<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Strong economic growth in the fourth quarter of 1993 and a shift in Federal
Reserve Board monetary policy during the first half of 1994 resulted in the
sharpest increase in interest rates in more than six years. At the beginning of
the year, market concerns about inflation developed as the economy approached
full employment and commodity prices moved upward. The Federal Reserve Board
responded by tightening monetary policy. Between February and August, the
central bank raised the federal-funds rate -- the interest rate banks charge
each other for overnight loans -- from 3.00 percent to 4.75 percent in five
separate moves. Between May and August, the discount rate -- the interest rate
the Federal Reserve charges member banks for loans -- was increased 100 basis
points to 4.00 percent.
Long-term municipal bond yields, as measured by The Bond Buyer Revenue Bond
Index,* reached a record low 5.41 percent in mid October. Between November and
January, tax-exempt bond yields rose as high as 5.75 percent, but declined on
heavy demand in December and January. The Index yield jumped 89 basis points
from 5.50 percent to 6.39 percent in February and March. Municipal bonds began
to stabilize in the second quarter despite monthly volatility of 15 to 20 basis
points. The Revenue Bond Index reached a high yield of 6.60 percent in early
May, but by the end of August had fallen to 6.43 percent.
The municipal market continued to be influenced by supply and demand
conditions. New-issue underwriting totaled a record $290 billion in 1993. The
pace of new-issue activity over the first eight months of 1994, however, slowed
40 percent to a projected annual rate of $175 billion. By way of comparison,
municipal bond maturities and calls for redemption are expected to reach $190
billion, reducing the amount of debt outstanding. This scarcity helped long-term
municipal securities outperform their U.S. Treasury counterparts through the
summer.
PERFORMANCE
For the six-month period ended August 31, 1994, Municipal Income
Opportunities Trust II paid shareholders tax-free income dividends totaling
$0.30 per share. Over the period, the Fund's net asset value declined from $8.74
to $8.50 per share. Including the reinvestment of all dividends and
distributions, the Fund registered a modest decline of 0.96 percent, based on a
change in New York Stock Exchange (NYSE) market price from $8.125 per share on
February 28, 1994 to $7.75 per share on August 31, 1994. As of August 31, 1994,
the Fund was trading on the NYSE at an 8.82 percent discount to net asset value.
The $7 million Denver Airport bond position was sold in March when it appeared
that the airport opening would experience additional delays. The sale of these
bonds prior to credit downgrades by the rating agencies and further price
erosion helped preserve asset value.
- ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Ratings of these
bonds range from Aa1 to Baa1, as measured by Moody's and AA+ to A-, as
measured by Standard & Poor's.
<PAGE> 2
PORTFOLIO STRUCTURE
Eleven non-performing loans represented 7 percent of the Fund's net assets
at the end of the period. The loans were concentrated in the retirement and life
care facilities, multi-family mortgage and nursing and health related facilities
revenue sectors. Five additional issues, representing another 7 percent of net
assets, are expected to be restructured in the future. While these problem loans
are currently paying interest, project revenues appear insufficient to sustain
current debt-service levels. Over the past six-months, approximately $11 million
in municipal bonds were sold or called for redemption. Substantially all of
these proceeds were reinvested in short-term investments. At the end of the
period, the Fund's net assets exceeded $175 million. The portfolio was
diversified among 10 specific municipal sectors and 57 separate issuers.
Non-rated securities comprised 86 percent of the portfolio. The four largest
municipal sectors were industrial development/pollution control, nursing and
health related facilities, multi-family mortgage and tax allocation revenue
bonds. These sectors represented 66 percent of the net assets. The average
maturity and call protection of the Fund's long-term holdings was 21 years and 6
years, respectively.
LOOKING AHEAD
The overall direction of interest rates will primarily be determined by the
strength of the economy, the trend of inflation and the Federal Reserve Board's
response. These conditions may continue to move interest rates higher. Investor
demand for municipal securities should be sustained by significant bond
maturities and calls. Changing market conditions and the status of problem loans
are among the factors which will determine the Fund's future level of income.
We would like to remind you that the Trustees have approved a procedure
whereby the Fund, when appropriate, may repurchase 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.
We appreciate your ongoing support of Municipal Income Opportunities Trust
II and look forward to continuing to serve your investment needs.
Very truly yours,
C. A. FIUMEFREDDO
----------------------
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------- --------- ---------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (90.8%)
GENERAL OBLIGATION (1.8%)
New York City, New York,
$ 2,000 Ser 1990 D................................................... 5.75 % 8/15/10 $ 1,875,880
1,175 Ser 1990 D (Prerefunded)..................................... 8.50 8/ 1/12 1,284,628
- ---------- --------------
3,175 3,160,508
- ---------- --------------
EDUCATIONAL FACILITIES REVENUE (0.5%)
1,000 New York State Dormitory Authority, State University Ser 1993
A.......................................................... 5.25 5/15/15 871,020
- ---------- --------------
HOSPITAL REVENUE (6.8%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B
COPs....................................................... 9.50 7/ 1/20 2,164,160
Illinois Health Facilities Authority, Hinsdale Hospital
1,885 Ser 1990 C................................................... 9.50 11/15/19 2,186,619
3,115 Ser 1990 C (Prerefunded)..................................... 9.50 11/15/19 3,904,185
1,500 North Central Texas Health Facilities Corporation, University
Medical Center Inc Ser 1987................................ 7.75 4/ 1/17 1,521,090
2,000 Tarrant County Health Facilities Development Corporation,
Texas, Community Health Care Foundation Inc ............... 10.125 4/ 1/11 2,158,940
- ---------- --------------
10,500 11,934,994
- ---------- --------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (22.4%)
1,475 Metropolitan Washington Airports Authority, District of
Columbia, CaterAir International Corp Ser 1991 (AMT)....... 10.125 9/ 1/11 1,539,885
2,000 Chicago, Illinois, Chicago-O'Hare Intl Airport/American
Airlines Inc Ser 1990 A (AMT).............................. 7.875 11/ 1/25 2,032,680
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT)
(a)........................................................ 10.00 8/15/10 1,040,000
Lapeer Economic Development Corporation, Michigan,
Dott Manufacturing Co
2,110 Ser 1989 B (AMT)............................................. 9.00 11/15/19 2,131,100
2,070 Ser 1989 A (AMT)............................................. 10.625 11/15/19 2,253,671
Michigan Strategic Fund, Kasle Steel Corp
1,792 Ser 1989 (AMT)............................................... 9.375 10/ 1/06 1,989,730
5,207 Ser 1989 (AMT)............................................... 9.50 10/ 1/14 5,790,264
1,470 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)....................... 10.625 8/15/19 1,591,246
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser
C.......................................................... 9.875 12/ 1/14 3,471,600
6,000 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT)... 9.00 12/ 1/19 6,064,980
Oklahoma Development Finance Authority, Midway Environmental
Management Co Inc
645 Ser 1990 A (AMT)............................................. 9.50 9/ 1/99 651,450
3,105 Ser 1989 B (AMT)............................................. 9.50 9/ 1/15 3,112,763
3,945 Westmoreland County Industrial Development Authority,
Pennsylvania, Valley Landfill/National Waste Energy Corp
Ser 1989 A (AMT)........................................... 9.75 8/ 1/04 4,198,230
3,400 Carroll County Industrial Development Board, Tennessee,
Henry I Siegel Co Inc Ser 1990 (AMT)....................... 9.90 5/ 1/00 3,574,624
- ---------- --------------
38,819 39,442,223
- ---------- --------------
MORTGAGE REVENUE -- MULTI-FAMILY (11.4%)
Boulder County, Colorado, Village Place at Longmont
3,065 Ser 1989 A (AMT)............................................. 10.125 7/15/19 3,156,950
10,837 Ser 1989 B (AMT)............................................. 0.00 7/15/19 859,680
</TABLE>
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------- --------- ---------------
<C> <S> <C> <C> <C>
$ 1,500 Dade County Housing Finance Authority, Florida, Arena Square
North & South 1989 Ser 2 (AMT) (a)......................... 10.25 % 5/ 1/19 $ 225,000
3,000 Palm Beach County Housing Authority, Florida, Scattered Sites
Ser 1990 (b)............................................... 9.75 6/ 1/20 1,740,000
7,000 Eden Prairie, Minnesota, Fountain Place Apts Phase II Refg
Ser A...................................................... 9.75 7/15/19 4,900,000
Memphis Center City Revenue Finance Corporation, Tennessee,
Riverset Apts Phase II Refg
3,810 Ser 1989 A................................................... 9.50 10/ 1/19 2,628,900
28,148 Ser 1989 B (a)............................................... 0.00 10/ 1/19 562,970
2,800 San Antonio Housing Finance Corporation, Texas, La Posada Del
Rey Ser 1990 A............................................. 10.00 2/ 1/20 2,992,108
Alexandria Redevelopment & Housing Authority, Virginia,
Courthouse Commons Apts
2,000 Ser 1990 A (AMT)............................................. 10.00 1/ 1/21 2,060,000
11,061 Ser 1990 B (AMT)............................................. 0.00 1/ 1/21 851,637
- ---------- --------------
73,221 19,977,245
- ---------- --------------
MORTGAGE REVENUE -- SINGLE FAMILY (3.8%)
3,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)......... 6.40 11/15/23 3,378,725
2,235 Ohio Housing Finance Authority, GNMA-Backed 1988 Ser B
(AMT)...................................................... 8.25 12/15/19 2,364,585
Utah Housing Finance Agency,
555 Ser 1990 A-2 (AMT)........................................... 7.80 7/ 1/10 578,282
410 Ser 1990 A-2 (AMT)........................................... 7.875 7/ 1/22 428,028
- ---------- --------------
6,700 6,749,620
- ---------- --------------
NURSING & HEALTH RELATED FACILITIES REVENUE (20.8%)
2,365 Arkansas Development Finance Authority, Wynwood Nursing
Center Ser 1989 (AMT)...................................... 10.50 11/ 1/19 2,512,056
Vista, California, Long-Term Care Foundation of America
2,820 Series 1994 A COPs (c)....................................... 8.50 1/ 1/20 2,256,124
394 Series 1994 B COPs (c)....................................... 0.00 1/ 1/20 3,938
1,768 North Miami, Florida, Hallmark Homes for Better Living
Foundation Ser 1990 A (a).................................. 10.50 8/ 1/20 88,403
3,965 Monroe County Development Authority, Georgia, Health
Scholarships Inc Ser 1989 A................................ 10.125 9/ 1/19 3,885,700
2,500 Sterling, Illinois, Hoosier Care Inc Ser 1989 A.............. 9.75 8/ 1/19 2,713,925
4,000 Iowa Financial Authority, Mercy Health Initiatives Ser
1989....................................................... 9.95 7/ 1/19 4,209,240
3,340 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990................. 10.25 1/ 1/20 3,555,163
1,500 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/ 1/13 1,519,695
1,100 Massachusetts Health & Educational Facilities Authority,
Farren Care Center 1989 Ser A.............................. 10.375 6/ 1/10 1,268,564
Massachusetts Industrial Finance Agency,
1,330 May Institute for Autistic Children Inc 1990 Issue........... 9.75 6/ 1/10 1,425,547
755 Pioneer Valley Living Care Center at Amherst 1990 Issue...... 7.00 10/ 1/01 634,200
5,000 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Ser 1989...................... 10.125 5/ 1/19 5,302,950
1,490 Maury County Health & Educational Facilities Board,
Tennessee, Southern Healthcare/Heritage Manor of Monteagle
Ser 1990 E................................................. 10.50 3/ 1/20 1,584,362
2,000 Metropolitan Government of Nashville and Davidson County
Health & Educational Facilities Board, Tennessee,
Metro-Nashville Teachers Nursing Facility Inc Ser 1989
(b)........................................................ 10.25 10/ 1/19 1,890,000
</TABLE>
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------- --------- ---------------
<C> <S> <C> <C> <C>
Tarrant County Health Facilities Development Corporation,
Texas, 3927 Foundation Inc
$ 985 Ser 1989..................................................... 10.00 % 9/ 1/99 $ 1,051,576
2,500 Ser 1989..................................................... 10.125 9/ 1/09 2,714,300
- ---------- --------------
37,812 36,615,743
- ---------- --------------
PUBLIC FACILITIES REVENUE (2.7%)
3,000 Geo L Smith II Georgia World Congress Center Authority,
Georgia, Domed Stadium Ser 1990 (AMT)...................... 7.875 7/ 1/20 3,287,550
2,500 Irwin County, Georgia, COPs (a).............................. 9.50 12/ 1/10 1,500,000
2,360 LaSalle County Jail Facilities Finance Corporation, Texas,
Criminal Detention Center (a).............................. 9.75 8/ 1/09 24
- ---------- --------------
7,860 4,787,574
- ---------- --------------
RETIREMENT & LIFE CARE FACILITIES REVENUE (9.5%)
2,200 Pima County Industrial Development Authority, Arizona,
Country Club of La Cholla Ser 1990 (AMT)................... 8.50 7/ 1/20 2,090,000
1,500 Colorado Health Facilities Authority, Liberty Heights Ser A
(a)........................................................ 10.00 7/ 1/19 825,000
5,045 Massachusetts Industrial Finance Agency, Greater Lynn Special
Needs Housing Corp & Mental Health & Retardation Assn
1990 Issue................................................. 9.875 6/ 1/10 5,435,685
3,000 Independence Industrial Development Authority, Missouri,
Greenbriar Meadows Ser A (AMT) (b)......................... 10.25 8/ 1/19 1,800,000
1,145 Charlotte Housing Authority, North Carolina, Merrywood Senior
Adult Community Ser 1989 A (AMT)........................... 9.75 5/ 1/19 1,145,000
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993................... 7.125 12/15/18 1,907,820
Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Proj #4 (b)
5,750 Ser 1991 A................................................... 10.625 7/ 1/16 3,450,000
800 Ser 1991 A................................................... 0.00 7/ 1/17 26,560
800 Ser 1991 A................................................... 0.00 7/ 1/18 24,080
800 Ser 1991 A................................................... 0.00 7/ 1/19 21,472
800 Ser 1991 A................................................... 0.00 7/ 1/20 19,352
800 Ser 1991 A................................................... 0.00 7/ 1/21 17,304
- ---------- --------------
24,640 16,762,273
- ---------- --------------
TAX ALLOCATION (11.1%)
2,390 Bedford Park, Illinois, First Lien Ser 1990 (Prerefunded).... 9.70 1/ 1/10 2,816,352
6,185 Carol Stream, Illinois, Carol Pointe Ser 1990 A.............. 9.50 1/15/10 6,636,134
Hodgkins, Illinois,
1,500 Ser 1991..................................................... 9.50 12/ 1/09 1,634,010
4,000 Second Lien Ser 1990 (Prerefunded)........................... 9.50 12/15/09 4,945,560
1,160 Madison Heights Tax Increment Finance Authority, Michigan,
Ser 1991................................................... 8.50 3/15/01 1,197,328
2,045 Muskegon Downtown Development Authority, Michigan, Ltd Oblig
1989 Ser A-1 (c)........................................... 9.75 6/ 1/18 2,329,012
- ---------- --------------
17,280 19,558,396
- ---------- --------------
221,007 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $167,318,924).................................. 159,859,596
- ---------- --------------
</TABLE>
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------- --------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS (6.9%)
$ 3,600 Harris County, Texas, Health Facilities Development Corp
St Luke's Episcopal Hospital 1992 A (Tender 9/1/94)........ 3.15 * 2/15/21 $ 3,600,000
8,500 Washington Health Care Facilities Authority, Fred Hutchinson
Cancer Hospital Ser A (Tender 9/1/94)...................... 3.10 * 1/ 1/18 8,500,000
- ---------- --------------
12,100 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $12,100,000)....................................................... 12,100,000
- ---------- --------------
$ 233,107 TOTAL INVESTMENTS (IDENTIFIED COST $179,418,924) (D).................... 97.7% 171,959,596
=========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 2.3 3,965,491
------ -------------
NET ASSETS.............................................................. 100.0% $ 175,925,087
----- -------------
----- -------------
- ---------------
<FN>
AMT Alternative Minimum Tax
COPs Certificates of Participation
* Variable or floating rate securities. Coupon rate shown reflects current
rate.
(a) Bond in default, non-income producing.
(b) Bond in default.
(c) Resale is restricted to qualified institutional investors.
(d) The aggregate cost for federal income tax purposes is $179,418,924; the
aggregate gross unrealized appreciation is $9,340,739 and the aggregate
gross unrealized depreciation is $16,800,067, resulting in net unrealized
depreciation of $7,459,328.
</TABLE>
See Notes to Financial Statements
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Arizona........... 1.2%
Arkansas.......... 1.4
California........ 2.5
Colorado.......... 2.8
District of
Columbia........ 0.9
Florida........... 1.2
Georgia........... 4.9
Illinois.......... 15.3
Iowa.............. 4.4
Louisiana......... 0.9
Maine............. 1.9
Massachusetts..... 5.6
Michigan.......... 9.8
Minnesota......... 2.8
Mississippi....... 2.0
Missouri.......... 1.0
New York.......... 2.3
North Carolina.... 0.6
Ohio.............. 6.0
Oklahoma.......... 2.1
Pennsylvania...... 5.4
Tennessee......... 5.8
Texas............. 7.8
Utah.............. 0.6
Virginia.......... 3.7
Washington........ 4.8
----
Total............. 97.7%
====
</TABLE>
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1994 (unaudited)
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $179,418,924) (Note
1)....................................... $ 171,959,596
Cash....................................... 48,956
Receivable for:
Interest................................. 3,820,147
Investments sold......................... 341,718
Prepaid expenses and other assets.......... 16,249
-------------
TOTAL ASSETS....................... 176,186,666
-------------
LIABILITIES:
Payable for:
Investment advisory fee (Note 2)......... 79,729
Administration fee (Note 3).............. 47,845
Shares of beneficial interest repurchased
(Note 6)............................... 47,430
Accrued expenses (Note 4).................. 86,575
-------------
TOTAL LIABILITIES.................. 261,579
-------------
NET ASSETS:
Paid-in-capital............................ 192,661,711
Accumulated net realized loss on
investments.............................. (10,488,188)
Net unrealized depreciation on
investments.............................. (7,459,328)
Accumulated undistributed net investment
income................................... 1,210,892
-------------
NET ASSETS......................... $ 175,925,087
=============
NET ASSET VALUE PER SHARE,
20,703,007 shares outstanding (unlimited
shares authorized of $.01 par value)..... $8.50
-----
-----
STATEMENT OF OPERATIONS
For the six months ended August 31, 1994 (unaudited)
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 7,312,599
-------------
EXPENSES
Investment advisory fee (Note 2)......... 448,149
Administration fee (Note 3).............. 268,890
Professional fees........................ 67,533
Transfer agent fees and expenses......... 44,483
Shareholder reports and notices (Note
4)..................................... 17,632
Registration fees........................ 16,438
Trustees' fees and expenses (Note 4)..... 15,915
Organizational expenses (Note 1)......... 2,804
Other.................................... 18,380
-------------
TOTAL EXPENSES......................... 900,224
-------------
NET INVESTMENT INCOME................ 6,412,375
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 1):
Net realized loss on investments......... (7,691,271)
Net change in unrealized depreciation on
investments............................ 2,366,048
-------------
NET LOSS ON INVESTMENTS................ (5,325,223)
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......... $ 1,087,152
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
six months ended For the
August 31, 1994 year ended
(unaudited) February 28, 1994
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................. $ 6,412,375 $ 13,210,042
Net realized loss on investments...................................... (7,691,271) (2,795,645)
Net change in unrealized depreciation on investments.................. 2,366,048 (5,926,523)
---------------- ----------------
Net increase in net assets resulting from operations.............. 1,087,152 4,487,874
---------------- ----------------
Dividends to shareholders from net investment income.................... (6,221,175) (12,442,624)
Net decrease from transactions in shares of beneficial interest (Note
6).................................................................... (277,179) - 0 -
---------------- ----------------
Total decrease.................................................... (5,411,202) (7,954,750)
---------------- ----------------
NET ASSETS:
Beginning of period..................................................... 181,336,289 189,291,039
---------------- ----------------
END OF PERIOD (including undistributed net investment income of
$1,210,892 and $1,019,692, respectively)............................... $ 175,925,087 $ 181,336,289
================ ================
</TABLE>
See Notes to Financial Statements
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Municipal Income Opportunities Trust
II (the "Fund") is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The Fund
was organized as a Massachusetts business trust on March 8, 1989 and commenced
operations on June 30, 1989.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued for the Fund
by an outside independent pricing service approved by the Trustees. The
pricing service has informed the Fund that in valuing the Fund's portfolio
securities, it 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 Fund's 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.
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 on the identified cost
method. Premiums and discounts on securities purchased are amortized over
the life of the respective securities. Interest income is accrued daily
except where collection is not expected.
C. Federal Income Tax Status -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
D. Dividends and Distributions to Shareholders -- The Fund records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To the
extent they exceed net investment income and net realized capital gains for
tax purposes, they are reported as distributions of paid-in-capital.
E. Organizational Expenses -- The Fund's Investment Adviser paid the
organizational expenses of the Fund in the amount of $42,522 which were
fully amortized as of June 30, 1994.
2. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement with Dean Witter InterCapital Inc. (the "Investment Adviser"), the
Fund pays its Investment Adviser an advisory fee, calculated weekly and payable
monthly, by applying the annual rate of 0.50% to the Fund's average weekly net
assets.
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT -- Pursuant to an Administration Agreement with
Dean Witter 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 0.30% to the Fund's average
weekly net assets.
Under the terms of the Administration Agreement, the Administrator
maintains certain of the Fund's books and records and furnishes, at its own
expense, office space, facilities, equipment, clerical, bookkeeping and certain
legal services and pays the salaries of all personnel, including officers of the
Fund who are employees of the Administrator. The Administrator also bears the
cost of telephone services, heat, light, power and other utilities provided to
the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the six months ended August 31, 1994 aggregated $3,279,645 and
$12,890,313, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser, is the
Fund's transfer agent. At August 31, 1994, the Fund had transfer agent fees and
expenses payable of approximately $13,000.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Fund who will have
served as an independent Trustee for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the six months ended August 31, 1994, included in Trustees' fees and expenses in
the Statement of Operations amounted to $4,082. At August 31, 1994, the Fund had
an accrued pension liability of $44,488 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Fund by virtue of a common Trustee
and Director of Bowne & Co., Inc. During the six months ended August 31, 1994,
the Fund paid Bowne & Co., Inc. $3,598 for printing of shareholder reports.
5. FEDERAL INCOME TAX STATUS -- At February 28, 1994, the Fund had a net
capital loss carryover of approximately $3,800 which will be available through
February 28, 2002 to offset future capital gains to the extent provided by
regulations. Any net capital losses incurred after October 31 ("Post-October
losses") within the taxable year are deemed to arise on the first business day
of the Fund's next taxable year. The Fund incurred and will elect to defer net
capital losses of approximately $2,793,000 for fiscal 1994. To the extent that
these loss carryovers are used to offset future capital gains, it is probable
that the gains so offset will not be distributed to shareholders. For the six
months ended August 31, 1994, the Fund incurred approximately $7,691,000 of net
capital losses.
At February 28, 1994, the Fund had temporary book/tax differences primarily
attributable to Post-October losses.
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
6. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Capital Paid
Par Value in Excess of
Shares of Shares Par Value
----------- --------- -------------
<S> <C> <C> <C>
Balance, February 28, 1993 and February 28, 1994..... 20,737,707 $ 207,378 $ 192,731,751
Treasury shares purchased and retired (weighted
average discount 5.80%)*........................... (34,700) (347) (276,832)
----------- --------- -------------
Balance, August 31, 1994............................. 20,703,007 $ 207,031 $ 192,454,919
========== ========= =============
- ---------------
<FN>
* The Trustees have voted to retire the shares repurchased.
</TABLE>
7. DIVIDENDS -- The Fund has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
Declaration Amount Record Payable
Date per Share Date Date
- ------------------- ---------- ------------------ -------------------
<S> <C> <C> <C>
August 30, 1994 $0.05 September 9, 1994 September 23, 1994
September 27, 1994 $0.05 October 7, 1994 October 21, 1994
</TABLE>
8. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------------
8/31/94 5/31/94
----------------- -----------------
Per Per
Total Share Total Share
------- ------ ------- ------
<S> <C> <C> <C> <C>
Total investment income................................. $ 3,682 $ 0.18 $ 3,631 $ 0.18
Net investment income................................... 3,231 0.16 3,181 0.15
Net realized and unrealized loss on investments......... (2,334) (0.11) (2,991) (0.14)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------------------------------------------------
2/28/94 11/30/93 8/31/93 5/31/93
---------------- ---------------- ---------------- ----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income....... $ 3,481 $ 0.17 $ 3,817 $ 0.18 $ 4,039 $ 0.20 $ 3,744 $ 0.18
Net investment income......... 3,002 0.14 3,364 0.16 3,560 0.17 3,284 0.16
Net realized and unrealized
gain (loss) on
investments................. (3,326) (0.16) (1,855) (0.09) 2,326 0.11 (5,867) (0.28)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------------------------------------------------
2/28/93 11/30/92 8/31/92 5/31/92
---------------- ---------------- ---------------- ----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income....... $ 3,862 $ 0.19 $ 4,020 $ 0.19 $ 4,011 $ 0.20 $ 4,302 $ 0.20
Net investment income......... 3,350 0.15 3,502 0.17 3,464 0.17 3,778 0.18
Net realized and unrealized
gain (loss) on
investments................. 3,724 0.20 (1,260) (0.05) (3,284) (0.16) (1,517) (0.07)
- ---------------
<FN>
* Totals expressed in thousands of dollars.
</TABLE>
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the six For the period
months ended For the year ended February 28, June 30, 1989*
August 31, 1994 -------------------------------------------- through
(unaudited)*** 1994 1993 1992** 1991 February 28, 1990
--------------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 8.74 $ 9.13 $ 9.23 $ 9.28 $ 9.34 $ 9.30
------------- -------- -------- -------- -------- -------------
Net investment income............... 0.31 0.63 0.67 0.73 0.75 0.39
Net realized and unrealized gain
(loss) on investments............. (0.25) (0.42) (0.08) -0- (0.06) 0.01
------------- -------- -------- -------- -------- -------------
Total from investment operations.... 0.06 0.21 0.59 0.73 0.69 0.40
------------- -------- -------- -------- -------- -------------
Less dividends, distributions and
other charges:
Dividends from net investment
income.......................... (0.30) (0.60) (0.68) (0.78) (0.74) (0.34)
Distributions from net realized
gain on investments............. -0- -0- (0.01) -0- (0.01) -0-
Offering costs charged against
capital......................... -0- -0- -0- -0- -0- (0.02)
------------- -------- -------- -------- -------- -------------
Total dividends, distributions and
other charges..................... (0.30) (0.60) (0.69) (0.78) (0.75) (0.36)
------------- -------- -------- -------- -------- -------------
Net asset value, end of period...... $ 8.50 $ 8.74 $ 9.13 $ 9.23 $ 9.28 $ 9.34
============= ======== ======== ======== ======== =============
Market value, end of period......... $ 7.75 $ 8.125 $ 8.75 $ 9.875 $ 9.375 $ 9.25
============= ======== ======== ======== ======== =============
TOTAL INVESTMENT RETURN+............ (0.96%)(1) (0.36%) (4.42%) 14.42% 9.87% (4.15%)(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).................... $ 175,925 $181,336 $189,291 $194,251 $190,386 $ 189,980
Ratio of expenses to average net
assets............................ 1.00%(2) 1.01% 1.11% 1.06% 1.06% 1.07%(2)
Ratio of net investment income to
average net assets................ 7.15%(2) 7.13% 7.42% 7.87% 7.99% 6.26%(2)
Portfolio turnover rate............. 2% 6% 3% 5% 34% 0%
- ---------------
<FN>
* Commencement of operations.
** For the year ended February 29, 1992.
*** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect sales charges or brokerage
commissions.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST II
SEMIANNUAL REPORT
AUGUST 31, 1994
