<PAGE> 1
MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center, New York,
New York 10048
LETTER TO THE SHAREHOLDERS February 28, 1998
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, 1998.
Over the past six months the securities markets were impacted by the Asian
financial crisis and its effect on the U.S. economy. International currency
turmoil strengthened the value of the U.S. dollar and created a "flight to
quality" demand for U.S. Treasury securities. Municipal bonds followed the trend
of Treasuries with yields declining to a range last seen 20 years ago. Domestic
employment conditions strengthened as unemployment declined to its lowest level
since 1973. The bond market rally was also aided by prospects of a federal
budget surplus, the first in more than two decades. Inflation remained subdued
despite the economy's strength.
MUNICIPAL MARKET CONDITIONS
Long-term insured municipal index yields declined from 5.50 percent in August
1997 to 5.20 percent at the end of February 1998. As usually
BOND YIELDS 1994-1998
<TABLE>
<CAPTION>
Insured Municipal
30-Year U.S. 30-Year Insured Revenue Yields as a Percentage
Treasury Yields Municipal Yields of U.S. Treasury Yields
<S> <C> <C> <C>
Dec '93 5.4 6.34 85.17%
5.4 6.24 86.54%
5.8 6.66 87.09%
6.4 7.09 90.27%
6.35 7.32 86.75%
6.25 7.43 84.12%
Jun '94 6.5 7.61 85.41%
6.25 7.39 84.57%
6.3 7.45 84.56%
6.55 7.81 83.87%
6.75 7.96 84.80%
7 8 87.50%
Dec '94 6.75 7.88 85.66%
6.4 7.7 83.12%
6.15 7.44 82.66%
6.15 7.43 82.77%
6.2 7.34 84.47%
5.8 6.66 87.09%
Jun '95 6.1 6.62 92.15%
6.1 6.86 88.92%
6 6.66 90.08%
5.95 6.48 91.82%
5.75 6.33 90.84%
5.5 6.14 89.56%
Dec '95 5.35 5.94 90.07%
5.4 6.03 89.55%
5.8 6.46 86.69%
5.85 6.66 87.84%
5.95 6.89 86.36%
6.05 6.99 86.55%
Jun '96 5.9 6.89 85.63%
5.85 6.97 83.93%
5.9 7.11 82.98%
5.7 6.93 82.25%
5.65 6.64 85.09%
5.5 6.35 86.61%
Dec '96 5.6 6.63 84.46%
5.7 6.79 83.95%
5.65 6.8 83.08%
5.9 7.1 83.10%
5.75 6.94 82.85%
5.65 6.91 81.77%
Jun '97 5.6 6.78 82.60%
5.3 6.3 84.00%
5.5 6.61 83.00%
5.4 6.4 84.40%
5.35 6.15 86.90%
5.3 6.05 87.60%
Dec '97 5.15 5.92 86.90%
Jan '98 5.15 5.8 88.80%
Feb. '98 5.2 5.92 87.80%
</TABLE>
<PAGE> 2
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
happens when yields change rapidly, the municipal rally lagged the rally in
Treasuries. The ratio of municipal yields to Treasury yields improved from an
historically rich 83 percent in August to a more attractive 88 percent in
February. A rising yield ratio means that municipals have underperformed
Treasuries and have become relatively more attractive.
Total municipal volume increased 20 percent to $220 billion in 1997. Half of the
underwritings were enhanced by bond insurance. Much of this growth came from
refunding issues sold in the second half of the year as interest rates declined.
Overall, refundings represented one quarter of total new volume. So far in 1998,
the pace of refunding activity has increased and total volume has exceeded last
year's level.
PERFORMANCE
The Fund's net asset value (NAV) increased from $8.79 to $9.07 over the fiscal
year. Based on this NAV change plus reinvestment of tax-free dividends totaling
$0.58 per share, the Fund's total NAV return was 10.06 percent. The Fund's
market price on the New York Stock Exchange increased from $8.625 to $9.0625 per
share during the same period. Based on this market price change and reinvestment
of dividends, the Fund's total market return was 12.08 percent. On February 28,
1998, OIB's market price was trading at a modest discount of 0.08 percent to its
NAV.
Monthly dividends for the first quarter of 1998 were declared in December. The
level of undistributed net investment income totaled $0.09 per share on February
28, 1998 versus $0.10 per share a year ago.
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 fiscal year ended February 28, 1998,
the Fund purchased and retired 7,000 shares of common stock at a weighted
average market discount of 3.71 percent.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 14 long-term sectors and 63
credits. Non-rated securities continued to comprise over 60 percent of the
portfolio. At the end of February, average maturity was 20 years. The
distribution of bond call dates (illustrated in the accompanying chart) produced
an average call protection of 6 years. One credit, representing 2 percent of net
assets was not
<PAGE> 3
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
accruing interest. An additional three credits, totaling 7 percent of net
assets, were accruing income but may face difficulties meeting future
debt-service requirements.
LOOKING AHEAD
The economic fundamentals are in place for another year of solid, albeit less
spectacular, domestic growth in 1998. Events in the Far East have strengthened
the U.S. dollar and led to lower interest rates. The Asian financial crisis
seems likely to moderate U.S. economic growth and inflationary pressures. Under
these conditions the outlook for municipal bonds remains favorable.
LARGEST SECTORS AS OF FEBRUARY 28, 1998
(% OF NET ASSETS)
<TABLE>
<S> <C>
IDR/PCR* 24%
NURSING & HEALTH 21%
MORTGAGE 15%
TRANSPORTATION 7%
RETIREMENT & LIFE CARE 6%
HOSPITAL 6%
EDUCATION 5%
REFUNDED 5%
ALL OTHERS 11%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CALL STRUCTURE AS OF FEBRUARY 28, 1998
(% OF TOTAL LONG-TERM PORTFOLIO)
PERCENT CALLABLE
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
YEARS BONDS CALLABLE
<TABLE>
<S> <C>
1998 7%
1999 12%
2000 12%
2001 11%
2002 2%
2003 6%
2004 2%
2005 9%
2006 17%
2007 10%
2008+ 12%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<PAGE> 4
MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
We appreciate your continued support of Municipal Income Opportunities Trust II
and look forward to serving your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.5%)
General Obligation (1.1%)
$ 2,000 New York City, New York, 1994 Ser D......................... 5.75% 08/15/10 $ 2,098,740
- -------- -----------
Educational Facilities Revenue (4.8%)
1,600 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 05/01/11 1,708,096
2,000 Volusia County Educational Facilities Authority, Florida,
Embry-Riddle Aeronautical University Ser 1996 A............ 6.125 10/15/26 2,120,980
New Hampshire Higher Educational & Health Facilities
1,500 Authority, Brewster Academy Ser 1995....................... 6.75 06/01/25 1,618,500
2,000 Colby-Sawyer College Ser 1996.............................. 7.50 06/01/26 2,196,280
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 1,034,410
- -------- -----------
8,100 8,678,266
- -------- -----------
Electric Revenue (2.7%)
5,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA) **.................................................... 5.00 07/01/21 4,858,800
- -------- -----------
Hospital Revenue (5.9%)
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 2,176,800
3,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 3,255,120
4,750 Michigan Hospital Finance Authority, Sinai Hospital of
Greater Detroit Refg Ser 1995.............................. 6.70 01/01/26 5,260,767
- -------- -----------
9,750 10,692,687
- -------- -----------
Industrial Development/Pollution Control Revenue (23.8%)
1,250 Metropolitan Washington Airports Authority, District of
Columbia, CaterAir International Corp Ser 1991 (AMT)+...... 10.125 09/01/11 1,301,812
2,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport/American
Airlines Inc Ser 1990 A (AMT).............................. 7.875 11/01/25 2,194,740
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,574,805
2,000 Perry County, Kentucky, TJ International Inc Ser 1997
(AMT)...................................................... 6.55 04/15/27 2,199,220
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT).... 4.00 08/15/10 1,918,098
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 3,105,570
Lapeer Economic Development Corporation, Michigan,
2,030 Dott Manufacturing Co Ser 1989 B (AMT)..................... 9.00 11/15/19 1,522,500
1,990 Dott Manufacturing Co Ser 1989 A (AMT)..................... 10.625 11/15/19 1,492,500
Michigan Strategic Fund,
1,441 Kasle Steel Corp Ser 1989 (AMT)............................ 9.375 10/01/06 1,500,283
5,206 Kasle Steel Corp Ser 1989 (AMT)............................ 9.50 10/01/14 5,422,268
1,415 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)....................... 10.625 08/15/19 1,061,250
3,000 Claiborne County, Mississippi, Middle South Energy Inc Ser C
**......................................................... 9.875 12/01/14 3,196,710
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 A
(AMT)...................................................... 9.00 12/01/19 3,791,025
1,500 Dayton, Ohio, Special Facilities Emery Air Freight Refg Ser
A (WI)..................................................... 5.625 02/01/18 1,529,250
2,000 Beaver County Industrial Development Authority, Pennsylvania,
Toledo Edison Co Collateralized Ser 1995 B................. 7.75 05/01/20 2,326,820
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1998, 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 $ 3,361,920
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Ser 1994 A (AMT)..................... 7.55 01/01/19 3,317,550
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995
(AMT)...................................................... 7.00 07/15/25 2,240,380
- -------- -----------
42,432 43,056,701
- -------- -----------
Mortgage Revenue - Multi-Family (5.7%)
Boulder County, Colorado, Village Place at Longmont
3,065 Ser 1989 A (AMT)........................................... 10.125 07/15/19 3,120,507
10,837 Village Place at Longmont Ser 1989 B (AMT)................. 0.00.. 07/15/19 1,252,838
2,680 San Antonio Housing Finance Corporation, Texas, La Posada
Del Rey Ser 1990 A......................................... 10.00 02/01/20 2,784,493
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00. 01/01/21 2,026,940
10,728 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00.. 01/01/21 1,155,169
- -------- -----------
29,310 10,339,947
- -------- -----------
Mortgage Revenue - Single Family (9.2%)
4,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 4,189,800
3,125 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 3,254,625
2,000 New Hampshire Housing Finance Authority, 1997 Ser D (AMT)... 5.90 07/01/28 2,074,080
Ohio Housing Finance Agency,
1,375 GNMA-Backed 1988 Ser B (AMT)............................... 8.25 12/15/19 1,449,772
4,990 Residential GNMA-Collateralized 1996 Ser B-2 (AMT)......... 6.10 09/01/28 5,247,434
Utah Housing Finance Agency,
200 Ser 1990 A-2 (AMT)......................................... 7.875 07/01/22 206,460
265 Ser 1990 A-2 (AMT)......................................... 7.80 07/01/10 274,243
- -------- -----------
15,955 16,696,414
- -------- -----------
Nursing & Health Related Facilities Revenue (20.8%)
2,285 Arkansas Development Finance Authority, Wynwood Nursing
Center Ser 1989 (AMT)...................................... 10.50 11/01/19 2,515,488
3,965 Monroe County Development Authority, Georgia, Health
Scholarships Inc Ser 1989 A................................ 10.125 09/01/19 4,083,316
2,440 Sterling, Illinois, Hoosier Care Inc Ser 1989 A............. 9.75.. 08/01/19 2,604,920
3,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 3,989,220
3,240 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990................ 10.25. 01/01/20 3,504,578
1,300 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,463,839
1,030 Massachusetts Health & Educational Facilities Authority,
Farren Care Center 1989 Ser A.............................. 10.375 06/01/10 1,177,383
Massachusetts Industrial Finance Agency,
4,580 Greater Lynn Special Needs Housing Corp & Mental Health &
Retardation Assn 1990 Issue.............................. 9.875 06/01/10 5,033,512
1,205 May Institute for Autistic Children Inc 1990 Issue......... 9.75 06/01/10 1,319,162
175 Pioneer Valley Living Care Center at Amherst 1990 Issue.... 7.00 10/01/01 168,605
77 Pioneer Valley Living Care Center at Amherst 1990 Issue.... 0.00 10/01/20 1,535
1,000 New Jersey Economic Development Authority, Franciscan Oaks
Ser 1997................................................... 5.75 10/01/23 1,011,240
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Allegheny County Hospital Development Authority,
Pennsylvania, Allegheny Valley School Ser 1990............. 8.50% 02/01/15 $ 3,192,480
4,835 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989............ 10.125 05/01/19 4,498,726
Tarrant County Health Facilities Development Corporation,
450 Texas, 3927 Foundation Inc Ser 1989........................ 10.00 09/01/99 469,391
2,500 3927 Foundation Inc Ser 1989............................... 10.125 09/01/09 2,647,675
- -------- -----------
35,082 37,681,070
- -------- -----------
Retirement & Lifecare Facilities Revenue (5.9%)
2,095 Pima County Industrial Development Authority, Arizona,
Country Club
La Cholla Ser 1990 (AMT)................................... 8.50 07/01/20 2,193,004
2,000 Glen Cove Housing Authority, New York, The Mayfair at Glen
Cove Ser 1996 (AMT)........................................ 8.25 10/01/26 2,232,520
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.125. 12/15/18 2,161,840
Chesterfield County Industrial Development Authority,
5,750 Virginia, 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 8,000
800 Brandermill Woods Ser 1991 A (b)........................... 0.00 07/01/18 8,000
800 Brandermill Woods Ser 1991 A (b)........................... 0.00 07/01/19 8,000
800 Brandermill Woods Ser 1991 A (b)........................... 0.00 07/01/20 8,000
800 Brandermill Woods Ser 1991 A (b)........................... 0.00 07/01/21 8,000
- -------- -----------
15,845 10,767,364
- -------- -----------
Tax Allocation (2.6%)
1,170 Bridgeview, Illinois, Tax Increment Refg Ser 1995........... 9.00 01/01/11 1,361,845
400 Hodgkins, Illinois, Ser 1991................................ 9.50 12/01/09 472,848
645 Madison Heights Tax Increment Finance Authority, Michigan,
Ser 1991................................................... 8.50 03/15/01 690,724
1,968 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (a).................................................... 9.75 06/01/18 2,196,037
- -------- -----------
4,183 4,721,454
- -------- -----------
Transportation Facilities Revenue (7.2%)
2,000 Foothills/Eastern Transportation Corridor Agency,
California, Toll Road Sr Lien Ser 1995 A................... 0.00 01/01/13 1,562,280
4,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 3,949,520
5,000 E-470 Public Highway Authority, Colorado, 1997 Ser B
(MBIA)..................................................... 0.00 09/01/14 2,194,550
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A................................................. 5.85 10/01/13 2,185,960
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)................. 5.50 02/15/26 3,097,530
- -------- -----------
16,000 12,989,840
- -------- -----------
Water & Sewer Revenue (0.6%)
6,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC) (WI)................................................ 0.00 09/01/30 1,106,520
- -------- -----------
Other Revenue (2.4%)
2,000 Northern Palm Beach & County Improvement District, Florida,
Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 2,181,280
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (a)..................................... 6.40 09/01/11 1,128,524
1,000 Special 1997 Ser B (a)..................................... 5.75 09/01/27 1,021,960
- -------- -----------
4,010 4,331,764
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (4.8%)
$ 2,000 San Joaquin Hills, California, Transportation Corridor, Toll
Road Sr Lien............................................... 6.75% 01/01/03++ $ 2,266,280
990 Mashantucket (Western) Pequot Tribe, Connecticut, 1996 Ser A
(a)........................................................ 6.40 09/01/07++ 1,142,391
2,915 Carol Stream, Illinois, Carol Pointe Ser 1990 A............. 9.50 01/15/01++ 3,388,163
1,700 Illinois Health Facilities Authority, Hinsdale Hospital Ser
1990 C (ETM) **............................................ 9.50 11/15/19 1,982,285
- -------- ------------
7,605 8,779,119
- -------- ------------
201,272 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $166,595,052)................. 176,798,686
- -------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.9%)
2,400 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1989
(Demand 03/02/98).......................................... 3.65* 11/01/19 2,400,000
1,000 Harris County Health Facilities Development Corporation,
- -------- Texas, St Lukes Episcopal Hospital Ser 1997 A (Demand
03/02/98).................................................. 3.70* 02/15/27 1,000,000
------------
3,400 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- --------
(Identified Cost $3,400,000).................................................... 3,400,000
------------
$204,672 TOTAL INVESTMENTS (Identified Cost $169,995,052) (c) .................. 99.4% 180,198,686
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................... 0.6 1,023,978
----- ------------
NET ASSETS.............................................................. 100.0% $181,222,664
===== ============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Securities purchased on a "when issued" basis.
+ Joint exemption in the District of Columbia and Virginia.
++ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** Some or all of these securities are segregated in connection
with the purchase of "when issued" securities.
(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
$12,811,416 and the aggregate gross unrealized depreciation is
$2,607,782, resulting in net unrealized appreciation of $10,203,634.
Bond Insurance:
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1998, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1998
Alaska........................................................ 2.3%
Arizona....................................................... 1.2
Arkansas...................................................... 1.4
California.................................................... 3.1
Colorado...................................................... 3.6
Connecticut................................................... 1.8
District of Columbia.......................................... 0.7
Florida....................................................... 5.8
Georgia....................................................... 2.3
Illinois...................................................... 6.6
Iowa.......................................................... 5.0
Kentucky...................................................... 1.2
Louisiana..................................................... 2.1
Maine......................................................... 1.8
Massachusetts................................................. 10.0
Michigan...................................................... 10.6
Mississippi................................................... 1.8
New Hampshire................................................. 3.2
New Jersey.................................................... 0.6
New York...................................................... 3.0
Ohio.......................................................... 9.5
Pennsylvania.................................................. 9.8
Texas......................................................... 3.8
Utah.......................................................... 2.9
Virginia...................................................... 4.8
West Virginia................................................. 1.2
Joint Exemptions*............................................. (0.7)
----
Total......................................................... 99.4%
====
- ---------------------
* Joint exemptions have been included in each geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998
ASSETS:
Investments in securities, at value
(identified cost $169,995,052)............................. $180,198,686
Cash........................................................ 252,193
Receivable for:
Interest................................................ 3,340,847
Investments sold........................................ 318,731
Prepaid expenses and other assets........................... 3,123
------------
TOTAL ASSETS............................................ 184,113,580
------------
LIABILITIES:
Payable for:
Investments purchased................................... 2,622,480
Investment advisory fee................................. 72,161
Administration fee...................................... 43,296
Accrued expenses and other payables......................... 152,979
Contingencies (Note 8)...................................... --
------------
TOTAL LIABILITIES....................................... 2,890,916
------------
NET ASSETS.............................................. $181,222,664
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $187,055,073
Net unrealized appreciation................................. 10,203,634
Accumulated undistributed net investment income............. 1,774,490
Accumulated net realized loss............................... (17,810,533)
------------
NET ASSETS.............................................. $181,222,664
============
NET ASSET VALUE PER SHARE,
19,971,607 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.07
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended February 28, 1998
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $12,980,882
-----------
EXPENSES
Investment advisory fee..................................... 890,401
Administration fee.......................................... 534,240
Professional fees........................................... 106,474
Transfer agent fees and expenses............................ 47,672
Shareholder reports and notices............................. 36,309
Registration fees........................................... 23,824
Trustees' fees and expenses................................. 19,039
Custodian fees.............................................. 8,262
Other....................................................... 14,416
-----------
TOTAL EXPENSES.......................................... 1,680,637
Less: expense offset........................................ (8,194)
-----------
NET EXPENSES ........................................... 1,672,443
-----------
NET INVESTMENT INCOME................................... 11,308,439
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 1,366,225
Net change in unrealized appreciation....................... 4,521,426
-----------
NET GAIN................................................ 5,887,651
-----------
NET INCREASE................................................ $17,196,090
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
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, 1998 FEBRUARY 28, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 11,308,439 $ 11,999,013
Net realized gain (loss)........................... 1,366,225 (1,945,805)
Net change in unrealized appreciation.............. 4,521,426 967,781
------------ ------------
NET INCREASE................................... 17,196,090 11,020,989
Dividends from net investment income............... (11,486,315) (12,789,749)
Net decrease from transactions in shares of
beneficial interest............................... (60,210) (104,700)
------------ ------------
NET INCREASE (DECREASE)........................ 5,649,565 (1,873,460)
NET ASSETS:
Beginning of period................................ 175,573,099 177,446,559
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $1,774,490 and $1,952,366, respectively).... $181,222,664 $175,573,099
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1998
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 ex-dividend date. The amount of
dividends and distributions from net investment
<PAGE> 14
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1998, continued
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> 15
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1998, 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, 1998 aggregated
$20,676,530 and $21,055,055, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $875.
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, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,712. At February 28, 1998, the Fund had an accrued pension liability of
$48,172 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.................................. 19,978,607 199,787 186,915,496
Treasury shares purchased and retired (weighted average
discount 3.71%)*........................................... (7,000) (70) (60,140)
---------- -------- ------------
Balance, February 28, 1998.................................. 19,971,607 $199,717 $186,855,356
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
++ Restated.
<PAGE> 16
MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1998, 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>
December 30, 1997... $0.045 March 6, 1998 March 20, 1998
March 24, 1998...... $0.045 April 3, 1998 April 17, 1998
March 24, 1998...... $0.045 May 8, 1998 May 22, 1998
March 24, 1998...... $0.045 June 5, 1998 June 19, 1998
</TABLE>
7. FEDERAL INCOME TAX STATUS
During the year ended February 28, 1998, the Fund had a net capital loss
carryover of approximately $18,260,000 to offset future capital gains to the
extent provided by regulations through February 28 of the following years:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
- ---------------------------------------
2002 2003 2004 2005 2006
- ---- ------- ------ ------ ----
<S> <C> <C> <C> <C>
$4 $10,485 $2,826 $4,292 $653
== ======= ====== ====== ====
</TABLE>
8. LITIGATION
On July 23, 1997, an action against the Fund and the Investment Adviser was
commenced in Supreme Court of the State of New York, County of Suffolk. The
complaint alleges that the Fund and the Investment Adviser tortiously interfered
with the plaintiff's subordinate interests in a project for which the Fund holds
senior defaulted bonds. Since July, the action has been essentially dormant.
Should it proceed, the Fund and the Investment Adviser intend to defend
vigorously.
The ultimate outcome of this matter is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of such matter.
<PAGE> 17
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*
----------------------------------------------------------
1998 1997 1996** 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 8.79 $ 8.88 $ 8.66 $ 8.74 $ 9.13
-------- -------- -------- -------- --------
Net investment income....................................... 0.57 0.60 0.66 0.64 0.63
Net realized and unrealized gain (loss)..................... 0.29 (0.05) 0.18 (0.12) (0.42)
-------- -------- -------- -------- --------
Total from investment operations............................ 0.86 0.55 0.84 0.52 0.21
-------- -------- -------- -------- --------
Less dividends from net investment income................... (0.58) (0.64) (0.62) (0.60) (0.60)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 9.07 $ 8.79 $ 8.88 $ 8.66 $ 8.74
======== ======== ======== ======== ========
Market value, end of period................................. $ 9.063 $ 8.625 $ 8.75 $ 8.00 $ 8.125
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+.................................... 12.08% 5.94% 17.87% 6.36% (0.36)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.95%(1) 1.01%(1) 1.01%(1) 1.01% 1.01%
Net investment income....................................... 6.37% 6.87% 7.50% 7.60% 7.13%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $181,223 $175,573 $177,447 $175,038 $181,336
Portfolio turnover rate..................................... 12% 21% 18% 5% 6%
</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> 18
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, 1998, 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 13, 1998
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended February 28, 1998, all of the Fund's
dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
<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
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST II
Annual Report
February 28, 1998
