<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS August 31, 1995
DEAR SHAREHOLDER:
MARKET SUMMARY
Bond market conditions have improved steadily since late last year.
Progressive tightening of Federal Reserve Board monetary policy over the 12
months through February 1995 led to slower economic growth and caused bonds to
rally. The move toward lower long-term interest rates this year reversed 1994's
prevailing trend of rapidly rising rates.
Long-term municipal bond yields, as tracked by The Bond Buyer Revenue Bond
Index*, moved from a high of 7.37 percent in November 1994 to 6.26 percent at
the end of August 1995. This 111 basis point decline in yield corresponded to a
9 percent price increase for callable municipal bonds with 30-year maturities.
Tax-exempt bonds outperformed U.S. Treasury bonds in early 1995. The ratio of
the Revenue Bond Index yield to the 30-year U.S. Treasury bond yield moved from
a high of 89 percent in December 1994 to 84 percent by the end of February 1995.
A declining ratio means that municipal bond prices have been stronger than U.S.
Treasury prices.
Tax reform proposals advocating the flat-tax concept were introduced in Congress
in the wake of the mid-term elections. The risk of eventual
passage of comprehensive changes in the tax code caused municipals to adjust in
relation to Treasuries. By the end of August, the ratio of the Revenue Bond
Index yield to the 30-year U.S. Treasury bond yield had risen to 94 percent.
The pace of new-issue underwriting over the first eight months of 1995 declined
25 percent compared to the same period last year. With bond maturities and calls
for redemption estimated to exceed new issues coming to market in 1995, the
outstanding supply of municipal securities is
expected to decline for the second year in a row. The resulting demand for
tax-free securities has tended to counteract the uncertainty created by flat tax
proposals.
- ---------------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of
25 selected municipal revenue bonds with 30-year maturities. Credit ratings
of these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS, continued
PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust II (OIB) rose
from $8.66 to $8.80 per share during the six month period ended August 31, 1995.
Based on this NAV change plus reinvestment of tax-free dividends totaling $0.30
per share, the Fund's total NAV return for the period was 5.46 percent. OIB's
market price on the New York Stock Exchange began and ended the period at $8.00
per share. Based on this value and reinvestment of dividends, the Fund's total
market return for the six-month period was 3.78 percent. At the end of August,
the Fund had undistributed net investment income of $0.13 per share, an increase
of $0.04 per share over the past six months. This dividend reserve or "cushion"
has been accumulated to better sustain future dividends. OIB's market price
began the period trading at a 7.6 percent discount to NAV and ended at a 9.1
percent discount.
PORTFOLIO STRUCTURE
Progress continues in reducing problem loans which are not accruing interest or
which face restructuring. Four loans representing less than one percent of net
assets are not accruing interest. This compares with six loans totaling two
percent of net assets that were non earning in February. An additional seven
loans totaling 11 percent of net assets continued to accrue income but are
considered problems. In February, nine loans aggregating 17 percent of net
assets were in this risk category.
As of August 31, 1995, the Fund had net assets in excess of approximately $176
million. The long-term portfolio was diversified among 13 municipal sectors and
58 separate credits. The two largest municipal sectors -- industrial
development/pollution control revenue and nursing & health related facilities
revenue -- represented 45 percent of net assets. The average maturity and call
protection of the Fund's long-term holdings was 20 and 7 years, respectively.
LOOKING AHEAD
The slower pace of economic growth in 1995 and the Federal Reserve Board's
previous interest rate moves have improved bond market expectations. The
decreasing supply of new issues combined with significant maturities and calls
for redemption should continue to be positive for the municipal market. However,
tax-reduction proposals may continue to receive publicity and cloud the outlook
for tax-exempt bonds. With long-term municipals yielding more than 90 percent of
the yield on Treasuries, the market has begun the process of discounting the
risk that a flat tax will eventually become law.
Among the factors that will determine the Fund's future dividend level are
changes in market yields and the sale, redemption or restructuring of older,
higher-yielding portfolio holdings. The Fund continues to gradually upgrade its
portfolio by purchasing more investment-grade bonds than non-rated securities.
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS, continued
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund, when
appropriate, may 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. During the six-month period ended August 31,
1995, OIB purchased and retired 139,800 shares of common stock at weighted
average market discount of 7.51 percent.
We appreciate your ongoing support of Municipal Income Opportunities Trust II
and look forward to continuing to serve your investment needs.
Very truly yours,
/S/ C. FIUMEFREDDO
- ---------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (96.7%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D...................................... 5.75 % 08/15/10 $ 1,898,080
- -------- ----------
Educational Facilities Revenue (0.5%)
1,000 New York State Dormitory Authority, State University Ser 1993 A.......... 5.25 05/15/15 898,970
- -------- ----------
Hospital Revenue (7.3%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs............ 9.50 07/01/20 2,186,300
1,885 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C....... 9.50 11/15/19 2,208,259
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G - 1.................................. 6.25 12/01/14 2,003,120
3,000 Dana Farber Cancer Institute Ser G - 1.................................. 6.25 12/01/22 2,964,780
1,500 North Central Texas Health Facilities Development Corporation, University
Medical Center Inc Ser 1987............................................. 7.75 04/01/17 1,550,730
2,000 Tarrant County Health Facilities Development Corporation, Texas,
Community Health Care Foundation Inc.................................... 10.125 04/01/11 2,044,440
- -------- ----------
12,385 12,957,629
- -------- ----------
Industrial Development/Pollution Control Revenue (22.4%)
1,350 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT).............................. 10.125 09/01/11 1,414,192
2,000 Chicago, Illinois, Chicago-O'Hare Intl Airport/American Airlines Inc
Ser 1990 A (AMT)........................................................ 7.875 11/01/25 2,141,140
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT) (c)............. 4.00 08/15/10 1,560,000
Lapeer Economic Development Corporation, Michigan, Dott Manufacturing Co
2,095 Ser 1989 B (AMT)........................................................ 9.00 11/15/19 2,105,475
2,055 Ser 1989 A (AMT)........................................................ 10.625 11/15/19 2,263,439
Michigan Strategic Fund, Kasle Steel Corp
1,715 Ser 1989 (AMT).......................................................... 9.375 10/01/06 1,857,470
5,207 Ser 1989 (AMT).......................................................... 9.50 10/01/14 5,728,202
1,455 Sanilac County Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 (AMT)......................................... 10.625 08/15/19 1,607,717
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C............. 9.875 12/01/14 3,518,820
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT)............... 9.00 12/01/19 3,533,880
Oklahoma Development Finance Authority, Midway Environmental Management
Co Inc
3,105 Ser 1989 B (AMT)........................................................ 9.50 09/01/15 3,105,000
520 Ser 1990 A (AMT)........................................................ 9.50 09/01/99 525,200
1,000 Beaver County Industrial Development Authority, Pennsylvania, Cleveland
Illuminating Co Refg Ser 1995........................................... 7.625 05/01/25 1,021,130
3,000 Pennsylvania Economic Development Financing Authority, MacMillan Bloedel
Ltd Ser 1995 (AMT)...................................................... 7.60 12/01/20 3,240,990
3,695 Westmoreland County Industrial Development Authority, Pennsylvania,
Valley Landfill/National Waste Energy Corp Ser 1989 A (AMT)............. 9.75 08/01/04 3,989,750
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)........ 7.00 07/15/25 2,030,360
- -------- ----------
38,297 39,642,765
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Mortgage Revenue - Multi-Family (10.9%)
Boulder County, Colorado, Village Place at Longmont
$ 3,065 Ser 1989 A (AMT)........................................................ 10.125% 07/15/19 $ 3,175,769
10,837 Ser 1989 B (AMT)........................................................ 0.00 07/15/19 969,132
3,000 Palm Beach County Housing Authority, Florida, Scattered Sites Ser 1990
(b)..................................................................... 9.75 06/01/20 1,410,000
7,000 Eden Prairie, Minnesota, Fountain Place Apts Phase II Refg Ser A......... 9.75 07/15/19 4,620,000
Memphis Center City Revenue Finance Corporation, Tennessee, Riverset Apts
Phase II Refg
3,810 Ser 1989 A.............................................................. 9.50 10/01/19 2,819,400
28,148 Ser 1989 B (a).......................................................... 0.00 10/01/19 281,485
2,775 San Antonio Housing Finance Corporation, Texas, La Posada Del Rey Ser
1990 A.................................................................. 10.00 02/01/20 2,998,942
Alexandria Redevelopment & Housing Authority, Virginia, Courthouse
Commons Apts
2,000 Ser 1990 A (AMT)........................................................ 10.00 01/01/21 2,000,000
10,973 Ser 1990 B (AMT)........................................................ 0.00 01/01/21 882,528
- -------- ----------
71,608 19,157,256
- -------- ----------
Mortgage Revenue - Single Family (3.7%)
3,500 Maine Housing Authority, Purchase Ser 1990 A-4 (AMT)..................... 6.40 11/15/23 3,467,975
1,980 Ohio Housing Finance Authority, GNMA-Backed 1988 Ser B (AMT)............. 8.25 12/15/19 2,129,530
Utah Housing Finance Agency,
490 Ser 1990 A-2 (AMT)...................................................... 7.80 07/01/10 505,567
360 Ser 1990 A-2 (AMT)...................................................... 7.875 07/01/22 377,017
- -------- ----------
6,330 6,480,089
- -------- ----------
Nursing & Health Related Facilities Revenue (22.4%)
2,365 Arkansas Development Finance Authority, Wynwood Nursing Center Ser 1989
(AMT)................................................................... 10.50 11/01/19 2,544,835
Vista, California, Long-Term Care Foundation of America
2,785 Ser 1994 A COPs (d)..................................................... 8.50 01/01/20 2,227,856
343 Ser 1994 B COPs (d)..................................................... 0.00 01/01/20 3,433
1,768 North Miami, Florida, Hallmark Homes for Better Living Foundation Ser
1990 A (a).............................................................. 10.50 08/01/20 53,042
3,965 Monroe County Development Authority, Georgia, Health Scholarships Inc Ser
1989 A.................................................................. 10.125 09/01/19 3,885,700
2,470 Sterling, Illinois, Hoosier Care Inc Ser 1989 A.......................... 9.75 08/01/19 2,701,143
4,000 Iowa Financial Authority, Mercy Health Initiatives Ser 1989.............. 9.95 07/01/19 4,220,200
3,340 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990............................. 10.25 01/01/20 3,392,071
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993..................................... 8.375 10/01/13 1,560,780
1,100 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1989 Ser A....................................................... 10.375 06/01/10 1,265,363
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Massachusetts Industrial Finance Agency,
$ 4,905 Greater Lynn Special Needs Housing Corp & Mental Health & Retardation
Assn 1990 Issue......................................................... 9.875% 06/01/10 $ 5,318,786
1,290 May Institute for Autistic Children Inc 1990 Issue....................... 9.75 06/01/10 1,392,039
290 Pioneer Valley Living Care Center at Amherst 1990 Issue.................. 7.00 10/01/01 258,100
77 Pioneer Valley Living Care Center at Amherst 1990 Issue.................. 0.00 10/01/20 1,535
4,945 Chester County Industrial Development Authority, Pennsylvania, RHA/PA
Nursing Ser 1989........................................................ 10.125 05/01/19 5,387,429
1,480 Maury County Health & Educational Facilities Board, Tennessee, Southern
Healthcare/Heritage Manor of Monteagle Ser 1990 E....................... 10.50 03/01/20 1,662,780
Tarrant County Health Facilities Development Corporation, Texas,
825 3927 Foundation Inc Ser 1989............................................ 10.00 09/01/99 910,668
2,500 3927 Foundation Inc Ser 1989............................................ 10.125 09/01/09 2,732,725
- -------- ----------
39,948 39,518,485
- -------- ----------
Public Facilities Revenue (1.9%)
3,000 Geo L Smith II Georgia World Congress Center Authority, Georgia, Domed
Stadium Ser 1990 (AMT).................................................. 7.875 07/01/20 3,298,920
2,360 La Salle County Jail Facilities Finance Corporation, Texas, Criminal
Detention Center (a).................................................... 9.75 08/01/09 24
- -------- ----------
5,360 3,298,944
- -------- ----------
Resource Recovery Revenue (4.1%)
Greater Detroit Resource Recovery Authority, Michigan,
3,000 Ser E................................................................... 9.25 12/13/08 3,127,140
4,000 Ser H................................................................... 9.25 12/13/08 4,169,520
- -------- ----------
7,000 7,296,660
- -------- ----------
Retirement & Lifecare Facilities Revenue (5.7%)
2,200 Pima County Industrial Development Authority, Arizona, Country Club of
La Cholla Ser 1990 (AMT)................................................ 8.50 07/01/20 2,091,056
1,500 Colorado Health Facilities Authority, Liberty Heights Ser A (a).......... 10.00 07/01/19 825,000
1,145 Charlotte Housing Authority, North Carolina, Merrywood Senior Adult
Community Ser 1989 A (AMT).............................................. 9.75 05/01/19 1,145,000
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993............................... 7.125 12/15/18 1,954,200
Chesterfield County Industrial Development Authority, Virginia,
Brandermill Woods Proj #4 (c)
5,750 Ser 1991 A.............................................................. 4.00 07/01/16 4,025,000
800 Ser 1991 A.............................................................. 0.00 07/01/17 16,000
800 Ser 1991 A.............................................................. 0.00 07/01/18 16,000
800 Ser 1991 A.............................................................. 0.00 07/01/19 16,000
800 Ser 1991 A.............................................................. 0.00 07/01/20 16,000
800 Ser 1991 A.............................................................. 0.00 07/01/21 16,000
- -------- ----------
16,595 10,120,256
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Allocation (6.7%)
$ 1,180 Bridgeview, Illinois, Tax Increment Refg Ser 1995........................ 9.00 % 01/01/11 $ 1,251,130
6,060 Carol Stream, Illnois, Carol Pointe Ser 1990 A........................... 9.50 01/15/10 6,687,089
500 Hodgkins, Illinois, Ser 1991............................................. 9.50 12/01/09 564,220
1,025 Madison Heights Tax Increment Finance Authority, Michigan, Ser 1991...... 8.50 03/15/01 1,068,460
2,022 Muskegon Downtown Development Authority, Michigan, Ltd Oblig 1989 Ser A-1
(d)..................................................................... 9.75 06/01/18 2,337,689
- -------- ----------
10,787 11,908,588
- -------- ----------
Transportation Facilities Revenue (2.8%)
Foothills/Eastern Transportation Corridor Agency, California,
2,000 Toll Road Sr Lien Ser 1995 A............................................ 0.00 01/01/13 1,101,040
2,000 Toll Road Sr Lien Ser 1995 A............................................ 6.00 01/01/34 1,822,760
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A..... 6.00 10/01/13 1,931,440
- -------- ----------
6,000 4,855,240
- -------- ----------
Refunded (7.2%)
2,305 Bedford Park, Illinois, First Lien Ser 1990.............................. 9.70 01/01/10 2,827,566
Hodgkins, Illinois,
1,000 Ser 1991................................................................ 9.50 12/01/09 1,261,390
4,000 Second Lien Ser 1990..................................................... 9.50 12/15/09 4,949,760
3,040 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C....... 9.50 11/15/19 3,752,637
- -------- ----------
10,345 12,791,353
- -------- ----------
227,655 TOTAL MUNICIPAL BONDS (Identified Cost $171,783,978)............................................. 170,824,315
- -------- ----------
SHORT-TERM MUNICIPAL OBLIGATION (0.9%)
1,600 Louisiana Offshore Terminal Authority, LOOP Inc Ser 1992 A (Demand
- -------- 09/01/95) (Identified Cost $1,600,000).................................. 3.45* 09/01/08 1,600,000
----------
$229,255 TOTAL INVESTMENTS (Identified Cost $173,383,978) (e).................................... 97.6% 172,424,315
- --------
- --------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 2.4 4,316,944
---- ----------
NET ASSETS............................................................................... 100.0% $176,741,259
====== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Current coupon of variable rate security.
(a) Bond in default; non-income producing.
(b) Bond in default.
(c) Bond restructured.
(d) Resale is restricted to qualified institutional investors.
(e) The aggregate cost for federal income tax purposes is $173,832,878; the
aggregate gross unrealized appreciation is $10,203,803 and the aggregate
gross unrealized depreciation is $11,612,366, resulting in net
unrealized depreciation of $1,408,563.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1995 (unaudited) continued
------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percentage of Net Assets
August 31, 1995 (unaudited)
<TABLE>
<S> <C>
Arizona............ 1.2%
Arkansas........... 1.4
California......... 4.1
Colorado........... 2.8
District of
Columbia.......... 0.8
Florida............ 1.9
Georgia............ 4.1
Illinois........... 16.0
Iowa............... 4.3
Louisiana.......... 1.8%
Maine.............. 2.0
Massachusetts...... 8.3
Michigan........... 13.7
Minnesota.......... 2.6
Mississippi........ 2.0
New York........... 1.6
North Carolina..... 0.6
Ohio............... 4.3
Oklahoma........... 2.0%
Pennsylvania....... 7.7
Tennessee.......... 2.7
Texas.............. 5.8
Utah............... 0.5
Virginia........... 3.9
West Virginia...... 1.5
---
Total.............. 97.6%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $173,383,978)....................................... $172,424,315
Cash.................................................................. 102,449
Receivable for:
Interest.......................................................... 3,885,707
Investments sold.................................................. 495,206
Prepaid expenses and other assets..................................... 48,096
----------
TOTAL ASSETS...................................................... 176,955,773
----------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 81,916
Administration fee................................................ 49,150
Accrued expenses and other payables................................... 83,448
----------
TOTAL LIABILITIES................................................. 214,514
----------
NET ASSETS:
Paid-in-capital....................................................... 187,959,380
Net unrealized depreciation........................................... (959,663)
Accumulated undistributed net investment income....................... 2,648,549
Accumulated net realized loss......................................... (12,907,007)
----------
NET ASSETS........................................................ $176,741,259
============
NET ASSET VALUE PER SHARE,
20,080,507 shares outstanding (unlimited shares authorized
of $.01 par value)................................................... $8.80
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended August 31, 1995 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $7,681,057
--------
EXPENSES
Investment advisory fee................................................. 443,427
Administration fee...................................................... 266,057
Professional fees....................................................... 69,480
Transfer agent fees and expenses........................................ 35,614
Shareholder reports and notices......................................... 21,423
Trustees' fees and expenses............................................. 17,029
Registration fees....................................................... 16,627
Other................................................................... 26,870
--------
TOTAL EXPENSES...................................................... 896,527
--------
NET INVESTMENT INCOME............................................... 6,784,530
--------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss....................................................... (1,176,454)
Net change in unrealized depreciation................................... 3,265,907
--------
NET GAIN............................................................ 2,089,453
--------
NET INCREASE............................................................ $8,873,983
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED
ENDED FEBRUARY 28,
AUGUST 31, 1995 1995
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.......................... $ 6,784,530 $ 13,249,628
Net realized loss.............................. (1,176,454) (8,933,636)
Net change in unrealized depreciation.......... 3,265,907 5,599,806
------------ -----------
NET INCREASE............................... 8,873,983 9,915,798
------------ -----------
Dividends to shareholders from net investment
income......................................... (6,045,749) (12,359,552)
Net decrease from transactions in shares of
beneficial interest........................... (1,125,281) (3,854,229)
------------ -----------
TOTAL INCREASE (DECREASE).................. 1,702,953 (6,297,983)
NET ASSETS:
Beginning of period............................ 175,038,306 181,336,289
------------ -----------
END OF PERIOD
(Including undistributed net investment
income of $2,648,549 and $1,909,768,
respectively).............................. $ 176,741,259 $ 175,038,306
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1995 (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 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. 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 and premiums 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
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1995 (unaudited) continued
are reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with 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.
Under the terms of the Advisory 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"), 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, 1995 aggregated
$20,071,240 and $9,517,005, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At August 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $6,200.
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 six months ended August 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,049. At August 31, 1995, the Fund had
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1995 (unaudited) continued
an accrued pension liability of $53,347 which is included in accrued expenses in
the Statement of Assets and Liabilities.
5. FEDERAL INCOME TAX STATUS
At February 28, 1995, the Fund had a net capital loss carryover of approximately
$10,485,000 of which $4,000 will be available through February 28, 2002 and
$10,481,000 will be available through February 28, 2003 which may be used 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 $1,246,000 during fiscal 1995. At February 28, 1995, the Fund had
temporary book/tax differences primarily attributable to post-October losses.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
PAR
VALUE CAPITAL PAID
OF IN EXCESS OF
SHARES SHARES PAR VALUE
---------- -------- ------------
<S> <C> <C> <C>
Balance, February 28, 1994...................................................... 20,737,707 $207,378 $192,731,512
Treasury shares purchased and retired (weighted average discount 10.58%)*....... (517,400) (5,174) (3,849,055)
-------- ------- ----------
Balance, February 28, 1995...................................................... 20,220,307 202,204 188,882,457
Treasury shares purchased and retired (weighted average discount 7.51%)*........ (139,800) (1,398) (1,123,883)
-------- ------- ----------
Balance, August 31, 1995........................................................ 20,080,507 $200,806 $187,758,574
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
7. DIVIDENDS
The Fund has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- ------------------ ---------- ------------------ --------------------
<S> <C> <C> <C>
August 29, 1995 $0.05 September 8, 1995 September 22, 1995
September 27, 1995 $0.05 October 6, 1995 October 20, 1995
</TABLE>
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1995 (unaudited) continued
8. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------
8/31/95 5/31/95
------------------ ------------------
PER PER
TOTAL* SHARE TOTAL* SHARE
------- ------ ------- ------
<S> <C> <C> <C> <C>
Total investment income............................................................ $ 3,903 $ 0.19 $ 3,778 $ 0.19
Net investment income.............................................................. 3,466 0.17 3,319 0.17
Net realized and unrealized gain (loss)............................................ (31) (0.00) 2,120 0.10
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
2/28/95 11/30/94 8/31/94 5/31/94
------------------ ------------------ ------------------ ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............... $ 4,180 $ 0.20 $ 3,514 $ 0.16 $ 3,682 $ 0.18 $ 3,631 $ 0.18
Net investment income................. 3,748 0.18 3,090 0.15 3,231 0.16 3,181 0.15
Net realized and unrealized gain
(loss)............................... 7,044 0.34 (5,053) (0.21) (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)............................... (3,326) (0.16) (1,855) (0.09) 2,326 0.11 (5,867) (0.28)
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 16
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
MONTHS
ENDED
AUGUST FOR THE YEAR ENDED FEBRUARY 28*
31, --------------------------------------------------------
1995* 1995 1994 1993 1992(a) 1991
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period.............................. $8.66 $8.74 $9.13 $9.23 $9.28 $9.34
---- ---- ----- ---- ----- -----
Net investment income............................. 0.34 0.64 0.63 0.67 0.73 0.75
Net realized and unrealized income gain (loss).... 0.10 (0.12) (0.42) (0.08) -- (0.06)
---- ---- ----- ---- ----- -----
Total from investment operations.................. 0.44 0.52 0.21 0.59 0.73 0.69
---- ---- ----- ---- ----- -----
Less dividends and distributions from:
Net investment income.......................... (0.30) (0.60) (0.60) (0.68) (0.78) (0.74)
Net realized gain.............................. -- -- -- (0.01) -- (0.01)
---- ---- ----- ---- ----- -----
Total dividends and distributions................. (0.30) (0.60) (0.60) (0.69) (0.78) (0.75)
---- ---- ----- ---- ----- -----
Net asset value, end of period.................... $8.80 $8.66 $8.74 $9.13 $9.23 $9.28
==== ==== ===== ==== ===== =====
Market value, end of period....................... $8.00 $8.00 $8.125 $8.75 $9.875 $9.375
==== ==== ===== ==== ===== =====
TOTAL INVESTMENT RETURN+.......................... 3.78%(1) 6.36% (0.36)% (4.42)% 14.42% 9.87%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.01%(2) 1.01% 1.01% 1.11% 1.06% 1.06%
Net investment income............................. 7.65%(2) 7.60% 7.13% 7.42% 7.87% 7.99%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $176,741 $175,038 $181,336 $189,291 $194,251 $190,386
Portfolio turnover rate........................... 6%(1) 5% 6% 3% 5% 34%
</TABLE>
- ---------------------
(a) 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 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
MUNICIPAL INCOME OPPORTUNITIES TRUST II
RESULTS OF ANNUAL MEETING (unaudited)
On June 22, 1995, an annual meeting of shareholders of the Fund was held for the
purpose of voting on three separate matters, the results of which were as
follows:
ELECTION OF TRUSTEES:
Manuel H. Johnson
<TABLE>
<CAPTION>
Vote: No. of Shares
- ------- -------------
<S> <C>
For.................................................................. 14,219,306
Withheld............................................................. 414,325
</TABLE>
Paul Kolton
<TABLE>
<CAPTION>
Vote: No. of Shares
- ------- -------------
<S> <C>
For.................................................................. 14,210,872
Withheld............................................................. 422,759
</TABLE>
John L. Schroeder
<TABLE>
<CAPTION>
Vote: No. of Shares
- ------- -------------
<S> <C>
For.................................................................. 14,220,210
Withheld............................................................. 413,421
</TABLE>
INVESTMENT ADVISORY AGREEMENT:
<TABLE>
<CAPTION>
Vote: No. of Shares
- ------- -------------
<S> <C>
For.................................................................. 13,685,833
Against.............................................................. 347,807
Abstain.............................................................. 599,991
</TABLE>
RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
Vote: No. of Shares
- ------- -------------
<S> <C>
For.................................................................. 14,074,034
Against.............................................................. 132,444
Abstain.............................................................. 427,153
</TABLE>
<PAGE> 18
(This page has been left blank intentionally.)
<PAGE> 19
(This page has been left blank intentionally.)
<PAGE> 20
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
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.
MUNICIPAL INCOME
OPPORTUNITIES TRUST II
SEMIANNUAL REPORT
AUGUST 31, 1995
