<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS August 31, 1996
DEAR SHAREHOLDER:
Stronger economic growth and the potential threat of inflation shifted the tone
of the fixed-income markets from bullish to bearish in early 1996. This change
in market psychology was confirmed by a surprisingly large increase in payroll
employment reported in March. Other indicators of economic activity and rising
commodity prices added to market concerns. As a result, investors anticipated
that the Federal Reserve Board might reverse its series of reductions in the fed
funds rate that had begun in 1995. The bond market reacted to these expectations
by pushing long-term yields higher. More than three-quarters of the rise in
interest rates between February and July can be attributed to market weakness on
the days that strong monthly employment figures were reported.
MUNICIPAL MARKET CONDITIONS
Between August 1995 and February 1996, 30-year insured revenue bond yields
declined 70 basis points from 6.00 percent to 5.30 percent. Yields subsequently
moved higher, reaching 6.15 percent in April and again in mid June. By August
1996, 30-year insured revenue bond yields stood at 5.80 percent, compared to
3.85 percent for 1-year municipal notes. The yield pickup for extending maturity
from 1 to 30 years was 195 basis points.
Diminished risk that flat-tax proposals would cause a radical change in the tax
code prompted tax-exempt bonds to outperform U.S. Treasury securities. The ratio
of insured revenue bond yields to 30-year U.S. Treasury yields, which stood at
90 percent a year ago, declined to 82 percent. A decline in this ratio indicates
that municipal bond prices were stronger than U.S. Treasury prices.
The municipal market also benefited from steady demand. In addition to regular
maturities and calls for redemption, it has been estimated that investors also
face the retirement of $66 billion of previously refunded debt in 1996. On the
supply side, aggregate new-issue volume increased
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 1996, continued
18 percent to $114 billion during the first eight months of 1996. However,
underwritings were postponed and the pace of activity slowed as interest rates
rose.
PERFORMANCE
The net asset value (NAV) of Municipal Income Opportunities Trust II (OIB)
declined from $8.88 to $8.73 per share during the six-month period ended August
31, 1996. Based on this NAV change plus reinvestment of tax-free dividends of
$0.33 per share, the Fund's total return was 2.01 percent. Over the same period,
OIB's market price on the New York Stock Exchange increased from $8.75 to $9.00
per share. Based on this market price change and reinvestment of dividends the
Fund's total return was 6.72 percent.
OIB's market price on the New York Stock Exchange was trading at a 3 percent
premium to NAV on August 31, 1996. Undistributed net investment income was
$0.117 per share versus $0.14 per share six months ago.
PORTFOLIO STRUCTURE
The five largest sectors represented 68 percent of the Fund's net assets. Two
loans representing less than one percent of the Fund's net assets were not
accruing interest. In addition, six credits totaling 11 percent of net assets
were accruing income, but may face difficulty meeting future debt service
requirements. OIB's net assets of $174 million were diversified among 13
long-term sectors and 61 credits.
Hospital 9%
IDR/PCR* 24%
Nursing/Health Related 21%
Rufunded 7%
Transportation 7%
Other 32%
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 1996, continued
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
should remain positive for the municipal market. Long-term insured municipal
securities currently yield 82 percent of the yield on U.S. Treasury securities
and may be expected to move in tandem with the U.S. Treasury market. Although
municipal performance relative to Treasuries has improved, tax-exempts could
again be affected by market uncertainty if new tax-reduction proposals were to
gain momentum.
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 period under review, the Fund
purchased and retired 10,000 shares of common stock at a two percent market
discount.
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
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 27, 1996, an annual meeting of the Fund's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Edwin J. Garn
For................................................................ 12,101,864
Withheld........................................................... 137,353
John R. Haire
For................................................................ 12,099,864
Withheld........................................................... 139,353
Michael E. Nugent
For................................................................ 12,106,664
Withheld........................................................... 132,553
Philip J. Purcell
For................................................................ 12,105,539
Withheld........................................................... 133,678
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Dr. Manuel H. Johnson, Paul Kolton and
John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................ 11,859,854
Against............................................................ 100,826
Abstain............................................................ 278,537
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 12,014,170
Against............................................................ 12,112
Abstain............................................................ 159,935
</TABLE>
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (94.9%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75 % 08/15/10 $ 1,889,920
- -------- ----------
Educational Facilities Revenue (3.6%)
2,000 Volusia County Educational Facilities Authority, Florida, Embry-Riddle
Aeronautical University Ser 1996 A..................................... 6.125 10/15/26 1,972,760
New Hampshire Higher Educational & Health Facilities Authority,
1,500 Brewster Academy Ser 1995.............................................. 6.75 06/01/25 1,464,495
2,000 Colby-Sawyer College Ser 1996.......................................... 7.50 06/01/26 2,029,300
1,000 New York State Dormitory Authority, State University 1993 Ser A......... 5.25 05/15/15 901,710
- -------- ----------
6,500 6,368,265
- -------- ----------
Electric Revenue (2.5%)
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 4,369,850
- -------- ----------
Hospital Revenue (9.3%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,196,320
1,820 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 2,068,284
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/14 2,019,060
3,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/22 3,009,270
4,750 Michigan Hospital Finance Authority, Sinai Hospital of Greater Detroit
Refg Ser 1995.......................................................... 6.70 01/01/26 4,659,797
1,500 North Central Texas Health Facilities Development Corporation,
University Medical Center Inc Ser 1987................................. 7.75 04/01/17 1,546,425
2,000 Tarrant County Health Facilities Development Corporation, Texas,
Community Health Care Foundation Inc Ser 1991.......................... 10.125 04/01/11 700,000
- -------- ----------
17,070 16,199,156
- -------- ----------
Industrial Development/Pollution Control Revenue (23.7%)
1,350 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir
International Corp Ser 1991 (AMT)+..................................... 10.125 09/01/11 1,340,253
2,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/American Airlines Inc
Ser 1990 A (AMT)....................................................... 7.875 11/01/25 2,140,520
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT)................ 4.00* 08/15/10 1,560,000
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,869,140
Lapeer Economic Development Corporation, Michigan,
2,075 Dott Manufacturing Co Ser 1989 B (AMT)................................. 9.00 11/15/19 2,090,562
2,035 Dott Manufacturing Co Ser 1989 A (AMT)................................. 10.625 11/15/19 2,205,981
Michigan Strategic Fund,
1,631 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.375 10/01/06 1,716,525
5,207 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.50 10/01/14 5,486,204
1,435 Sanilac County Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 (AMT)........................................ 10.625 08/15/19 1,554,177
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C............ 9.875 12/01/14 3,354,720
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT).............. 9.00 12/01/19 3,711,645
2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995 B.................................... 7.75 05/01/20 2,041,140
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) 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 $ 3,291,930
3,420 Westmoreland County Industrial Development Authority, Pennsylvania,
Valley Landfill/National Waste Energy Corp Ser 1989 A (AMT)............ 9.75 08/01/04 2,922,253
3,000 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade Ser 1994 A (AMT)........................................... 7.55 01/01/19 3,092,160
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,034,020
- -------- ----------
41,253 41,411,230
- -------- ----------
Mortgage Revenue - Multi-Family (5.8%)
Boulder County, Colorado,
3,065 Village Place at Longmont Ser 1989 A (AMT).............................. 10.125 07/15/19 3,143,433
10,837 Village Place at Longmont Ser 1989 B (AMT).............................. 0.00 07/15/19 1,076,199
2,745 San Antonio Housing Finance Corporation, Texas, La Posada Del Rey Ser
1990 A................................................................. 10.00 02/01/20 2,917,304
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................................ 10.00 01/01/21 1,985,580
10,772 Courthouse Commons Apts Ser 1990 B (AMT)................................ 0.00 01/01/21 937,191
- -------- ----------
29,419 10,059,707
- -------- ----------
Mortgage Revenue - Single Family (3.4%)
3,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT).................... 6.40 11/15/23 3,504,340
1,700 Ohio Housing Finance Authority, GNMA-Backed 1988 Ser B (AMT)............ 8.25 12/15/19 1,794,231
Utah Housing Finance Agency,
360 Ser 1990 A-2 (AMT)...................................................... 7.80 07/01/10 368,032
265 Ser 1990 A-2 (AMT)...................................................... 7.875 07/01/22 270,324
- -------- ----------
5,825 5,936,927
- -------- ----------
Nursing & Health Related Facilities Revenue (21.2%)
2,340 Arkansas Development Finance Authority, Wynwood Nursing Center
Ser 1989 (AMT).......................................................... 10.50 11/01/19 2,523,947
Vista, California, Long-Term Care Foundation of America
2,761 Ser 1994 A COPs (a)..................................................... 8.50 01/01/20 1,988,213
331 Ser 1994 B COPs (a)..................................................... 0.00 01/01/20 3,306
3,965 Monroe County Development Authority, Georgia, Health Scholarships Inc
Ser 1989 A............................................................. 10.125 09/01/19 3,840,142
2,460 Sterling, Illinois, Hoosier Care Inc Ser 1989 A......................... 9.75 08/01/19 2,616,800
4,000 Iowa Health Facilities Development Finance Authority, Care Initiatives
Ser 1996............................................................... 9.25 07/01/25 4,586,120
3,315 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990............................ 10.25 01/01/20 3,430,959
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
Mentally Retarded Refg Ser 1993........................................ 8.375 10/01/13 1,562,805
1,100 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1989 Ser A...................................................... 10.375 06/01/10 1,245,266
Massachusetts Industrial Finance Agency,
4,750 Greater Lynn Special Needs Housing Corp & Mental Health & Retardation
Assn 1990 Issue........................................................ 9.875 06/01/10 5,110,383
1,250 May Institute for Autistic Children Inc 1990 Issue...................... 9.75 06/01/10 1,338,175
175 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 7.00 10/01/01 162,461
77 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 0.00 10/01/20 1,535
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
$ 4,900 Chester County Industrial Development Authority, Pennsylvania, RHA/PA
Nursing Homes Inc Ser 1989............................................. 10.125% 05/01/19 $ 5,285,875
Tarrant County Health Facilities Development Corporation, Texas,
645 3927 Foundation Inc Ser 1989............................................ 10.00 09/01/99 688,712
2,500 3927 Foundation Inc Ser 1989............................................ 10.125 09/01/09 2,602,775
- -------- ----------
36,069 36,987,474
- -------- ----------
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 3,276,540
2,360 La Salle County Jail Facilities Finance Corporation, Texas, Criminal
Detention Center Ser 1989 (b).......................................... 9.75 08/01/09 24
- -------- ----------
5,360 3,276,564
- -------- ----------
Retirement & Lifecare Facilities Revenue (5.1%)
2,150 Pima County Industrial Development Authority, Arizona, Country Club of
La Cholla Ser 1990 (AMT)............................................... 8.50 07/01/20 1,875,875
1,500 Colorado Health Facilities Authority, Liberty Heights 1990 Ser A (b).... 10.00 07/01/19 750,000
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.125 12/15/18 1,968,580
Chesterfield County Industrial Development Authority, Virginia,
5,750 Brandermill Woods Ser 1991 A............................................ 6.00 07/01/16 4,140,000
800 Brandermill Woods Ser 1991 A............................................ 0.00 07/01/17 16,000
800 Brandermill Woods Ser 1991 A............................................ 0.00 07/01/18 16,000
800 Brandermill Woods Ser 1991 A............................................ 0.00 07/01/19 16,000
800 Brandermill Woods Ser 1991 A............................................ 0.00 07/01/20 16,000
800 Brandermill Woods Ser 1991 A............................................ 0.00 07/01/21 16,000
- -------- ----------
15,400 8,814,455
- -------- ----------
Tax Allocation (2.9%)
1,180 Bridgeview, Illinois, Tax Increment Refg Ser 1995....................... 9.00 01/01/11 1,282,424
500 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 580,325
875 Madison Heights Tax Increment Finance Authority, Michigan, Ser 1991..... 8.50 03/15/01 915,084
1,996 Muskegon Downtown Development Authority, Michigan, Ltd Oblig 1989
Ser A-1 (a)............................................................. 9.75 06/01/18 2,267,654
- -------- ----------
4,551 5,045,487
- -------- ----------
Transportation Facilities Revenue (6.7%)
2,000 Foothills/Eastern Transportation Corridor Agency, California, Toll Road
Sr Lien Ser 1995 A..................................................... 0.00 01/01/13 1,203,540
5,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA)...................... 5.125 10/01/26 4,489,400
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 1,939,660
1,250 Indianapolis Airport Authority, Indiana, Ser 1996 A (FGIC).............. 5.60 07/01/15 1,192,563
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 2,845,200
- -------- ----------
13,250 11,670,363
- -------- ----------
Other Revenue (1.1%)
2,000 Northern Palm Beach County Improvement District, Florida, Water Control
- -------- & Impr #9A Ser 1996 A (WI)............................................. 7.30 08/01/27 2,000,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (6.6%)
$ 2,215 Bedford Park, Illinois, First Lien Ser 1990............................. 9.70 % 01/01/02++ $ 2,642,473
5,920 Carol Stream, Illinois, Carol Pointe Ser 1990 A......................... 9.50 01/15/01++ 7,081,622
1,470 Maury County Health & Educational Facilities Board, Tennessee, Southern
Healthcare/Heritage Manor of Monteagle Ser 1990 E...................... 10.50 03/01/00++ 1,754,107
- -------- ----------
9,605 11,478,202
- -------- ----------
193,302 TOTAL MUNICIPAL BONDS (Identified Cost $162,914,145)............................................. 165,507,600
- --------
----------
SHORT-TERM MUNICIPAL OBLIGATIONS (4.1%)
5,900 University of Michigan, Hospital Ser 1995 A (Demand 09/03/96)........... 3.85** 12/01/27 5,900,000
1,300 Platte County, Wyoming, Tri-State Generation & Transmission Assn Inc Ser
1984 B (Demand 09/03/96)............................................... 3.80** 07/01/14 1,300,000
- -------- ----------
7,200 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $7,200,000).............................. 7,200,000
- -------- ----------
$200,502 TOTAL INVESTMENTS (Identified Cost $170,114,145) (c) ................................... 99.0% 172,707,600
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 1.0 1,688,093
---- ----------
NET ASSETS............................................................................... 100.0% $174,395,693
==== ==========
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
+ Joint exemption in the District of Columbia and Virginia.
++ Prerefunded to call date shown.
* Coupon resets to 7.50% on 08/15/99.
** Current coupon of variable rate security.
(a) Resale is restricted to qualified institutional investors.
(b) Bond in default; non-income producing security.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation was
$8,034,387 and the aggregate gross unrealized depreciation was
$5,440,932, resulting in net unrealized appreciation of
$2,593,455.
Bond Insurance:
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) continued
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1996
<TABLE>
<S> <C>
Arizona.................. 1.1%
Arkansas................. 1.4
California............... 3.1
Colorado................. 2.8
District of Columbia..... 0.8
Florida.................. 6.0
Georgia.................. 4.1
Illinois................. 10.6
Indiana.................. 0.7
Iowa..................... 4.6
Louisiana................ 0.9
Maine.................... 2.0
Massachusetts............ 9.9
Michigan................. 15.4
Mississippi.............. 1.9
New Hampshire............ 2.0
New York................. 1.6
Ohio..................... 5.9
Pennsylvania............. 7.8%
Tennessee................ 1.0
Texas.................... 4.8
Utah..................... 2.9
Virginia................. 6.7
West Virginia............ 1.2
Wyoming.................. 0.6
Joint Exemption.......... (0.8)
---
Total.................... 99.0%
===
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $170,114,145).......... $172,707,600
Cash..................................... 31,985
Receivable for:
Interest............................. 3,501,141
Investments sold..................... 330,206
Prepaid expenses and other assets........ 70,705
------------
TOTAL ASSETS......................... 176,641,637
------------
LIABILITIES:
Payable for:
Investments purchased................ 2,018,656
Investment advisory fee.............. 86,462
Administration fee................... 51,877
Accrued expenses......................... 88,949
------------
TOTAL LIABILITIES.................... 2,245,944
------------
NET ASSETS:
Paid-in-capital.......................... 187,130,933
Net unrealized appreciation.............. 2,593,455
Accumulated undistributed net investment
income.................................. 2,330,890
Accumulated net realized loss............ (17,659,585)
------------
NET ASSETS........................... $174,395,693
============
NET ASSET VALUE PER SHARE
19,980,607 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $8.73
====
STATEMENT OF OPERATIONS
For the six months ended August 31, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 7,041,442
------------
EXPENSES
Investment advisory fee.................. 440,682
Administration fee....................... 264,409
Professional fees........................ 66,429
Transfer agent fees and expenses......... 49,299
Shareholder reports and notices.......... 14,216
Registration fees........................ 11,716
Custodian fees........................... 9,504
Trustees' fees and expenses.............. 8,721
Other.................................... 1,967
------------
TOTAL EXPENSES BEFORE EXPENSE
OFFSET............................... 866,943
LESS: EXPENSE OFFSET................. (9,484)
------------
TOTAL EXPENSES AFTER EXPENSE
OFFSET............................... 857,459
------------
NET INVESTMENT INCOME................ 6,183,983
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................ (428,632)
Net change in unrealized appreciation.... (2,120,972)
------------
NET LOSS............................. (2,549,604)
------------
NET INCREASE............................. $ 3,634,379
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
AUGUST 31, ENDED
1996 FEBRUARY 29, 1996
------------------------------------------------------------------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 6,183,983 $ 13,285,521
Net realized loss.................................... (428,632) (5,500,400)
Net change in unrealized appreciation................ (2,120,972) 8,939,997
----------- -------------
NET INCREASE..................................... 3,634,379 16,725,118
Dividends from net investment income................. (6,596,195) (12,452,187)
Net decrease from transactions in shares of
beneficial interest................................. (89,050) (1,864,678)
----------- -------------
TOTAL INCREASE (DECREASE)........................ (3,050,866) 2,408,253
NET ASSETS:
Beginning of period.................................. 177,446,559 175,038,306
----------- -------------
END OF PERIOD
(Including undistributed net investment income of
$2,330,890 and $2,743,102, respectively)......... $174,395,693 $ 177,446,559
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (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's investment objective is to provide
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 exdividend 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
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (unaudited) continued
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 the 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, 1996 aggregated
$29,240,150 and $24,856,430, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At August 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $16,000.
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
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (unaudited) continued
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, 1996 included in Trustees' fees and expenses in
the Statement of Operations amounted to $826. At August 31, 1996, the Fund had
an accrued pension liability of $45,427 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 which may used 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
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- ---------- ------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average discount 2.36%)*....... (10,000) (100) (88,950)
--------- ------- -----------
Balance, August 31, 1996....................................................... 19,980,607 $199,807 $186,931,126
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
7. DIVIDENDS
The Fund declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------- --------- ------------------ -------------------
<S> <C> <C> <C>
August 27, 1996.... $ 0.055 September 6, 1996 September 20, 1996
September 24, 1996. $ 0.055 October 4, 1996 October 18, 1996
</TABLE>
<PAGE> 15
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 FOR THE YEAR ENDED FEBRUARY 28*
AUGUST 31, ---------------------------------------------
1996 1996** 1995 1994
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $8.88 $8.66 $8.74 $ 9.13
------- ----- ----- -----
Net investment income................................. 0.31 0.66 0.64 0.63
Net realized and unrealized gain (loss)............... (0.13) 0.18 (0.12) (0.42)
------- ----- ----- -----
Total from investment operations...................... 0.18 0.84 0.52 0.21
------- ----- ----- -----
Less dividends and distributions from:
Net investment income.............................. (0.33) (0.62) (0.60) (0.60)
Net realized gain.................................. -- -- -- --
------- ----- ----- -----
Total dividends and distributions..................... (0.33) (0.62) (0.60) (0.60)
------- ----- ----- -----
Net asset value, end of period........................ $8.73 $8.88 $8.66 $ 8.74
------- ----- ----- -----
Market value, end of period........................... $9.00 $8.75 $8.00 $8.125
======= ===== ===== =====
TOTAL INVESTMENT RETURN+.............................. 6.72%(1) 17.87% 6.36% (0.36)%
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset.................. 0.99%(2)(4) 1.01%(3) 1.01% 1.01%
Net investment income................................. 7.04%(2) 7.50% 7.60% 7.13%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............... $174,396 $177,447 $175,038 $181,336
Portfolio turnover rate............................... 15%(1) 18% %5 %6
<CAPTION>
FOR THE YEAR ENDED FEBRUARY
---------------------------------
1993 1992
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $9.23 $ 9.28
----- -----
Net investment income................................. 0.67 0.73
Net realized and unrealized gain (loss)............... (0.08) --
----- -----
Total from investment operations...................... 0.59 0.73
----- -----
Less dividends and distributions from:
Net investment income.............................. (0.68) (0.78)
Net realized gain.................................. (0.01) --
----- -----
Total dividends and distributions..................... (0.69) (0.78)
----- -----
Net asset value, end of period........................ $9.13 $ 9.23
----- -----
Market value, end of period........................... $8.75 $9.875
===== =====
TOTAL INVESTMENT RETURN+.............................. (4.42)% 14.42%
RATIOS TO AVERAGE NET ASSETS:
Total expenses before expense offset.................. 1.11% 1.06%
Net investment income................................. 7.42% 7.87%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............... $189,291 $194,251
Portfolio turnover rate............................... %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) Not annualized.
(2) Annualized.
(3) The above expense ratio would have been 1.00% which reflects 0.01% effect
for custody cash credits.
(4) The above expense ratio was 0.98% after expense offset, which reflects
0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
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 MANAGER
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, 1996
