<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS February 28, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Municipal
Income Opportunities Trust II (OIB) for the fiscal year ended February 28, 1997.
After accelerating in the first half of 1996, domestic economic growth moderated
during the third quarter. Consumer spending led to a rebound in economic
activity in the fourth quarter. Under these conditions, fixed-income yields
moved lower through November but rose between December and February. Inflation
remained under control despite full employment and stronger growth. On March 25,
1997, the Federal Reserve Board raised the federal-funds rate 25 basis points to
5.50 percent in a preemptive move against a possible acceleration in the rate of
inflation.
MUNICIPAL MARKET CONDITIONS
Long-term insured revenue municipal bond yields rose from 5.40 percent in
February 1996 and reached a high of 6.15 percent in April and June before
returning to 5.50 percent in November. At the end of February, insured municipal
yields stood at 5.55 percent, having lagged the trend of Treasuries toward
higher yields. The ratio of insured municipal revenue bond yields to 30-year
U.S. Treasury yields fell from 87 percent to 82 percent during the past 12
months. A declining ratio means that municipal bond prices outperformed U.S.
Treasury prices. The average annual range of this ratio over the past three
years has been 81 percent to 92 percent. New-issue municipal volume increased 14
percent to $183 billion in 1996. Underwriting volume in 1997 is expected to
exceed the amount of issues that will either mature or be called for redemption.
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
PERFORMANCE
OIB's net asset value (NAV) declined from $8.88 to $8.79 per share during the
fiscal year ended February 28, 1997. Based on this NAV change, plus reinvestment
of tax-free dividends totaling $0.64 per share, the Fund's total NAV return was
6.38 percent. OIB's market price on the New York Stock Exchange declined from
$8.75 per share to $8.625 per share during the year. Based on this market price
change and reinvestment of tax-free dividends the Fund's total market return was
5.94 percent.
OIB's market price represented a two percent discount to NAV on February 28,
1997. Undistributed net investment income totaled $0.10 per share on February
28, 1997, versus $0.14 per share a year ago. Beginning with the November 1996
dividend, the monthly rate was reduced from $0.055 to $0.05 per share to more
closely reflect the Fund's anticipated income as older, higher yielding
investments are called for redemption. Net assets exceeded $175 million.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 13 long-term sectors and 61
credits. Non-rated securities comprised 63 percent of the Fund's portfolio. The
Fund'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. One loan representing less than one percent of the Fund's net
assets was not accruing interest. As of February 28, 1997, an additional 4
loans, totaling 10 percent of net assets, were accruing income, but may face
difficulty meeting future debt service requirements.
FIVE LARGEST SECTORS AS OF FEBRUARY 28, 1997
(% OF NET ASSETS)
IDR/PCR*
24%
HOUSING NURSING &
12% HEALTH RELATED
23%
HOSPITAL
8%
ALL OTHERS TRANSPORTATION
25% 8%
*INDUSTRIAL DEVELOPMENT REVENUE/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
CALL STRUCTURE AS OF FEBRUARY 28, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE
CALL PROTECTION:
6 YEARS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.7% 6.9% 14.3% 15.2% 13.1% 3.4% 7.4% 1.6% 9.3% 17.8% 6.4% 3.9%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007- 2012+
2011
YEARS BONDS CALLABLE
</TABLE>
LOOKING AHEAD
The collapse of flat-tax proposals caused municipal bonds to improve relative to
U.S. Treasury securities. Tax-free yields are currently rich within their
average range to Treasury yields. If municipal yields were to rise significantly
in the future, the Fund would tend to sell its relatively defensive bonds with
short calls to extend maturity and increase call protection.
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> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.1%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D..................................... 5.75% 08/15/10 $ 1,979,660
- -------- -----------
Educational Facilities Revenue (4.6%)
1,600 ABAG Finance Authority for Nonprofit Corporations, National Center for
International Schools COPs............................................. 7.50 05/01/11 1,595,872
2,000 Volusia County Educational Facilities Authority, Florida, Embry-Riddle
Aeronautical University Ser 1996 A..................................... 6.125 10/15/26 2,025,560
1,500 New Hampshire Higher Educational & Health Facilities Authority,
Brewster Academy Ser 1995.............................................. 6.75 06/01/25 1,535,430
2,000 Colby-Sawyer College Ser 1996.......................................... 7.50 06/01/26 2,054,440
1,000 New York State Dormitory Authority, State University 1993 Ser A......... 5.25 05/15/15 940,690
- -------- -----------
8,100 8,151,992
- -------- -----------
Electric Revenue (2.1%)
4,000 Intermountain Power Agency, Utah, Refg 1996 Ser D....................... 5.00 07/01/21 3,614,080
- -------- -----------
Hospital Revenue (8.2%)
2,000 Corona, California, Vista Hospital System Inc Ser 1992 B COPs........... 9.50 07/01/20 2,245,920
1,760 Illinois Health Facilities Authority, Hinsdale Hospital Ser 1990 C...... 9.50 11/15/19 1,996,826
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/14 2,071,060
3,000 Dana Farber Cancer Institute Ser G - 1................................. 6.25 12/01/22 3,094,470
4,750 Michigan Hospital Finance Authority, Sinai Hospital of Greater Detroit
Refg Ser 1995.......................................................... 6.70 01/01/26 4,914,825
- -------- -----------
13,510 14,323,101
- -------- -----------
Industrial Development/Pollution Control Revenue (23.6%)
1,350 Metropolitan Washington Airports Authority, District of Columbia,
CaterAir International Corp Ser 1991 (AMT)+............................ 10.125 09/01/11 1,359,436
2,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/American Airlines Inc
Ser 1990 A (AMT)....................................................... 7.875 11/01/25 2,171,220
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT)................ 4.00 # 08/15/10 1,557,088
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser
1993................................................................... 5.875 08/01/08 2,936,670
Lapeer Economic Development Corporation, Michigan,
2,055 Dott Manufacturing Co Ser 1989 B (AMT)................................. 9.00 11/15/19 2,070,412
2,015 Dott Manufacturing Co Ser 1989 A (AMT)................................. 10.625 11/15/19 2,179,666
Michigan Strategic Fund,
1,539 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.375 10/01/06 1,617,226
5,206 Kasle Steel Corp Ser 1989 (AMT)........................................ 9.50 10/01/14 5,470,480
1,435 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)................................... 10.625 08/15/19 1,549,111
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C............ 9.875 12/01/14 3,305,520
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A (AMT).............. 9.00 12/01/19 3,757,705
2,000 Beaver County Industrial Development Authority, Pennsylvania, Toledo
Edison Co Collateralized Ser 1995 B.................................... 7.75 05/01/20 2,188,160
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1997, 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 $ 3,347,520
3,420 Westmoreland County Industrial Development Authority, Pennsylvania,
Valley Landfill/National Waste Energy Corp Ser 1989 A (AMT)............ 9.75 08/01/04 2,738,770
3,000 Pittsylvania County Industrial Development Authority, Virginia,
Multi-Trade Ser 1994 A (AMT)........................................... 7.55 01/01/19 3,166,620
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995 (AMT)....... 7.00 07/15/25 2,083,180
- -------- -----------
41,120 41,498,784
- -------- -----------
Mortgage Revenue - Multi-Family (5.8%)
Boulder County, Colorado,
3,065 Village Place at Longmont Ser 1989 A (AMT)............................. 10.125 07/15/19 3,142,391
10,837 Village Place at Longmont Ser 1989 B (AMT)............................. 0.00 07/15/19 1,133,851
2,715 San Antonio Housing Finance Corporation, Texas, La Posada Del Rey Ser
1990 A................................................................. 10.00 02/01/20 2,859,601
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)............................... 10.00 01/01/21 2,008,560
10,728 Courthouse Commons Apts Ser 1990 B (AMT)............................... 0.00 01/01/21 1,003,264
- -------- -----------
29,345 10,147,667
- -------- -----------
Mortgage Revenue - Single Family (6.1%)
3,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT).................... 6.40 11/15/23 3,543,575
Ohio Housing Finance Agency
1,610 GNMA-Backed 1988 Ser B (AMT)............................................ 8.25 12/15/19 1,708,355
5,000 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)...................... 6.10 09/01/28 5,021,100
Utah Housing Finance Agency,
235 Ser 1990 A-2 (AMT)..................................................... 7.875 07/01/22 241,625
320 Ser 1990 A-2 (AMT)..................................................... 7.80 07/01/10 329,949
- -------- -----------
10,665 10,844,604
- -------- -----------
Nursing & Health Related Facilities Revenue (22.6%)
2,315 Arkansas Development Finance Authority, Wynwood Nursing Center Ser 1989
(AMT).................................................................. 10.50 11/01/19 2,497,978
Vista, California, Long-Term Care Foundation of America
2,758 Ser 1994 A COPs (a) (b)................................................ 8.50 01/01/20 1,379,161
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 3,938,871
2,460 Sterling, Illinois, Hoosier Care Inc Ser 1989 A......................... 9.75 08/01/19 2,620,269
4,000 Iowa Health Facilities Development Finance Authority, Care Initiatives
Ser 1996............................................................... 9.25 07/01/25 4,690,080
3,285 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990............................ 10.25 01/01/20 3,436,373
1,500 Westside Habilitation Center, Louisiana, Intermediate Care Facility for
the Mentally Retarded Refg Ser 1993.................................... 8.375 10/01/13 1,590,885
1,100 Massachusetts Health & Educational Facilities Authority, Farren Care
Center 1989 Ser A...................................................... 10.375 06/01/10 1,242,043
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Massachusetts Industrial Finance Agency,
$ 4,750 Greater Lynn Special Needs Housing Corp & Mental Health & Retardation
Assn 1990 Issue........................................................ 9.875% 06/01/10 $ 5,120,642
1,250 May Institute for Autistic Children Inc 1990 Issue...................... 9.75 06/01/10 1,341,612
175 Pioneer Valley Living Care Center at Amherst 1990 Issue................. 7.00 10/01/01 164,090
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 3,156,450
4,900 Chester County Industrial Development Authority, Pennsylvania, RHA/PA
Nursing Homes Inc Ser 1989............................................. 10.125 05/01/19 5,266,177
Tarrant County Health Facilities Development Corporation, Texas,
645 3927 Foundation Inc Ser 1989........................................... 10.00 09/01/99 686,525
2,500 3927 Foundation Inc Ser 1989........................................... 10.125 09/01/09 2,615,200
- -------- -----------
39,011 39,751,197
- -------- -----------
Retirement & Lifecare Facilities Revenue (5.8%)
2,125 Pima County Industrial Development Authority, Arizona, Country Club of
La Cholla Ser 1990 (AMT)............................................... 8.50 07/01/20 1,854,062
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen Cove Ser 1996
(AMT).................................................................. 8.25 10/01/26 2,018,460
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.............................. 7.125 12/15/18 2,018,920
Chesterfield County Industrial Development Authority, Virginia,
5,750 Brandermill Woods Ser 1991 A........................................... 7.25++++ 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
- -------- -----------
15,875 10,111,442
- -------- -----------
Tax Allocation (2.8%)
1,170 Bridgeview, Illinois, Tax Increment Refg Ser 1995....................... 9.00 01/01/11 1,294,102
400 Hodgkins, Illinois, Ser 1991............................................ 9.50 12/01/09 466,316
820 Madison Heights Tax Increment Finance Authority, Michigan, Ser 1991..... 8.50 03/15/01 860,590
1,996 Muskegon Downtown Development Authority, Michigan, Ltd Oblig 1989 Ser
A-1 (a)................................................................ 9.75 06/01/18 2,267,335
- -------- -----------
4,386 4,888,343
- -------- -----------
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 1,323,420
2,000 San Joaquin Hills Transportation Corridor Agency, California, Toll Road
Sr Lien................................................................ 6.75 01/01/32 2,109,140
5,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA)...................... 5.125 10/01/26 4,604,300
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg Ser 1993 A.... 6.00 10/01/13 2,005,180
1,250 Indianapolis Airport Authority, Indiana, Ser 1996 A (FGIC).............. 5.60 07/01/15 1,242,813
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 2,936,130
- -------- -----------
15,250 14,220,983
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1997, 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 $ 2,067,320
2,000 Mashantucket (Western) Pequot Tribe, Special 1996 Ser A (a)............. 6.40 09/01/11 2,075,900
- -------- -----------
4,000 4,143,220
- -------- -----------
Refunded (3.9)
5,765 Carol Stream, Illinois, Carol Pointe Ser 1990 A......................... 9.50 01/15/01++ 6,860,292
- -------- -----------
193,027 TOTAL MUNICIPAL BONDS (Identified Cost $164,853,157)............................................ 170,535,365
- -------- -----------
SHORT-TERM MUNICIPAL OBLIGATIONS (1.0%)
700 Philadelphia Hospitals & Higher Educational Facilities Authority,
Children's Hospital of Philadelphia 1996 Ser A (Demand 03/03/97)....... 3.45* 03/01/27 700,000
1,000 North Texas Health Facilities Development Corporation, University
Medical Center Inc Ser 1987............................................ 7.75 04/01/97++ 1,023,610
- -------- -----------
1,700 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $1,723,610)............................. 1,723,610
- -------- -----------
$194,727 TOTAL INVESTMENTS (Identified Cost $166,576,767) (c)............................... 98.1% 172,258,975
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES..................................... 1.9 3,314,124
-----------
NET ASSETS......................................................................... 100.0% $175,573,099
===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Joint exemption in the District of Columbia and Virginia.
++ Prerefunded to call date shown.
++++ Restructured coupon rate effective 01/01/97.
# 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 $8,723,558 and the aggregate gross unrealized depreciation is $3,041,350,
resulting in net unrealized appreciation of $5,682,208.
Bond Insurance:
- ------------------------------------------------------------------------------------------------------------------------
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1997, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1997
<TABLE>
<S> <C>
Arizona.................. 1.1%
Arkansas................. 1.5
California............... 4.9
Colorado................. 2.4
Connecticut.............. 1.2
District of Columbia..... 0.8
Florida.................. 6.1
Georgia.................. 2.2
Illinois................. 8.8
Indiana.................. 0.7
Iowa..................... 4.6
Louisiana................ 0.9
Maine.................... 2.0
Massachusetts............ 10.0
Michigan................. 11.9
Mississippi.............. 1.9
New Hampshire............ 2.0
New York................. 2.8
Ohio..................... 8.8
Pennsylvania............. 9.9
Texas.................... 4.1
Utah..................... 2.4
Virginia................. 6.7
West Virginia............ 1.2
Joint Exemption*......... (0.8)
----
Total.................... 98.1%
====
</TABLE>
- ---------------------
* Joint exemption has been included in both geographic locations.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997
ASSETS:
Investments in securities, at value
(identified cost $166,576,767)....................................... $172,258,975
Cash.................................................................. 81,331
Receivable for:
Interest.......................................................... 3,385,172
Investments sold.................................................. 75,413
Prepaid expenses and other assets..................................... 24,674
------------
TOTAL ASSETS...................................................... 175,825,565
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 65,295
Administration fee................................................ 40,473
Accrued expenses and other payables................................... 146,698
------------
TOTAL LIABILITIES................................................. 252,466
------------
NET ASSETS:
Paid-in-capital....................................................... 187,115,283
Net unrealized appreciation........................................... 5,682,208
Accumulated undistributed net investment income....................... 1,952,366
Accumulated net realized loss......................................... (19,176,758)
------------
NET ASSETS........................................................ $175,573,099
============
NET ASSET VALUE PER SHARE 19,978,607 shares outstanding (unlimited
shares authorized of $.01 par value)................................. $8.79
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended February 28, 1997
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $13,759,993
------------
EXPENSES
Investment advisory fee................................................ 875,909
Administration fee..................................................... 525,545
Professional fees...................................................... 220,995
Transfer agent fees and expenses....................................... 65,989
Shareholder reports and notices........................................ 28,153
Registration fees...................................................... 22,910
Trustees' fees and expenses............................................ 16,752
Custodian fees......................................................... 8,696
Other.................................................................. 4,690
------------
TOTAL EXPENSES..................................................... 1,769,639
LESS: EXPENSE OFFSET............................................... (8,659)
------------
NET EXPENSES....................................................... 1,760,980
------------
NET INVESTMENT INCOME.............................................. 11,999,013
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................................................... (1,945,805)
Net change in unrealized appreciation.................................. 967,781
------------
NET LOSS........................................................... (978,024)
------------
NET INCREASE........................................................... $11,020,989
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 11,999,013 $ 13,285,521
Net realized loss.................................. (1,945,805) (5,500,400)
Net change in unrealized
appreciation/depreciation......................... 967,781 8,939,997
------------ ------------
NET INCREASE................................... 11,020,989 16,725,118
Dividends from net investment income............... (12,789,749) (12,452,187)
Net decrease from transactions in shares of
beneficial interest............................... (104,700) (1,864,678)
------------ ------------
NET INCREASE (DECREASE)........................ (1,873,460) 2,408,253
NET ASSETS:
Beginning of period................................ 177,446,559 175,038,306
------------ ------------
END OF PERIOD (Including undistributed net
investment income of $1,952,366 and $2,743,102,
respectively).................................. $ 175,573,099 $ 177,446,559
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1997
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> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1997, 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> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1997, 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 year ended February 28, 1997 aggregated
$45,078,570 and $35,945,243, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At February 28, 1997, the Fund had
transfer agent fees and expenses payable of approximately $5,200.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended February 28, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $16,752. At February 28, 1997, the Fund had an accrued pension liability of
$44,521 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 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 0.00%)*........ (12,000) (120) (104,580)
---------- -------- ------------
Balance, February 28, 1997...................................................... 19,978,607 $199,787 $186,915,496
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
<PAGE> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1997, 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>
February 25,
1997............. $0.05 March 7, 1997 March 21, 1997
March 25, 1997.... $0.05 April 4, 1997 April 18, 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>
(AMOUNTS IN THOUSANDS)
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
2002 2003 2004 2005 Total
---- ------- ------ ------ -------
<CAPTION>
<S> <C> <C> <C> <C> <C>
$4 $10,485 $2,826 $4,292 $17,607
==== ======== ======= ======= ========
</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> 16
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28*
---------------------------------------------------
1997 1996** 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 8.88 $ 8.66 $ 8.74 $ 9.13 $ 9.23
------ ------ ------ ------ ------
Net investment income........................................ 0.60 0.66 0.64 0.63 0.67
Net realized and unrealized gain (loss)...................... (0.05) 0.18 (0.12) (0.42) (0.08)
------ ------ ------ ------ ------
Total from investment operations............................. 0.55 0.84 0.52 0.21 0.59
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income..................................... (0.64) (0.62) (0.60) (0.60) (0.68)
Net realized gain......................................... -- -- -- -- (0.01)
------ ------ ------ ------ ------
Total dividends and distributions............................ (0.64) (0.62) (0.60) (0.60) (0.69)
------ ------ ------ ------ ------
Net asset value, end of period............................... $ 8.79 $ 8.88 $ 8.66 $ 8.74 $ 9.13
====== ====== ====== ====== ======
Market value, end of period.................................. $ 8.625 $ 8.75 $ 8.00 $ 8.125 $ 8.75
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+..................................... 5.94% 17.87% 6.36% (0.36)% (4.42)%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 1.01%(1) 1.01%(1) 1.01% 1.01% 1.11%
Net investment income........................................ 6.87% 7.50% 7.60% 7.13% 7.42%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $175,573 $177,447 $175,038 $181,336 $189,291
Portfolio turnover rate...................................... 21% 18% 5% 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) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
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 28, 1997, 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 at February 28, 1997 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 11, 1997
--------------------------------------------------------------------
1997 FEDERAL TAX NOTICE
During the year ended February 28, 1997, the Fund paid to the
shareholders $0.64 per share from net investment income all of
which were exempt interest dividends, excludable from gross
income for Federal income tax purposes.
<PAGE> 18
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<PAGE> 19
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<PAGE> 20
TRUSTEES
- ----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn Municipal
John R. Haire
Dr. Manuel H. Johnson Income
Michael E. Nugent
Philip J. Purcell Opportunities
John L. Schroeder
Trust II
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 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
Annual Report
February 28, 1997
