
3
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of November 30, 2004
WEIGHTED AVERAGE MATURITY: 18 YEARS
1-5 9
5-10 13
10-20 28
20-30 41
30+ 9
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
Alabama................. 0.6%
Arkansas................ 1.3
California.............. 5.5
Colorado................ 4.6
Connecticut............. 1.3
District of Columbia.... 0.2
Florida................. 10.0
Hawaii.................. 2.0
Illinois................ 2.8
Indiana................. 0.7
Iowa.................... 2.4
Kansas.................. 1.0
Kentucky................ 0.8
Louisiana............... 0.6
Maryland................ 2.4
Massachusetts........... 4.6
Michigan................ 0.4
Minnesota............... 5.0
Missouri................ 6.7
Nevada.................. 3.9
New Hampshire........... 7.3
New Jersey.............. 4.3
New York................ 6.1
North Carolina.......... 1.9
Ohio.................... 1.3
Pennsylvania............ 6.0
South Carolina.......... 2.7
Tennessee............... 1.1
Texas................... 4.1
Vermont................. 1.3
Virginia................ 4.0
West Virginia........... 1.3
----
Total................... 98.2%
====
* Joint exemptions have been included in each geographic location.
4
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of November 30, 2004
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 5 YEARS
2005(a) 22
2006 2
2007 3
2008 11
2009 10
2010 8
2011 9
2012 9
2013 9
2014+ 17
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 7.3%
2005(a) 8.5
2006 6.6
2007 5.9
2008 6.5
2009 6.4
2010 6.9
2011 7.0
2012 6.8
2013 6.9
2014+ 7.9
(a) May include issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Fund's operating expenses.
For example, the Fund is earning a book yield of 8.5% on 22% of the
long-term portfolio that is callable in 2005.
Portfolio structure is subject to change.
5
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED)
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (96.2%)
General Obligation (1.3%)
$ 1,000 California, Various Purposes dtd 03/01/04................. 5.00% 02/01/33 $ 1,000,300
1,000 Southlands Metropolitan District #1, Colorado, Ser 2004... 7.125 12/01/34 993,870
------------
--------
1,994,170
2,000
------------
--------
Educational Facilities Revenue (2.4%)
1,200 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs.................................................... 7.50 05/01/11 1,268,856
500 San Diego County, California, The Burnham Institute
COPs.................................................... 6.25 09/01/29 516,665
1,000 Bellalago Educational Facilities Benefits District,
Florida, Bellalago Charter School Ser 2004 B............ 5.80 05/01/34 990,050
1,000 Westchester County Industrial Development Agency, New
York, Guiding Eyes for The Blind Inc Ser 2004........... 5.375 08/01/24 1,021,680
------------
--------
3,797,251
3,700
------------
--------
Hospital Revenue (14.9%)
1,000 Colbert County - Northwest Health Care Authority, Alabama,
Helen Keller Hospital Ser 2003.......................... 5.75 06/01/27 971,870
2,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1999 B.................................. 5.625 09/01/28 2,024,140
2,000 Hawaii Department of Budget & Finance, Kuakini Health 2002
Ser A................................................... 6.375 07/01/32 2,065,940
1,000 Indiana Health Facility Financing Authority, Riverview
Hospital Ser 2002....................................... 6.125 08/01/31 1,038,710
2,000 Maryland Health & Higher Educational Facilities Authority,
University of Maryland Medical Center Ser 2000.......... 6.75 07/01/30 2,251,400
600 Gaylord Hospital Financing Authority, Michigan, Otsego
Memorial Hospital Ser 2004.............................. 6.50 01/01/37 583,356
3,000 Henderson, Nevada, Catholic Health West 1998 Ser A........ 5.375 07/01/26 3,019,979
1,500 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Assn Ser 1998 A........... 6.00 05/01/28 1,365,990
2,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994..................... 7.25 07/01/27 2,095,600
1,105 Nassau County Industrial Development Agency, New York,
North Shore Health Ser B................................ 5.875 11/01/11 1,211,765
1,000 Monroe County Hospital Authority, Pennsylvania, Pocono
Medical Center Ser 2003................................. 6.00 01/01/43 1,028,480
1,560 Philadelphia Hospitals & Higher Education Facilities
Authority, Pennsylvania, Chestnut Hill Hospital Ser
1992.................................................... 6.375 11/15/11 1,561,248
2,000 South Carolina Jobs - Economic Development Authority,
Palmetto Health Alliance Refg Ser 2003 C................ 6.875 08/01/27 2,209,760
See Notes to Financial Statements
6
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 1,000 Knox County Health Educational & Housing Facility Board,
Tennessee, Baptist Health of East Tennessee Ser 2002.... 6.50% 04/15/31 $ 1,010,180
1,000 Decatur Hospital Authority, Texas, Wise Regional Health
Ser 2004 A.............................................. 7.125 09/01/34 1,013,580
------------
--------
23,453,998
23,765
------------
--------
Industrial Development/Pollution Control Revenue (14.2%)
2,000 Los Angeles, California, American Airlines Inc Terminal 4
Ser 2002 C (AMT)........................................ 7.50 12/01/24 1,944,640
360 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser
1991 (AMT)+............................................. 10.125 09/01/11 360,450
2,000 Chicago, Illinois, Chicago O'Hare Int'l Airport/United
Airlines Inc Refg Ser 2001 C (a)........................ 6.30 05/01/16 290,000
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT).......... 6.00 06/01/27 1,478,700
1,500 Dayton, Ohio, Emery Air Freight Corp Refg Ser 1998 A...... 5.625 02/01/18 1,537,125
505 Zanesville-Muskingum County Port Authority, Ohio, Anchor
Glass Container Corp Ser 1989 B (AMT)................... 10.25 12/01/08 504,934
2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995
B....................................................... 7.75 05/01/20 2,122,180
3,330 Carbon County Industrial Development Authority,
Pennsylvania, Panther Creek Partners Refg 2000 Ser
(AMT)................................................... 6.65 05/01/10 3,594,069
2,125 Lexington County, South Carolina, Ellett Brothers Inc Refg
Ser 1998................................................ 7.50 09/01/08 2,077,103
1,000 Brazos River Authority, Texas, TXU Electric Refg Ser 1999
A....................................................... 7.70 04/01/33 1,182,360
1,000 Chesterfield County Industrial Development Authority,
Virginia, Virginia Electric & Power Company Ser 1985.... 5.50 10/01/09 1,057,550
4,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Pittsylvania County Ser 1994 A
(AMT)................................................... 7.45 01/01/09 4,088,560
2,000 Upshur County, West Virginia, TJ International Inc Ser
1995 (AMT).............................................. 7.00 07/15/25 2,085,000
------------
--------
22,322,671
23,320
------------
--------
Mortgage Revenue - Multi-Family (6.9%)
Washington County Housing & Redevelopment Authority,
3,885 Courtly Park Ser 1989 A................................. 9.75 06/15/19 3,030,455
1,165 Courtly Park Ser 1989 A (AMT)........................... 10.25 06/15/19 909,096
24,080 Courtly Park Ser 1989 B................................. 0.00 06/15/19 358,792
8,678 Courtly Park Ser 1989 B (AMT)........................... 0.00 06/15/19 129,300
White Bear Lake, Minnesota,
3,715 White Bear Woods Apts Phase II Refg 1989 Ser A.......... 9.75 06/15/19 3,217,376
19,771 White Bear Woods Apts Phase II Refg 1989 Ser B.......... 0.00 06/15/19 294,594
3,000 Brookhaven Industrial Development Agency, New York,
Woodcrest Estates Ser 1998 A (AMT)...................... 6.375 12/01/37 2,955,300
------------
--------
10,894,913
64,294
------------
--------
See Notes to Financial Statements
7
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Mortgage Revenue - Single Family (7.0%)
Colorado Housing & Finance Authority,
$ 180 1996 Ser B (AMT)........................................ 7.65% 11/01/26 $ 180,288
800 Ser 1998 D-2 (AMT)...................................... 6.35 11/01/29 824,200
28,230 New Hampshire Housing Finance Authority, Residential 1983
Ser B................................................... 0.00 01/01/15 9,936,678
------------
--------
10,941,166
29,210
------------
--------
Nursing & Health Related Facilities Revenue (11.3%)
Escambia County, Florida,
5,470 Pensacola Care Development Centers Ser 1989............. 10.25 07/01/11 5,478,370
1,255 Pensacola Care Development Centers Ser 1989 A........... 10.25 07/01/11 1,256,920
1,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999....... 6.75 04/01/34 863,240
1,000 Pinellas County Health Facilities Authority, Florida, Oaks
of Clearwater Ser 2004.................................. 6.25 06/01/34 1,001,560
1,965 Iowa Health Facilities Development Financing Authority,
Care Initiatives Ser 1996............................... 9.25 07/01/25 2,375,646
1,205 Kentucky Economic Development Financing Authority, AHF/
Kentucky-Iowa Inc Ser 2003.............................. 6.50# 01/01/29 1,180,514
1,000 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........ 8.375 10/01/13 1,013,670
1,775 Massachusetts Development Finance Agency, New England
Center for Children Ser 1998............................ 5.875 11/01/18 1,773,562
1,000 Massachusetts Health & Educational Facilities Authority,
The Learning Center for Deaf Children Ser C............. 6.125 07/01/29 970,790
870 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999..................... 6.00 06/01/09 878,178
1,000 St Louis County Industrial Development Authority,
Missouri, Pediatric Rehabilitation Center Ser 2003 A.... 6.625 11/15/35 1,008,210
------------
--------
17,800,660
16,540
------------
--------
Recreational Facilities Revenue (5.6%)
2,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A................................. 6.25 01/01/30 2,074,120
1,000 San Diego County, San Diego Natural History Museum COPs... 5.70 02/01/28 918,870
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 1996 Ser A (b).......................................... 6.40 09/01/11 1,074,650
1,000 1997 Ser B (b).......................................... 5.75 09/01/27 1,025,980
2,000 St Louis Industrial Development Authority, Missouri, St
Louis Convention Center Headquarters Hotel Ser 2000
(AMT)................................................... 6.875 12/15/20 1,598,860
2,000 Austin Convention Enterprises, Texas, Convention Center
Hotel Ser 2000 A........................................ 6.70 01/01/32 2,112,220
------------
--------
8,804,700
9,010
------------
--------
See Notes to Financial Statements
8
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Retirement & Life Care Facilities Revenue (14.8%)
$ 1,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A..................................... 8.00% 01/01/30 $ 1,043,700
1,000 Hawaii Department of Budget & Finance, Kahala Nui, 2003
Ser A................................................... 8.00 11/15/33 1,062,060
1,500 Lenexa, Kansas, Lakeview Village - Southridge Ser 2002
C....................................................... 6.875 05/15/32 1,591,740
1,500 Maryland Health & Higher Educational Facilities Authority,
Mercy Ridge 2003 Ser A.................................. 6.00 04/01/35 1,530,465
1,500 Massachusetts Development Finance Agency, Loomis
Communities Ser 1999 A.................................. 5.75 07/01/23 1,381,665
1,500 Kansas City Industrial Development Agency, Missouri,
Bishop Spencer 2004 Ser A............................... 6.50 01/01/35 1,522,815
New Jersey Economic Development Authority,
1,000 Cedar Crest Village Inc Ser 2001 A...................... 7.25 11/15/31 1,021,730
1,000 Franciscan Oaks Ser 1997................................ 5.70 10/01/17 962,330
1,000 The Presbyterian Home at Montgomery Ser 2001 A.......... 6.375 11/01/31 1,015,310
2,000 United Methodist Homes of New Jersey Ser 1998........... 5.125 07/01/25 1,805,520
3,250 Suffolk County Industrial Development Agency, New York,
Jefferson's Ferry Ser 1999.............................. 7.25 11/01/28 3,387,540
1,000 North Carolina Medical Care Commission, The Given Estate,
Ser 2003 A.............................................. 6.50 07/01/32 1,019,850
1,000 Chester County Health & Education Facilities Authority,
Pennsylvania, Jenner's Pond Inc Ser 2002................ 7.625 07/01/34 1,011,530
750 Shelby County Health, Educational & Housing Facilities
Board, Tennessee, Village at Germantown Ser 2003 A...... 7.25 12/01/34 770,318
1,000 Houston, Health Facilities Authority, Texas, Buckingham
Senior Living Community Ser 2003 A...................... 7.125 02/15/34 1,048,920
2,100 Vermont Economic Development Authority, Wake Robin Corp
Ser 1999 A.............................................. 6.75 03/01/29 2,046,723
1,000 Peninsula Ports Authority of Virginia, Virginia Baptist
Homes Ser 2003 A........................................ 7.375 12/01/32 1,049,210
------------
--------
23,271,426
23,100
------------
--------
Tax Allocation Revenue (11.1%)
1,000 San Marcos Community Facilities District No 2002-01,
California, University Commons Ser 2004................. 5.95 09/01/35 1,016,330
2,000 Elk Valley Public Improvement Corporation, Colorado, Ser
2001 A.................................................. 7.35 09/01/31 2,087,180
2,000 Beacon Lakes Community Development District, Florida, Ser
2003 A.................................................. 6.90 05/01/35 2,092,080
1,000 Midtown Miami Florida Community Development District,
Florida, Ser 2004 A..................................... 6.25 05/01/37 1,032,320
2,000 Chicago, Illinois, Lake Shore East, Ser 2002.............. 6.75 12/01/32 2,067,540
725 Lincolnshire, Illinois, Special Service Area No 1 Ser
2004.................................................... 6.25 03/01/34 720,578
2,000 Des Peres, Missouri, West County Center Ser 2002.......... 5.75 04/15/20 2,048,700
See Notes to Financial Statements
9
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 4,000 Fenton, Missouri, Gravois Bluffs Redevelopment Ser 2001 A
Refg.................................................... 7.00% 10/01/21 $ 4,316,640
1,995 Las Vegas District No 808, Nevada, Summerlin Area Ser
2001.................................................... 6.75 06/01/21 2,065,982
------------
--------
17,447,350
16,720
------------
--------
Transportation Facilities Revenue (3.9%)
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA).................................................. 0.00 09/01/15 3,114,850
1,780 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (Ambac)...................................... 5.85 10/01/13 1,953,977
1,000 Nevada Department of Business & Industry, Las Vegas
Monorail 2nd Tier Ser 2000.............................. 7.375 01/01/40 1,019,690
------------
--------
6,088,517
7,780
------------
--------
Refunded (2.8%)
1,000 Illinois Health Facilities Authority, Riverside Health Ser
2000.................................................... 6.85 11/15/10++ 1,195,990
3,000 Massachusetts Health & Educational Facilities Authority,
Dana Farber Cancer Institute Ser G-1.................... 6.25 12/01/05++ 3,183,360
------------
--------
4,379,350
4,000
------------
--------
223,439 Total Tax-Exempt Municipal Bonds (Cost $160,936,985)......................... 151,194,172
------------
--------
Short-Term Tax-Exempt Municipal Obligations (1.9%)
2,000 University of North Carolina, Hospitals at Chapel Hill Ser
2001 A (Demand 12/01/04)................................ 1.64* 02/15/31 2,000,000
1,000 North Central Texas Health Facilities Development
Corporation, Presbyterian Medical Center Ser 1985 D
(MBIA) (Demand 12/01/04)................................ 1.64* 12/01/15 1,000,000
------------
--------
3,000 Total Short-Term Tax-Exempt Municipal Obligations (Cost $3,000,000).......... 3,000,000
------------
--------
$226,439 Total Investments (Cost $163,936,985) (c).......................... 98.1% 154,194,172
========
Other Assets in Excess of Liabilities.............................. 1.9 2,897,232
----- ------------
Net Assets......................................................... 100.0% $157,091,404
===== ============
See Notes to Financial Statements
10
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate demand obligation.
+ Joint exemption in locations shown.
++ Prerefunded to call date shown.
# Currently a 6.50% coupon; increases to 8.00% on January 1,
2009.
(a) Issuer in bankruptcy; non-income producing security.
(b) Resale is restricted to qualified institutional investors.
(c) The aggregate cost for federal income tax purposes is
$163,855,054. The aggregate gross unrealized appreciation is
$5,916,652 and the aggregate gross unrealized depreciation
is $15,577,534, resulting in net unrealized depreciation of
$9,660,882.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
MBIA Municipal Bond Investors Assurance Corporation.
11
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
November 30, 2004 (unaudited)
Assets:
Investments in securities, at value
(cost $163,936,985)....................................... $154,194,172
Cash........................................................ 99,715
Interest receivable......................................... 3,058,170
------------
Total Assets............................................ 157,352,057
------------
Liabilities:
Payable for:
Investment advisory fee................................. 69,162
Shares of beneficial interest repurchased............... 55,638
Administration fee...................................... 12,978
Accrued expenses and other payables......................... 122,875
------------
Total Liabilities....................................... 260,653
------------
Net Assets.............................................. $157,091,404
============
Composition of Net Assets:
Paid-in-capital............................................. $176,960,111
Net unrealized depreciation................................. (9,742,813)
Accumulated undistributed net investment income............. 2,214,112
Accumulated net realized loss............................... (12,340,006)
------------
Net Assets.............................................. $157,091,404
============
Net Asset Value Per Share,
20,018,872 shares outstanding (unlimited shares authorized
of $.01 par value).......................................... $7.85
============
See Notes to Financial Statements
12
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended November 30, 2004 (unaudited)
Net Investment Income:
Interest Income............................................. $ 5,978,959
-----------
Expenses
Investment advisory fee..................................... 394,831
Administration fee.......................................... 208,379
Transfer agent fees and expenses............................ 42,120
Shareholder reports and notices............................. 19,641
Professional fees........................................... 18,304
Registration fees........................................... 9,839
Custodian fees.............................................. 6,283
Trustees' fees and expenses................................. 3,872
Other....................................................... 12,595
-----------
Total Expenses.......................................... 715,864
Less: expense offset........................................ 6,189
-----------
Net Expenses............................................ 709,675
-----------
Net Investment Income................................... 5,269,284
-----------
Net Realized and Unrealized Gain (Loss):
Net realized loss........................................... (2,162,972)
Net change in unrealized depreciation....................... 5,291,073
-----------
Net Gain................................................ 3,128,101
-----------
Net Increase................................................ $ 8,397,385
===========
See Notes to Financial Statements
13
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 2004 MAY 31, 2004
----------------- ------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 5,269,284 $ 10,642,996
Net realized loss........................................... (2,162,972) (2,478,163)
Net change in unrealized depreciation....................... 5,291,073 (3,072,450)
------------ ------------
Net Increase............................................ 8,397,385 5,092,383
Dividends to shareholders from net investment income........ (4,950,738) (10,327,443)
Decrease from transactions in shares of beneficial
interest.................................................. (2,620,548) (2,707,158)
------------ ------------
Net Increase (Decrease)................................. 826,099 (7,942,218)
Net Assets:
Beginning of period......................................... 156,265,305 164,207,523
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $2,214,112 and $1,895,566, respectively)................. $157,091,404 $156,265,305
============ ============
See Notes to Financial Statements
14
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2004 (UNAUDITED)
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 mean between the last reported bid and
asked price. 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.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (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.
D. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
15
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
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 Adviser"), 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.
Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, calculated weekly and
payable monthly, by applying the annual rate of 0.08% to the Fund's weekly net
assets. Prior to November 1, 2004, the annual rate was 0.30%.
3. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended November 30, 2004 aggregated
$10,497,998 and $13,640,329, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At November 30, 2004, the Fund had transfer agent
fees and expenses payable of approximately $18,800.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and compensation.
Aggregate pension costs for the six months ended November 30, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,757.
At November 30, 2004, the Fund had an accrued pension liability of $61,721 which
is included in accrued expenses
16
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
in the Statement of Assets and Liabilities. On December 2, 2003, the Trustees
voted to close the plan to new participants and eliminate the future benefits
growth due to increases to compensation after July 31, 2003.
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Trustee to defer payment
of all, or a portion, of the fees he receives for serving on the Board of
Trustees. Each eligible Trustee generally may elect to have the deferred amounts
credited with a return equal to the total return on one or more of the Morgan
Stanley funds that are offered as investment options under the Compensation
Plan. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
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, 2003....................................... 20,756,472 $207,564 $186,928,771
Treasury shares purchased and retired (weighted average
discount 5.83%)........................................... (377,200) (3,772) (2,703,386)
Reclassification due to permanent book/tax differences...... -- -- (4,848,518)
---------- -------- ------------
Balance, May 31, 2004....................................... 20,379,272 203,792 179,376,867
Treasury shares purchased and retired (weighted average
discount 4.46%)*.......................................... (360,400) (3,604) (2,616,944)
---------- -------- ------------
Balance, November 30, 2004.................................. 20,018,872 $200,188 $176,759,923
========== ======== ============
---------------------
* 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.
As of May 31, 2004, the Fund had a net capital loss carryforward of $7,279,954
of which $700,037 will expire on May 31, 2006, $87,017 will expire on May 31,
2008, $4,628,820 will
17
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2004 (UNAUDITED) continued
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, 2004, the Fund had temporary book/tax differences attributable to
post-October losses (capital losses incurred after October 31 within the taxable
year which are deemed to arise on the first business day of the Fund's next
taxable year) and book amortization of discount on debt securities.
6. Dividends
The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
------------------ --------- ----------------- -----------------
September 28, 2004 $0.04 December 10, 2004 December 23, 2004
December 28, 2004 $0.0425 January 7, 2005 January 21, 2005
December 28, 2004 $0.0425 February 4, 2005 February 18, 2005
December 28, 2004 $0.0425 March 4, 2005 March 18, 2005
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.
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. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
18
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 SIX FOR THE YEAR ENDED MAY 31
MONTHS ENDED -----------------------------------------------------------------------
NOVEMBER 30, 2004 2004 2003 2002 2001 2000
----------------- ----------- --------- --------- --------- ---------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of
the period.................. $7.67 $ 7.91 $ 7.88 $ 8.03 $ 7.79 $ 8.69
----- ------- ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income*... 0.26 0.52 0.54 0.55 0.55 0.57
Net realized and
unrealized gain (loss).. 0.17 (0.26) 0.04 (0.13) 0.28 (0.85)
----- ------- ------ ------ ------ ------
Total income (loss) from
investment operations....... 0.43 0.26 0.58 0.42 0.83 (0.28)
----- ------- ------ ------ ------ ------
Less dividends from net
investment income........... (0.25) (0.50) (0.55) (0.57) (0.59) (0.62)
----- ------- ------ ------ ------ ------
Net asset value, end of
period...................... $7.85 $ 7.67 $ 7.91 $ 7.88 $ 8.03 $ 7.79
===== ======= ====== ====== ====== ======
Market value, end of
period...................... $7.52 $ 7.09 $ 7.76 $ 8.08 $ 8.53 $ 8.25
===== ======= ====== ====== ====== ======
Total Return+................ 9.66 %(1) (2.34)% 3.09% 1.42% 10.78% (5.94)%
Ratios to Average Net Assets:
Expenses (before expense
offset)..................... 0.91 %(2) 0.94 % 0.93%(3) 0.92% 0.93% 0.93 %
Net investment income........ 6.67 %(2) 6.63 % 6.85% 6.92% 6.95% 6.95 %
Supplemental Data:
Net assets, end of period, in
thousands................... $157,091 $156,265 $164,208 $165,019 $168,062 $163,910
Portfolio turnover rate...... 7 %(1) 10 % 8% 7% 16% 13 %
---------------------
* 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
19
See Notes to Financial Statements
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Joseph J. McAlinden
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
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 SIPC.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Municipal Income
Opportunities Trust
Semiannual Report
November 30, 2004
[MORGAN STANLEY LOGO]
38563RPT-RA05-00035P-Y11/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
----------------------------------------
(d) Maximum Number
(or Approximate
(c) Total Number of Dollar Value) of
Shares (or Units) Shares (or Units)
Purchased as Part that May Yet Be
(a) Total Number of (b) Average Price of Publicly Purchased Under
Shares (or Units) Paid per Share (or Announced Plans or the Plans or
Period Purchased Unit) Programs Programs
------------------ ------------------- ------------------ -------------------- -------------------
June 1, 2004-
June 30, 2004 73,300.00 $7.0141 N/A N/A
July 1, 2004-
July 31, 2004 67,400.00 7.1137 N/A N/A
August 1, 2004-
August 31, 2004 65,600.00 7.2060 N/A N/A
September 1, 2004-
September 30, 2004 37,900.00 7.3445 N/A N/A
October 1, 2004-
October 31, 2004 55,400.00 7.5250 N/A N/A
November 1, 2004-
November 30, 2004 60,800.00 7.5384 N/A N/A
---------- ------- --- ---
Total 360,400.00 $7.2903 N/A N/A
---------- ------- --- ---
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10 - Controls and Procedures
(a) 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.
2
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
3
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
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
January 20, 2005
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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
January 20, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
January 20, 2005
4