<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS August 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the semi-annual report on the operations of Municipal
Income Opportunities Trust II (OIB) for the period ended August 31, 1997.
Stimulated by a resurgence of consumer spending in the fourth quarter of 1996,
the economy grew at a rapid pace in the first quarter of 1997. This caused
interest rates to rise between December 1996 and April 1997. In March, the
Federal Reserve Board tightened monetary policy in a preemptive move against a
possible increase in the rate of inflation. Economic growth slowed in the second
quarter and the bond market rallied. By July, yields had declined to last
November's levels. In addition to more moderate economic growth, low inflation
and stable Fed policy, the bond rally was aided by the strengthened overseas
performance of the dollar and the waning Federal budget deficit. Market
sentiment turned cautious in August as the UPS/Teamsters strike renewed concerns
that tight labor markets might prompt another tightening move by the Fed.
<TABLE>
<CAPTION>
BOND YIELDS 1994-1997
- --------------------------------------------------------------------
Insured Municipal
Revenue Yields as
30-Year Insured a Percentage of
Municipal Revenue 30-Year U.S. U.S. Treasury Yields
Yields Treasury Yields Ratio
- --------------------------------------------------------------------
<S> <C> <C> <C>
Dec '93 5.40% 6.34% 85.17%
5.40 6.24 86.54
5.80 6.66 87.09
6.40 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
Jun '94 6.50 7.61 85.41
6.25 7.39 84.57
6.30 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.80
7.00 8.00 87.50
Dec '94 6.75 7.88 85.66
6.40 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.20 7.34 84.47
5.80 6.66 87.09
Jun '95 6.10 6.62 92.15
6.10 6.86 88.92
6.00 6.66 90.08
5.95 6.48 91.82
5.75 6.33 90.84
5.50 6.14 89.56
Dec '95 5.35 5.94 90.07
5.40 6.03 89.55
5.80 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
Jun '96 5.90 6.89 85.63
5.85 6.97 83.93
5.90 7.11 82.98
5.70 6.93 82.25
5.65 6.64 85.09
5.50 6.35 86.61
Dec '96 5.60 6.63 84.46
5.70 6.79 83.95
5.65 6.80 83.08
5.90 7.10 83.10
5.75 6.94 82.85
5.65 6.91 81.77
Jun '97 5.60 6.78 82.60
5.30 6.30 84.00
5.50 6.61 83.00
- --------------------------------------------------------------------
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 1997, continued
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields with less volatility.
Long-term insured revenue index yields rose from 5.50 percent to 5.90 percent
between November 1996 and March 1997. The recent bond rally carried yields to a
low of 5.30 percent in July before ending August at 5.50 percent.
The ratio of 30-year insured revenue bond yields to 30-year US Treasury yields
declined from 87 percent at the end of November 1996 to 83 percent in August
1997. A declining ratio means that municipals have outperformed Treasuries and
have become relatively more expensive. This ratio has annually ranged from an
average low of 83 percent to an average high of 90 percent over the past four
years.
New-issue municipal volume was ahead 8 percent in the first eight months of
1997. Overall, estimated underwriting volume of $180 billion for the full year
is expected to exceed bond maturities and redemptions of $130 billion.
The demand for higher yields and the scarcity of non-rated issues continued to
narrow the yield spread versus high-grade credits.
PERFORMANCE
The Fund's net asset value (NAV) increased from $8.79 to $8.93 per share during
the six-month period ended August 31, 1997. Based on this NAV change plus
reinvestment of tax-free dividends, totaling $0.30 per share, the Fund's total
NAV return was 5.07 percent. OIB's market price on the New York Stock Exchange
increased from $8.625 to $9.1875 per share during the six-month period. Based on
this market price change and reinvestment of tax-free dividends, the Fund's
total market return was 10.17 percent. OIB's market price closed at a three
percent premium to NAV on August 31, 1997.
Dividends for the last three months of 1997 were declared in September.
Beginning with the October 1997 payment, the monthly dividend was reduced from
$0.05 per share to $0.045 per share to more closely reflect the Fund's
anticipated income. Over the past six months the level of undistributed net
investment income has declined from $0.115 per share to $0.09 per share.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 13 long-term sectors and 61
credits. Non-rated securities continued to comprise two thirds of the Fund's
portfolio.
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 1997, continued
Over the past six months
approximately $20 million par amount
of bonds was purchased and $13
million par amount of bonds was sold,
each at average yields of 5.90
percent. Distributable income
declined when $9 million par amount
of bonds with average book yields of
9 5/8 percent was called for
redemption.
The Portfolio's average maturity was
21 years. The combination of older,
shorter-call issues and newer issues
with longer call dates provided an
average of 6 years of call
protection. The bonds of two issuers
representing 3 percent of the Fund's
net assets were not accruing
interest. Two other issues totaling 6
percent of net assets, were accruing
income, but may face difficulties in
meeting future debt service
requirements.
<TABLE>
<CAPTION>
LARGEST SECTORS as of August 31, 1997
(% of Net Assets)
<S> <C>
IDR/PCR* 24%
Nursing & Health Related 21%
Mortgage 15%
Transportation 8%
Retirement & Life Care 6%
Hospital 6%
All Others 20%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CALL STRUCTURE as of August 31, 1997
(% of Total Long-Term Portfolio)
Percent Callable
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CALL PROTECTION: 6.2 YEARS
Years Bonds Callable
<S> <C>
1997 0%
1998 7%
1999 12%
2000 15%
2001 11%
2002 2%
2003 8%
2004 2%
2005 10%
2006 18%
2007 7%
2008+ 8%
</TABLE>
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 1997, continued
LOOKING AHEAD
Municipals have followed the trend of Treasuries throughout most of 1997. The
recent enactment of the Taxpayer Relief Act of 1997 did not impact municipals
directly. The long-term benefits of tax-exempt income have remained intact and
have fostered demand for municipal bonds.
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.
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> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On May 20, 1997, 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>
Michael Bozic
For................................................................ 13,756,735
Withheld........................................................... 431,054
Charles A. Fiumefreddo
For................................................................ 13,749,177
Withheld........................................................... 438,612
Wayne E. Hedien
For................................................................ 13,755,804
Withheld........................................................... 431,985
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent,
Philip J. Purcell and John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................ 13,166,862
Against............................................................ 284,560
Abstain............................................................ 736,367
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 13,630,757
Against............................................................ 92,887
Abstain............................................................ 464,145
</TABLE>
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (96.8%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75% 08/15/10 $ 2,037,000
- -------- ------------
Educational Facilities Revenue (4.7%)
1,600 ABAG Finance Authority for Nonprofit Corporations, National Center for
International Schools COPs............................................. 7.50 05/01/11 1,637,488
2,000 Volusia County Educational Facilities Authority, Florida, Embry-Riddle
Aeronautical University Ser 1996 A..................................... 6.125 10/15/26 2,067,500
New Hampshire Higher Educational & Health Facilities Authority,
1,500 Brewster Academy Ser 1995.............................................. 6.75 06/01/25 1,563,870
2,000 Colby-Sawyer College Ser 1996.......................................... 7.50 06/01/26 2,142,340
1,000 New York State Dormitory Authority, State University 1993 Ser A......... 5.25 05/15/15 976,270
- -------- ------------
8,100 8,387,468
- -------- ------------
Electric Revenue (2.6%)
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)++..... 5.00 07/01/21 4,676,050
- -------- ------------
Hospital Revenue (5.8%)
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/14 2,112,960
3,000 Dana Farber Cancer Institute Ser G-1................................... 6.25 12/01/22 3,155,040
4,750 Michigan Hospital Finance Authority, Sinai Hospital of Greater Detroit
- -------- Refg Ser 1995.......................................................... 6.70 01/01/26 5,089,150
------------
9,750 10,357,150
- -------- ------------
Industrial Development/Pollution Control Revenue (23.9%)
1,250 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir
International Corp Ser 1991 (AMT)+..................................... 10.125 09/01/11 1,274,937
2,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/American Airlines Inc
Ser 1990 A (AMT)....................................................... 7.875 11/01/25 2,183,940
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)........................ 6.00 06/01/27 1,541,070
2,000 Perry County, Kentucky, TJ International Inc Ser 1997 (AMT)............. 6.55 04/15/27 2,102,080
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT)................ 4.00* 08/15/10 1,573,000
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 3,010,560
Lapeer Economic Development Corporation, Michigan,
2,055 Dott Manufacturing Co Ser 1989 B (AMT)................................. 9.00 11/15/19 2,072,981
2,015 Dott Manufacturing Co Ser 1989 A (AMT)................................. 10.625 11/15/19 2,145,189
Michigan Strategic Fund,
1,539 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.375 10/01/06 1,602,342
5,206 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.50 10/01/14 5,420,133
1,415 Sanilac County Economic Development Corporation, Michigan, Dott
Manufacturing Co Ser 1989 (AMT)........................................ 10.625 08/15/19 1,519,498
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C++.......... 9.875 12/01/14 3,252,570
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT).............. 9.00 12/01/19 3,823,260
2,000 Beaver County Industrial Development Authority, Pennsylvania,
Toledo Edison Co Collateralized Ser 1995 B............................. 7.75 05/01/20 2,261,120
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1997 (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 $ 3,452,610
3,000 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade Ser 1994 A (AMT)........................................... 7.55 01/01/19 3,259,980
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,135,720
- -------- ------------
41,080 42,630,990
- -------- ------------
Mortgage Revenue - Multi-Family (5.7%)
Boulder County, Colorado,
3,065 Village Place at Longmont Ser 1989 A (AMT)............................. 10.125 07/15/19 3,131,970
10,837 Village Place at Longmont Ser 1989 B (AMT)............................. 0.00 07/15/19 1,191,719
2,715 San Antonio Housing Finance Corporation, Texas, La Posada Del Rey Ser
1990 A................................................................. 10.00 02/01/20 2,826,451
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)............................... 10.00 01/01/21 2,016,460
10,728 Courthouse Commons Apts Ser 1990 B (AMT)............................... 0.00 01/01/21 1,059,370
- -------- ------------
29,345 10,225,970
- -------- ------------
Mortgage Revenue - Single Family (9.5%)
4,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)................... 6.00 06/01/27 4,084,160
3,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT).................... 6.40 11/15/23 3,601,255
2,000 New Hampshire Housing Finance Authority, 1997 Ser D (AMT) (WI).......... 5.90 07/01/28 1,997,000
Ohio Housing Finance Agency,
1,500 GNMA-Backed 1988 Ser B (AMT)........................................... 8.25 12/15/19 1,581,930
5,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)..................... 6.10 09/01/28 5,103,600
Utah Housing Finance Agency,
225 Ser 1990 A-2 (AMT)..................................................... 7.875 07/01/22 231,671
300 Ser 1990 A-2 (AMT)..................................................... 7.80 07/01/10 309,714
- -------- ------------
16,525 16,909,330
- -------- ------------
Nursing & Health Related Facilities Revenue (21.3%)
2,315 Arkansas Development Finance Authority, Wynwood Nursing Center Ser 1989
(AMT).................................................................. 10.50 11/01/19 2,492,815
Vista, California, Long-Term Care Foundation of America
2,758 Ser 1994 A COPs (a)(b)................................................. 8.50 01/01/20 1,710,160
331 Ser 1994 B COPs (a)(b)................................................. 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 4,005,919
2,440 Sterling, Illinois, Hoosier Care Inc Ser 1989 A......................... 9.75 08/01/19 2,610,068
3,000 Iowa Health Facilities Development Finance Authority, Care Initiatives
Ser 1996............................................................... 9.25 07/01/25 3,917,130
3,285 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990............................ 10.25 01/01/20 3,459,532
1,400 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,522,612
1,030 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1989 Ser A...................................................... 10.375 06/01/10 1,156,989
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Massachusetts Industrial Finance Agency,
$ 4,580 Greater Lynn Special Needs Housing Corp & Mental Health & Retardation
Assn 1990 Issue...................................................... 9.875% 06/01/10 $ 4,980,613
1,205 May Institute for Autistic Children Inc 1990 Issue..................... 9.75 06/01/10 1,306,690
175 Pioneer Valley Living Care Center at Amherst 1990 Issue................ 7.00 10/01/01 165,581
77 Pioneer Valley Living Care Center at Amherst 1990 Issue................ 0.00 10/01/20 1,535
3,000 Allegheny County Hospital Development Authority, Pennsylvania, Allegheny
Valley School Ser 1990................................................. 8.50 02/01/15 3,191,100
4,835 Chester County Industrial Development Authority, Pennsylvania, RHA/PA
Nursing Homes Inc Ser 1989............................................. 10.125 05/01/19 4,441,238
Tarrant County Health Facilities Development Corporation, Texas,
450 3927 Foundation Inc Ser 1989........................................... 10.00 09/01/99 472,964
2,500 3927 Foundation Inc Ser 1989........................................... 10.125 09/01/09 2,621,925
- -------- ------------
37,346 38,060,177
- -------- ------------
Retirement & Lifecare Facilities Revenue (5.9%)
2,095 Pima County Industrial Development Authority, Arizona, Country Club of
La Cholla Ser 1990 (AMT)............................................... 8.50 07/01/20 1,969,300
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove
Ser 1996 (AMT)......................................................... 8.25 10/01/26 2,129,120
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.125 12/15/18 2,140,360
Chesterfield County Industrial Development Authority, Virginia,
5,750 Brandermill Woods Ser 1991 A (b)....................................... 7.25 07/01/16 4,140,000
800 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/17 16,000
800 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/18 16,000
800 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/19 16,000
800 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/20 16,000
800 Brandermill Woods Ser 1991 A (b)....................................... 0.00 07/01/21 16,000
- -------- ------------
15,845 10,458,780
- -------- ------------
Tax Allocation (2.7%)
1,170 Bridgeview, Illinois, Tax Increment Refg Ser 1995....................... 9.00 01/01/11 1,332,864
400 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 468,452
705 Madison Heights Tax Increment Finance Authority, Michigan, Ser 1991..... 8.50 03/15/01 745,805
1,968 Muskegon Downtown Development Authority, Michigan, Ltd Oblig 1989
- -------- Ser A-1 (a)............................................................ 9.75 06/01/18 2,217,080
------------
4,243 4,764,201
- -------- ------------
Transportation Facilities Revenue (8.1%)
2,000 Foothills/Eastern Transportation Corridor Agency, California, Toll Road
Sr Lien Ser 1995 A..................................................... 0.00 01/01/13 1,395,460
2,000 San Joaquin Hills, California, Transportation Corridor, Toll Road Sr
Lien................................................................... 6.75 01/01/32 2,151,760
4,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA)...................... 5.125 10/01/26 3,805,600
5,000 E-470 Public Highway Authority, Colorado, 1997 Ser B (MBIA)............. 0.00 09/01/14 1,980,700
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 2,046,120
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 2,995,620
- -------- ------------
18,000 14,375,260
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Revenue (2.4%)
$ 2,000 Northern Palm Beach County Improvement District, Florida, Water Control
& Impr #9A Ser 1996 A.................................................. 7.30% 08/01/27 $ 2,104,580
2,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996 Ser A
(a).................................................................... 6.40 09/01/11 2,121,680
- -------- ------------
4,000 4,226,260
- -------- ------------
Refunded (3.1%)
3,000 Carol Stream, Illinois, Carol Pointe Ser 1990 A......................... 9.50 01/15/01++ 3,522,960
1,760 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C
(ETM)++................................................................ 9.50 11/15/19 2,078,138
- -------- ------------
4,760 5,601,098
- -------- ------------
195,994 TOTAL MUNICIPAL BONDS (Identified Cost $165,214,683)........................................... 172,709,734
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (2.2%)
1,800 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1989 (Demand
09/02/97).............................................................. 3.70** 11/01/19 1,800,000
2,100 Platte County, Wyoming, Tri-State Generation & Transmission Assn. Inc
- -------- Ser 1984 B (Demand 09/02/97)........................................... 3.75** 07/01/14 2,100,000
------------
3,900 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $3,900,000)............................ 3,900,000
- -------- ------------
$199,894 TOTAL INVESTMENTS (Identified Cost $169,114,683) (c).................................. 99.0%
======== 176,609,734
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.0 1,766,354
---- ------------
NET ASSETS............................................................................. 100.0% $178,376,088
============
====
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security was purchased on a when issued basis.
+ Joint exemption in the District of Columbia and Virginia.
++ Some or all of these securities are segregated in connection with the purchase of when issued securities.
++ Prerefunded to call date shown.
* Coupon resets to 7.50% on 08/15/99.
** Current coupon of variable rate demand obligation.
(a) Resale is restricted to qualified institutional investors.
(b) Non-income producing security; bond in default.
(c) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $9,751,572 and the aggregate gross unrealized depreciation is $2,259,521,
resulting in net unrealized appreciation of $7,495,051.
Bond Insurance:
- --------------
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 1997 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1997
<TABLE>
<S> <C>
Alaska................... 2.3%
Arizona.................. 1.1
Arkansas................. 1.4
California............... 3.9
Colorado................. 3.5
Connecticut.............. 1.2
District of Columbia..... 0.7
Florida.................. 5.6
Georgia.................. 2.2
Illinois................. 6.8
Iowa..................... 5.0%
Kentucky................. 1.2
Louisiana................ 1.9
Maine.................... 2.0
Massachusetts............ 9.8
Michigan................. 11.7
Mississippi.............. 1.8
New Hampshire............ 3.2
New York................. 2.9
Ohio..................... 8.8
Pennsylvania............. 7.5%
Texas.................... 3.3
Utah..................... 2.9
Virginia................. 7.8
Wyoming.................. 1.2
Joint Exemption(1)....... (0.7)
----
Total.................... 99.0%
====
</TABLE>
- ---------------------
(1) Joint exemptions have been included in both geographic locations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $169,114,683)....................................... $176,609,734
Cash.................................................................. 213,277
Receivable for:
Interest.......................................................... 3,381,807
Investments sold.................................................. 425,309
Prepaid expenses and other assets..................................... 13,829
------------
TOTAL ASSETS...................................................... 180,643,956
------------
LIABILITIES:
Payable for:
Investments purchased............................................. 2,002,950
Investment advisory fee........................................... 90,678
Administration fee................................................ 54,407
Accrued expenses and other payables................................... 119,833
------------
TOTAL LIABILITIES................................................. 2,267,868
------------
NET ASSETS........................................................ $178,376,088
============
COMPOSITION OF NET ASSETS:
Paid-in-capital....................................................... $187,115,283
Net unrealized appreciation........................................... 7,495,051
Accumulated undistributed net investment income....................... 1,790,440
Accumulated net realized loss......................................... (18,024,686)
------------
NET ASSETS........................................................ $178,376,088
============
NET ASSET VALUE PER SHARE,
19,978,607 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $8.93
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended August 31, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $6,677,695
----------
EXPENSES
Investment advisory fee................................................. 444,784
Administration fee...................................................... 266,870
Professional fees....................................................... 57,541
Transfer agent fees and expenses........................................ 33,063
Shareholder reports and notices......................................... 14,970
Registration fees....................................................... 11,780
Trustees' fees and expenses............................................. 10,289
Custodian fees.......................................................... 4,370
Other................................................................... 6,861
----------
TOTAL EXPENSES...................................................... 850,528
Less: expense offset.................................................... (4,357)
----------
NET EXPENSES........................................................ 846,171
----------
NET INVESTMENT INCOME............................................... 5,831,524
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain....................................................... 1,152,072
Net change in unrealized appreciation................................... 1,812,843
----------
NET GAIN............................................................ 2,964,915
----------
NET INCREASE............................................................ $8,796,439
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
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
AUGUST 31, 1997 FEBRUARY 28, 1997
- -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 5,831,524 $ 11,999,013
Net realized gain (loss)............................. 1,152,072 (1,945,805)
Net change in unrealized appreciation................ 1,812,843 967,781
------------ ------------
NET INCREASE..................................... 8,796,439 11,020,989
Dividends from net investment income................. (5,993,450) (12,789,749)
Net decrease from transactions in shares of
beneficial interest................................. -- (104,700)
------------ ------------
NET INCREASE (DECREASE).......................... 2,802,989 (1,873,460)
NET ASSETS:
Beginning of period.................................. 175,573,099 177,446,559
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,790,440 and $1,952,366, respectively.)........ $178,376,088 $ 175,573,099
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (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.
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
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 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 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.
<PAGE> 16
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
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, 1997 aggregated
$16,064,050 and $18,006,155, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At August 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $11,000.
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 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, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $4,934. At August 31, 1997, the Fund had an accrued pension liability of
$47,925 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. 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 29, 1996...................................................... 19,990,607 $199,907 $187,020,076
Treasury shares purchased and retired (weighted average discount 2.07%)*........ (12,000) (120) (104,580)
---------- -------- ------------
Balance, February 28, 1997 and August 31, 1997.................................. 19,978,607 $199,787 $186,915,496
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
<PAGE> 17
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 1997 (unaudited) continued
6. 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>
July 1, 1997 $ 0.05 September 5, 1997 September 19, 1997
September 23, 1997 $ 0.045 October 3, 1997 October 17, 1997
September 23, 1997 $ 0.045 November 7, 1997 November 21, 1997
September 23, 1997 $ 0.045 December 5, 1997 December 19, 1997
</TABLE>
7. FEDERAL INCOME TAX STATUS
At February 28, 1997, the Fund had a net capital loss carryover of approximately
$17,607,000, to offset future capital gains to the extent provided by
regulations through February 28 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2002
---- 2003 2004 2005
------ ----- -----
$4
==== $10,485 $2,826 $4,292
====== ===== =====
</TABLE>
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 $1,943,000 during fiscal 1997.
As of February 28, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
<PAGE> 18
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, ----------------------------------------------
1997 1997 1996** 1995
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 8.79 $ 8.88 $ 8.66 $ 8.74
-------- -------- -------- --------
Net investment income....................................... 0.29 0.60 0.66 0.64
Net realized and unrealized gain (loss)..................... 0.15 (0.05) 0.18 (0.12)
-------- -------- -------- --------
Total from investment operations............................ 0.44 0.55 0.84 0.52
-------- -------- -------- --------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.64) (0.62) (0.60)
Net realized gain.......................................... -- -- -- --
-------- -------- -------- --------
Total dividends and distributions........................... (0.30) (0.64) (0.62) (0.60)
-------- -------- -------- --------
Net asset value, end of period.............................. $ 8.93 $ 8.79 $ 8.88 $ 8.66
======== ======== ======== ========
Market value, end of period................................. $ 9.188 $ 8.625 $ 8.75 $ 8.00
======== ======== ======== ========
TOTAL INVESTMENT RETURN+.................................... 10.17%(1) 5.94% 17.87% 6.36%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.96%(2)(3) 1.01%(3) 1.01%(3) 1.01%
Net investment income....................................... 6.56%(2) 6.87% 7.50% 7.60%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $178,376 $175,573 $177,447 $175,038
Portfolio turnover rate..................................... 10%(1) 21% 18% 5%
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28*
--------------------------------
1994 1993
--------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.13 $ 9.23
-------- --------
Net investment income....................................... 0.63 0.67
Net realized and unrealized gain (loss)..................... (0.42) (0.08)
-------- --------
Total from investment operations............................ 0.21 0.59
-------- --------
Less dividends and distributions from:
Net investment income...................................... (0.60) (0.68)
Net realized gain.......................................... -- (0.01)
-------- --------
Total dividends and distributions........................... (0.60) (0.69)
-------- --------
Net asset value, end of period.............................. $ 8.74 $ 9.13
======== ========
Market value, end of period................................. $ 8.125 $ 8.75
======== ========
TOTAL INVESTMENT RETURN+.................................... (0.36)% (4.42)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.01% 1.11%
Net investment income....................................... 7.13% 7.42%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $181,336 $189,291
Portfolio turnover rate..................................... 6% 3%
</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) Does not reflect the effect of expense offset of 0.01%
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- -----------------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -----------------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -----------------------------------------------------
Dean Witter Trust FSB
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
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, 1997
