<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS February 29, 1996
DEAR SHAREHOLDER:
Progressive tightening of monetary policy by the Federal Reserve Board through
early 1995 slowed economic growth and caused bond prices to advance. However,
the pace of the rally moderated between September 1995 and February 1996,
coinciding with the second half of Municipal Income Opportunities Trust II's
recently concluded fiscal year. The trend toward lower long-term interest rates
was aided by the central bank's easing of short-term interest rates in three
separate moves between July 1995 and January 1996.
MUNICIPAL MARKET CONDITIONS
Long-term municipal revenue bond yields peaked at 7.37 percent in November 1994.
During the Fund's March 1995 - February 1996 fiscal year, revenue bond yields
moved from 6.31 percent to 5.86 percent. This 45 basis point decline in yield
corresponded to a four percent price increase for a callable bond with a 30-year
maturity. Similarly, yields on 1-year municipal notes moved from 4.63 percent to
3.30 percent. The yield pickup for extending maturity from 1-to-30 years was 256
basis points in February 1996.
Tax-exempt bonds underperformed U.S. Treasury bonds in fiscal 1996. The ratio of
The Bond Buyer Revenue Bond Index* yield to that of the 30-year U.S. Treasury
bond moved from 89 percent in February 1995 to 91 percent in February 1996. A
rising ratio means that municipal bond prices have lagged U.S. Treasury prices.
In the spring of 1995, the municipal market began to discount the risk of
comprehensive changes in the tax code created by flat tax rhetoric from
Washington. This caused the yield ratio to reach a high of 95 percent during the
summer. By this February, the prospect of flat tax passage this year had faded
and the ratio improved to 91 percent. Between 1987 and 1994, long-term municipal
revenue yields averaged 89 percent of U.S. Treasury yields.
- ---------------------
*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 Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 1996, continued
Municipal underwriting activity increased by one-third over the past six-months
as a result of lower interest rates. Despite a resurgence in new issue volume,
the municipal market continued to experience consolidation with several major
dealers withdrawing from the business.
TAX REFORM
Flat-tax advocates have continued to generate publicity for their proposals and
have effected the municipal market since early 1995. Most of the discussion on
proposed tax-reform measures is based on theoretical concepts, which contain
broad assumptions and lack specific details. Basically, the various plans raise
questions about the fairness of changing from a progressive tax structure. Low
flat-tax rate plans call for the elimination of deductions of mortgage interest,
charitable contributions, property taxes, and state and local income taxes. As
politicians attempted to make tax reform a major issue in the 1996 elections,
media coverage expanded from the financial page to the front page. One advantage
of this publicity is increased recognition of the impact of tax reform on
different taxpayers.
In addition to the market risk associated with the flat-tax proposals, municipal
credits would also be negatively affected. If mortgage interest and property tax
deductions were eliminated, municipalities would experience a decline in their
property tax base. The loss of state and local income tax deductions would
increase the relative economic disadvantage that high-tax states already face.
The flat tax may be considered an attempt to shift tax accountability from the
federal to local governments.
PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust II (OIB) moved
from $8.66 to $8.88 per share during the fiscal year ended February 29, 1996.
Based on this NAV change plus reinvestment of tax-free dividends totaling $0.62
per share, the Fund's total return was 10.51 percent. Over the same period, the
Fund's market price on the New York Stock Exchange appreciated from $8.00 to
$8.75 per share. Based on this market price change and reinvestment of tax-free
dividends, the Fund's total return was 17.87 percent. The Fund began the year
trading at a 7.6 percent discount to NAV and closed at a 1.5 percent discount.
Undistributed net investment income totaled $0.14 per share on February 29, 1996
versus $0.09 per share 12 months ago. In September 1995, the Trustees voted to
increase the monthly dividend from $0.050 to $0.055 per share beginning with the
November 1995 payment. This revised dividend rate more accurately reflects the
Fund's current earnings.
PORTFOLIO STRUCTURE
Progress continues in reducing problem loans that either are not accruing
interest or are facing restructuring. As of February 29, 1996, three credits
representing less than one percent of the Fund's
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 1996, continued
net assets were not accruing interest. This compares with six loans totaling two
percent of net assets that were not earning interest on the same date last year.
An additional seven credits, totaling 11 percent of net assets, are currently
accruing income but may have problems meeting future debt service payments.
On February 29, 1996, the Fund's $177 million in net assets was diversified
among 13 specific long-term municipal sectors and 59 credits. The two largest
sectors -- industrial development/pollution control and nursing & health related
facilities revenue bonds -- represented 45 percent of the portfolio. Credit
quality was upgraded during the year, with non-rated long-term holdings
decreasing from 85 to 71 percent of the portfolio.
LOOKING AHEAD
Tax-reduction proposals may continue to receive publicity. However, the balance
between the supply of new issues and demand created by maturities and calls for
redemption should continue to be positive for the municipal market. Long-term
municipal securities continue to yield 90 percent of U.S. Treasuries and are
likely to move in tandem with the Treasury market.
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 12-month period ended February 29,
1996, the Fund purchased and retired 229,700 shares of common stock at a
weighted average market discount of 7.2 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/ Charles A. Fiumefreddo
- ---------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (92.2%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 1,933,320
- -------- ----------
Educational Facilities Revenue (1.4%)
1,500 New Hampshire Higher Educational & Health Facilities Authority, Brewster
Academy Ser 1995....................................................... 6.75 06/01/25 1,482,810
1,000 New York State Dormitory Authority, State University Ser 1993 A......... 5.25 05/15/15 945,550
- -------- ----------
2,500 2,428,360
- -------- ----------
Hospital Revenue (9.5%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,209,200
1,820 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 2,136,079
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1.................................... 6.25 12/01/14 2,051,700
3,000 Dana Farber Cancer Institute Ser G-1.................................... 6.25 12/01/22 3,049,620
4,750 Michigan Hospital Finance Authority, Sinai Hospital of Greater Detroit
Refg Ser 1995.......................................................... 6.70 01/01/26 4,795,790
1,500 North Central Texas Health Facilities Development Corporation,
University Medical Center Inc Ser 1987................................. 7.75 04/01/17 1,561,680
2,000 Tarrant County Health Facilities Development Corporation, Texas,
Community Health Care Foundation Inc Ser 1991.......................... 10.125 04/01/11 1,160,000
- -------- ----------
17,070 16,964,069
- -------- ----------
Industrial Development/Pollution Control Revenue (22.5%)
1,350 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 1,360,503
2,000 Chicago, Illinois, Chicago-O'Hare Intl Airport/American Airlines Inc Ser
1990 A (AMT)........................................................... 7.875 11/01/25 2,183,500
2,600 Holyoke, Massachussetts, McCormack/Partyka Ser 1990 (AMT)............... 4.00** 08/15/10 1,576,588
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,982,600
Lapeer Economic Development Corporation, Michigan,
2,075 Dott Manufacturing Co Ser 1989 B (AMT).................................. 9.00 11/15/19 2,090,563
2,035 Dott Manufacturing Co Ser 1989 A (AMT).................................. 10.625 11/15/19 2,240,433
Michigan Strategic Fund,
1,631 Kasle Steel Corp Ser 1989 (AMT)......................................... 9.375 10/01/06 1,746,006
5,207 Kasle Steel Corp Ser 1989 (AMT)......................................... 9.50 10/01/14 5,609,650
1,455 Sanilac County Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 (AMT)........................................ 10.625 08/15/19 1,611,485
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C............ 9.875 12/01/14 3,429,750
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT).............. 9.00 12/01/19 3,558,520
2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995 B.................................... 7.75 05/01/20 2,141,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
$ 3,000 Pennsylvania Economic Development Financing Authority, MacMillan Bloedel
Ltd Ser 1995 (AMT)..................................................... 7.60 % 12/01/20 $ 3,379,140
3,695 Westmoreland County Industrial Development Authority, Pennsylvania,
Valley Landfill/National Waste Energy Corp Ser 1989 A (AMT)............ 9.75 08/01/04 4,008,225
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,066,340
- -------- ----------
38,548 39,984,403
- -------- ----------
Mortgage Revenue - Multi-Family (5.7%)
Boulder County, Colorado, Village Place at Longmont
3,065 Ser 1989 A (AMT)........................................................ 10.125 07/15/19 3,174,114
10,837 Ser 1989 B (AMT)........................................................ 0.00 07/15/19 1,019,956
2,745 San Antonio Housing Finance Corporation, Texas, La Posada Del Rey Ser
1990 A................................................................. 10.00 02/01/20 2,957,408
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................................ 10.00 01/01/21 2,011,280
10,906 Courthouse Commons Apts Ser 1990 B (AMT)................................ 0.00 01/01/21 928,088
- -------- ----------
29,553 10,090,846
- -------- ----------
Mortgage Revenue - Single Family (3.5%)
3,500 Maine Housing Authority, Purchase Ser 1990 A-4 (AMT).................... 6.40 11/15/23 3,527,335
1,860 Ohio Housing Finance Authority, GNMA-Backed 1988 Ser B (AMT)............ 8.25 12/15/19 1,961,147
Utah Housing Finance Agency,
440 Ser 1990 A-2 (AMT)...................................................... 7.80 07/01/10 457,151
320 Ser 1990 A-2 (AMT)...................................................... 7.875 07/01/22 337,280
- -------- ----------
6,120 6,282,913
- -------- ----------
Nursing & Health Related Facilities Revenue (22.3%)
2,340 Arkansas Development Finance Authority, Wynwood Nursing Center Ser 1989
(AMT).................................................................. 10.50 11/01/19 2,545,031
Vista, California, Long-Term Care Foundation of America
2,767 Ser 1994 A COPs (a)..................................................... 8.50 01/01/20 2,213,908
331 Ser 1994 B COPs (a)..................................................... 0.00 01/01/20 3,306
1,768 North Miami, Florida, Hallmark Homes for Better Living Foundation Ser
1990 A (b)............................................................. 10.50 08/01/20 17,681
3,965 Monroe County Development Authority, Georgia, Health Scholarships Inc
Ser 1989 A............................................................. 10.125 09/01/19 3,892,678
2,470 Sterling, Illinois, Hoosier Care Inc Ser 1989 A......................... 9.75 08/01/19 2,709,244
4,000 Iowa Financial Authority, Mercy Health Initiatives Ser 1989............. 9.95 07/01/19 4,280,280
3,315 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990............................ 10.25 01/01/20 3,473,490
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,588,395
1,100 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1989 Ser A...................................................... 10.375 06/01/10 1,267,596
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 1996, 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 $ 5,347,578
1,290 May Institute for Autistic Children Inc 1990 Issue...................... 9.75 06/01/10 1,398,695
205 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 7.00 10/01/01 189,121
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 5,414,281
1,470 Maury County Health & Educational Facilities Board, Tennessee, Southern
Healthcare/Heritage Manor of Monteagle Ser 1990 E...................... 10.50 03/01/20 1,648,282
Tarrant County Health Facilities Development Corporation, Texas,
825 3927 Foundation Inc Ser 1989............................................ 10.00 09/01/99 894,713
2,500 3927 Foundation Inc Ser 1989............................................ 10.125 09/01/09 2,622,900
- -------- ----------
39,773 39,508,714
- -------- ----------
Public Facilities Revenue (1.9%)
3,000 Geo L Smith II - Georgia World Congress Center Authority, Domed Stadium
Ser 1990 (AMT)......................................................... 7.875 07/01/20 3,322,470
2,360 La Salle County Jail Facilities Finance Corporation, Texas, Criminal
Detention Center Ser 1989 (b).......................................... 9.75 08/01/09 24
- -------- ----------
5,360 3,322,494
- -------- ----------
Resource Recovery Revenue (4.1%)
Greater Detroit Resource Recovery Authority, Michigan,
3,000 Ser E................................................................... 9.25 12/13/08 3,099,270
4,000 Ser H................................................................... 9.25 12/13/08 4,132,360
- -------- ----------
7,000 7,231,630
- -------- ----------
Retirement & Lifecare Facilities Revenue (5.6%)
2,165 Pima County Industrial Development Authority, Arizona, Country Club of
La Cholla Ser 1990 (AMT)............................................... 8.50 07/01/20 1,869,932
1,500 Colorado Health Facilities Authority, Liberty Heights 1990 Ser A (b).... 10.00 07/01/19 750,000
1,145 Charlotte Housing Authority, North Carolina, Merrywood Senior Adult
Community Ser 1989 A (AMT)............................................. 9.75 05/01/19 1,156,427
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.125 12/15/18 2,009,480
Chesterfield County Industrial Development Authority, Virginia,
Brandermill Woods
5,750 Ser 1991 A.............................................................. 6.00 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
- -------- ----------
16,560 9,890,839
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 1996, 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 $ 1,278,082
5,920 Carol Stream, Illinois, Carol Pointe Ser 1990 A......................... 9.50 01/15/10 6,657,277
500 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 583,835
985 Madison Heights Tax Increment Finance Authority, Michigan, Ser 1991..... 8.50 03/15/01 1,043,942
2,022 Muskegon Downtown Development Authority, Michigan, Ltd Oblig 1989 Ser
A-1 (a)................................................................ 9.75 06/01/18 2,332,311
- -------- ------------
10,607 11,895,447
- -------- ------------
Transportation Facilities Revenue (2.9%)
Foothills/Eastern Transportation Corridor Agency, California,
2,000 Toll Road Sr Lien Ser 1995 A.......................................... 0.00 01/01/13 1,229,240
2,000 Toll Road Sr Lien Ser 1995 A.......................................... 6.00 01/01/34 1,910,900
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 1,978,480
- -------- ------------
6,000 5,118,620
- -------- ------------
Refunded (5.0%)
2,215 Bedford Park, Illinois, First Lien Ser 1990............................. 9.70 01/01/02++ 2,741,350
Hodgkins, Illinois,
1,000 Ser 1991.............................................................. 9.50 12/01/01++ 1,292,040
4,000 Second Lien Ser 1990.................................................. 9.50 12/15/00++ 4,919,040
- -------- ------------
7,215 8,952,430
- -------- ------------
188,306 TOTAL MUNICIPAL BONDS (Identified Cost $158,889,658)............................................. 163,604,085
- --------
------------
SHORT-TERM MUNICIPAL OBLIGATION (2.9%)
5,100 Harris County Health Facilities Development Corporation, Texas,
- -------- Methodist Hospital Ser 1994 (Demand 03/01/96) (Identified Cost
$5,100,000)............................................................ 3.45* 12/01/25 5,100,000
------------
$193,406 TOTAL INVESTMENTS (Identified Cost $163,989,658) (c).................................... 95.1% 168,704,085
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 4.9 8,742,474
------ ------------
NET ASSETS............................................................................... 100.0% $177,446,559
====== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Joint exemption in the District of Columbia and Virginia.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
** Coupon resets to 7.50% on 08/15/99.
(a) Resale is restricted to qualified institutional investors.
(b) Bond in default; non-income producing.
(c) The aggregate cost for federal income tax purposes is $164,438,558; the
aggregate gross unrealized appreciation is $9,870,560 and the aggregate
gross unrealized depreciation is $5,605,033, resulting in net unrealized
appreciation of $4,265,527.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 1996, continued
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 29, 1996
<TABLE>
<S> <C>
Arizona.................. 1.0%
Arkansas................. 1.4
California............... 4.3
Colorado................. 2.8
District of Columbia..... 0.8
Florida.................. 1.1
Georgia.................. 4.1
Illinois................. 13.8
Iowa..................... 4.4
Louisiana................ 1.0%
Maine.................... 2.0
Massachusetts............ 10.1
Michigan................. 16.2
Mississippi.............. 1.9
New Hampshire............ 0.8
New York................. 1.6
North Carolina........... 0.7
Ohio..................... 4.2
Pennsylvania............. 8.4%
Tennessee................ 0.9
Texas.................... 8.0
Utah..................... 0.4
Virginia................. 4.8
West Virginia............ 1.2
Joint Exemption.......... (0.8)
----
Total.................... 95.1%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
ASSETS:
Investments in securities, at value
(identified cost $163,989,658).......... $168,704,085
Cash..................................... 1,865
Receivable for:
Investments sold...................... 5,551,036
Interest.............................. 3,397,114
Prepaid expenses and other assets........ 39,677
------------
TOTAL ASSETS......................... 177,693,777
------------
LIABILITIES:
Payable for:
Investment advisory fee.............. 83,151
Administration fee................... 49,891
Accrued expenses and other payables...... 114,176
------------
TOTAL LIABILITIES.................... 247,218
------------
NET ASSETS:
Paid-in-capital.......................... 187,219,983
Net unrealized appreciation.............. 4,714,427
Accumulated undistributed net investment
income.................................. 2,743,102
Accumulated net realized loss............ (17,230,953)
------------
NET ASSETS........................... $177,446,559
============
NET ASSET VALUE PER SHARE, 19,990,607
shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $8.88
=====
STATEMENT OF OPERATIONS
For the year ended February 29, 1996
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 15,050,444
------------
EXPENSES
Investment advisory fee.................. 885,848
Administration fee....................... 531,509
Professional fees........................ 139,371
Transfer agent fees and expenses......... 72,014
Shareholder reports and notices.......... 35,849
Registration fees........................ 32,878
Trustees' fees and expenses.............. 32,729
Custodian Fees........................... 15,924
Other.................................... 34,692
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET.............................. 1,780,814
LESS: EXPENSE OFFSET................. (15,891)
------------
TOTAL EXPENSES AFTER EXPENSE
OFFSET.............................. 1,764,923
------------
NET INVESTMENT INCOME................ 13,285,521
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................ (5,500,400)
Net change in unrealized depreciation.... 8,939,997
------------
NET GAIN............................. 3,439,597
------------
NET INCREASE............................. $ 16,725,118
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 13,285,521 $ 13,249,628
Net realized loss................................. (5,500,400) (8,933,636)
Net change in unrealized depreciation............. 8,939,997 5,599,806
----------- -----------
NET INCREASE.................................. 16,725,118 9,915,798
Dividends from net investment income.............. (12,452,187) (12,359,552)
Net decrease from transactions in shares of
beneficial interest.............................. (1,864,678) (3,854,229)
----------- -----------
TOTAL INCREASE (DECREASE)..................... 2,408,253 (6,297,983)
NET ASSETS:
Beginning of period............................... 175,038,306 181,336,289
----------- -----------
END OF PERIOD
(Including undistributed net investment income
of $2,743,102 and $1,909,768, respectively)... $177,446,559 $175,038,306
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 1996
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's investment objective is to provide a
high level of current income exempt from federal income tax. The Fund was
organized as a Massachusetts business trust on March 8, 1989 and commenced
operations on June 30, 1989.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
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
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 1996, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital 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 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 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 year ended February 29, 1996 aggregated
$31,352,618 and $29,464,534, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At February 29, 1996, the Fund had
transfer agent fees and expenses payable of approximately $6,200.
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 1996, continued
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended February 29, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $12,000. At February 29, 1996, the Fund had an accrued pension liability of
$58,535 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At February 29, 1996, the Fund had a net capital loss carryover of approximately
$13,315,000 of which $4,000 will be available through February 28, 2002,
$10,485,000 will be available through February 28, 2003 and $2,826,000 will be
available through February 29, 2004 to offset future capital gains to the extent
provided by regulations.
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 $4,365,000 during fiscal 1996. As of February 29, 1996, 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>
CAPITAL
PAR PAID IN
VALUE OF 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 7.17%)*........ (229,700) (2,297) (1,862,381)
---------- -------- ------------
Balance, February 29, 1996...................................................... 19,990,607 $199,907 $187,020,076
=========== ========== ==============
</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 RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------ --------- -------------- ---------------
<S> <C> <C> <C>
February 27,
1996 $ 0.055 March 8, 1996 March 22, 1996
March 26, 1996 $ 0.055 April 4, 1996 April 19, 1996
</TABLE>
<PAGE> 14
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 YEAR ENDED FEBRUARY 28*
----------------------------------------
1996** 1995 1994 1993 1992**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Net investment income..................................................... 0.66 0.64 0.63 0.67 0.73
Net realized and unrealized gain (loss)................................... 0.18 (0.12) (0.42) (0.08) --
------ ------ ------ ------ ------
Total from investment operations.......................................... 0.84 0.52 0.21 0.59 0.73
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................................................. (0.62) (0.60) (0.60) (0.68) (0.78)
Net realized gain...................................................... -- -- -- (0.01) --
------ ------ ------ ------ ------
Total dividends and distributions......................................... (0.62) (0.60) (0.60) (0.69) (0.78)
------ ------ ------ ------ ------
Net asset value, end of period............................................ $ 8.88 $ 8.66 $ 8.74 $ 9.13 $ 9.23
====== ====== ====== ====== ======
Market value, end of period............................................... $ 8.75 $ 8.00 $8.125 $ 8.75 $9.875
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+.................................................. 17.87% 6.36% (0.36)% (4.42)% 14.42%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................. 1.01%(1) 1.01% 1.01% 1.11% 1.06%
Net investment income..................................................... 7.50% 7.60% 7.13% 7.42% 7.87%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................................... $177,447 $175,038 $181,336 $189,291 $194,251
Portfolio turnover rate................................................... 18% 5% 6% 3% 5%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
** For the year ended February 29.
+ 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 brokerage commissions.
(1) The above expense ratio would have been 1.00% which reflects 0.01% effect
for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST II
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MUNICIPAL INCOME OPPORTUNITIES TRUST II
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Income Opportunities
Trust II (the "Fund") at February 29, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at February 29, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 12, 1996
--------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended February 29, 1996, the Fund paid to the
shareholders $0.62 per share from net investment income all of
which was exempt interest dividends, excludable from gross
income for Federal income tax purposes.
<PAGE> 16
BOARD OF DIRECTORS
- -----------------------------------------------
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 ADVISER
- -----------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST II
Annual Report
February 29, 1996
