<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
Two World Trade Center
LETTER TO THE SHAREHOLDERS February 28, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter Municipal Income Opportunities Trust II (OIB) for the fiscal year
ended February 28, 1999.
Continued economic turmoil in Asia and Latin America, a currency crisis in
Russia and the orchestrated bailout of a major U.S. hedge fund contributed to
the volatility in the global financial markets during the second half of 1998.
These events precipitated a "flight to quality" demand for U.S. Treasury
securities. U.S. Treasury bond yields reached a 30-year low in October 1998.
During the fourth quarter, the Federal Reserve Board sought to restore stability
to the financial markets by cutting the federal-funds rate 75 basis points in
three moves from 5.50 percent to 4.75 percent.
U.S. economic growth and employment remained strong in early 1999. Although
inflation remained subdued, concern developed that the Federal Reserve might
become more restrictive if the pace of growth did not slacken.
MUNICIPAL MARKET CONDITIONS
Municipal yields did not decline as much as U.S. Treasury yields during 1998. At
the end of December, long-term insured municipal index yields were 5.05 percent.
This level was only 10 basis points lower than the beginning of the year. In
contrast, U.S. Treasury bond yields fell 80 basis points, from 5.90 percent to
5.10 percent. When U.S. Treasury yields reversed direction in February 1999 and
rose 50 basis points, municipal yields were less volatile and rose only 10 basis
points to 5.15 percent.
The modest rally of municipals during 1998 created a favorable relative value
relationship versus Treasuries. Municipals underperformed Treasuries and the
ratio of municipal yields to Treasury yields climbed to 99 percent by year-end.
The higher the ratio, the more attractive municipals are relative to Treasuries.
The ratio declined to 92 percent by the end of February, as municipals
outperformed Treasuries. Over the past five years, the annual high-low range of
the municipal/Treasury yield ratio has averaged 93-84 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1999 continued
In addition to lagging the Treasury "flight to quality" rally in 1998,
municipals also experienced a glut of new issue supply. Underwriting volume of
$284 billion was up 28 percent from the prior year and approached 1993's record
level. Issuers actively refinanced at lower interest rates and refundings were
29 percent of the total volume. New-money issues set a record and included the
largest single municipal underwriting of $3.3 billion for the Long Island Power
Authority. In the first two months of 1999 volume slowed and was down 25 percent
compared to the same period last year.
PERFORMANCE
The Fund's net asset value (NAV) was little changed during the fiscal year.
Based on NAV plus reinvestment of tax-free dividends totaling $0.5275 per share,
the Fund's total return was 5.81 percent. OIB's price on the New York Stock
Exchange declined from $9.0625 to $8.6875 per share during the same period.
Based on this change plus reinvestment of tax-free dividends, the Fund's total
return based on market value was 1.77 percent. As of February 28, 1999, OIB's
market value was trading at a 3.9 percent discount to its NAV.
BOND YIELDS 1994 - 1999
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 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
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 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 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
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
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
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
</TABLE>
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1999 continued
Monthly dividends for the first quarter of 1999 were declared in December. The
Fund's level of earned but undistributed net investment income totaled $0.101
per share on February 28, 1999, versus $0.098 per share a year ago.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 15 long-term sectors and 68
credits. Non-rated securities comprise more than half of OIB's assets. The bonds
of one issuer representing 2.5 percent of net assets were not accruing interest.
Two other credits totaling 4.2 percent of net assets were accruing income but
may experience difficulty with future debt service payments.
[SECTORS BAR CHART]
<TABLE>
<CAPTION>
RETIREMENT
NURSING & LIFE ALL
IDR/PCR* & HEALTH MORTGAGE CARE HOSPITAL EDUCATION TRANSPORTATION REFUNDED ELECTRIC OTHERS
- -------- -------- -------- ---------- -------- --------- -------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
22.00% 15.00% 14.00% 9.00% 8.00% 7.00% 6.00% 3.00% 3.00% 13.00%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CALL STRUCTURE AS OF FEBRUARY 28, 1999 WEIGHT AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 9 YEARS
PERCENT CALLABLE
<TABLE>
<CAPTION>
1999
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010+
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
14% 7% 6% 1% 5% 3% 8% 17% 10% 15% 2% 12%
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 28, 1999 continued
At the end of February, the portfolio's average maturity was 21 years. Average
duration, a measure of sensitivity to interest rate changes, was 6.7 years. The
accompanying charts provide information on the Fund's call structure, largest
sectors and distribution by credit quality as of February 28, 1999.
LOOKING AHEAD
The combination of a "flight to quality" and the flood of new municipal issues
made the municipal-to-Treasury yield relationship more favorable last year than
it has been in the previous 10 years. Although municipals have outperformed
Treasuries in early 1999, we believe that municipals still offer investors
considerable value versus their historical relationship with Treasuries.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps 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, which ever is lower at the
time of purchase. During the fiscal year ended February 28, 1999 the Fund
purchased and retired 28,100 shares of common stock at a weighted average market
discount of 7 percent.
We appreciate your ongoing support of Morgan Stanley Dean Witter 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
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (93.6%)
General Obligation (1.2%)
$ 2,000 New York City, New York, 1994 Ser D......................... 5.75 % 08/15/10 $ 2,126,420
- -------- ------------
Educational Facilities Revenue (6.5%)
1,600 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50 05/01/11 1,740,480
2,000 Volusia County Educational Facilities Authority, Florida,
Embry-Riddle Aeronautical University Ser 1996 A............. 6.125 10/15/26 2,130,880
3,000 South Berwick, Maine, Berwick Academy Ser 1998.............. 5.55 08/01/23 2,972,130
New Hampshire Higher Educational & Health Facilities
Authority,
1,500 Brewster Academy Ser 1995.................................. 6.75 06/01/25 1,621,710
2,000 Colby-Sawyer College Ser 1996.............................. 7.50 06/01/26 2,198,460
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 1,043,340
- -------- ------------
11,100 11,707,000
- -------- ------------
Electric Revenue (2.7%)
Intermountain Power Agency, Utah, Refg 1996 Ser D
5,000 (Secondary FSA)............................................. 5.00 07/01/21 4,894,300
- -------- ------------
Hospital Revenue (7.6%)
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 2,209,340
3,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 3,284,670
3,000 Michigan Hospital Finance Authority, Sinai Hospital of
Greater Detroit Refg Ser 1995.............................. 6.70 01/01/26 3,186,630
New Hampshire Higher Educational & Health Facilities
Authority,
1,000 Littleton Hospital Association Ser 1998 B.................. 5.80 05/01/18 975,070
2,000 Littleton Hospital Association Ser 1998 B.................. 5.90 05/01/28 1,953,560
2,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 2,084,280
- -------- ------------
13,000 13,693,550
- -------- ------------
Industrial Development/Pollution Control Revenue (21.6%)
1,215 Metropolitan Washington Airports Authority, District of
Columbia, CaterAir International Corp Ser 1991 (AMT)++..... 10.125 09/01/11 1,255,545
1,500 Iowa Finance Authority, ISPCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,582,320
2,000 Perry County, Kentucky, TJ International Inc Ser 1997
(AMT)...................................................... 6.55 04/15/27 2,144,620
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT).... 4.00 08/15/10 1,969,448
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 3,088,710
Lapeer Economic Development Corporation, Michigan,
2,005 Dott Manufacturing Co Ser 1989 B (AMT)..................... 9.00 11/15/19 1,203,000
1,965 Dott Manufacturing Co Ser 1989 A (AMT)..................... 10.625 11/15/19 1,179,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Michigan Strategic Fund,
$ 1,332 Kasle Steel Corp Ser 1989 (AMT)............................ 9.375% 10/01/06 $ 1,373,797
5,207 Kasle Steel Corp Ser 1989 (AMT)............................ 9.50 10/01/14 5,369,109
1,390 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)....................... 10.625 08/15/19 834,000
2,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Ser 1998 A........................................ 6.375 04/01/31 2,056,720
2,000 Suffolk County Industrial Development Agency, New York,
Nissequogue Cogen Partners Facility Ser 1998 (AMT)......... 5.50 01/01/23 2,006,240
3,500 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT).... 9.00 12/01/19 3,670,170
1,500 Dayton, Ohio, Emery Air Freight Corp Refg Ser 1998 A........ 5.625 02/01/18 1,511,505
2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995 B... 7.75 05/01/20 2,293,320
2,000 Brazos River Authority, Texas, Texas Utilities Electric Co
Ser 1995 C (AMT)............................................ 5.55 06/01/30 1,983,380
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade LP Ser 1994 A (AMT).................. 7.55 01/01/19 3,277,620
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995
(AMT)...................................................... 7.00 07/15/25 2,211,340
- -------- ------------
40,214 39,009,844
- -------- ------------
Mortgage Revenue - Multi-Family (4.3%)
Boulder County, Colorado,
3,065 Village Place at Longmont Ser 1989 A (AMT)................. 10.125 07/15/19 3,082,226
10,282 Village Place at Longmont Ser 1989 B (AMT)................. 0.00 07/15/19 1,308,431
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 2,045,800
10,594 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,265,378
- -------- ------------
25,941 7,701,835
- -------- ------------
Mortgage Revenue - Single Family (9.5%)
4,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 4,225,560
1,500 Colorado Housing Finance Authority, 1998 Ser B-3............ 6.55 05/01/25 1,673,520
1,500 Chicago, Illinois, GNMA-Backed 1998 Ser A-1 (AMT)........... 6.45 09/01/29 1,652,430
1,875 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 1,956,113
1,990 New Hampshire Housing Finance Authority, 1997 Ser D (AMT)... 5.90 07/01/28 2,074,038
4,990 Ohio Housing Finance Agency, Residential GNMA-Collateralized
1996 Ser B-2 (AMT)......................................... 6.10 09/01/28 5,297,084
Utah Housing Finance Agency,
150 Ser 1990 A-2 (AMT)......................................... 7.80 07/01/10 154,843
110 Ser 1990 A-2 (AMT)......................................... 7.875 07/01/22 113,353
- -------- ------------
16,115 17,146,941
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Nursing & Health Related Facilities Revenue (14.6%)
$ 2,255 Arkansas Development Finance Authority, Wynwood Nursing
Center Ser 1989 (AMT)...................................... 10.50% 11/01/19 $ 2,389,015
2,410 Sterling, Illinois, Hoosier Care Inc Ser 1989 A............. 9.75 08/01/19 2,510,160
3,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 3,982,710
3,195 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990................ 10.25 01/01/20 3,368,808
1,300 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,444,261
1,000 Massachusetts Development Finance Agency, New England Center
for Children Ser 1998...................................... 5.875 11/01/18 1,006,210
1,155 Massachusetts Industrial Finance Agency, May Institute for
Autistic Children Inc 1990 Issue........................... 9.75 06/01/10 1,225,871
3,000 Allegheny County Hospital Development Authority,
Pennsylvania, Allegheny Valley School Ser 1990............. 8.50 02/01/15 3,125,280
4,768 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989 (b)........ 10.125 05/01/19 4,426,610
Tarrant County Health Facilities Development Corporation,
Texas,
2,500 3927 Foundation Inc Ser 1989............................... 10.125 09/01/09 2,600,550
235 3927 Foundation Inc Ser 1989............................... 10.00 09/01/99 238,478
- -------- ------------
24,818 26,317,953
- -------- ------------
Public Facilities Revenue (2.8%)
2,000 West Jefferson Amusement & Public Park Authority, Alabama,
VisionLand Ser 1999........................................ 6.375 02/01/29 1,984,820
1,000 Orange County Community Facilities District #86-2,
California, 1998 Ser A..................................... 5.55 08/15/17 1,008,670
2,000 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.70 02/01/28 1,990,360
- -------- ------------
5,000 4,983,850
- -------- ------------
Retirement & Life Care Facilities Revenue (9.3%)
1,995 Pima County Industrial Development Authority, Arizona,
Country Club at La Cholla Ser 1990 (AMT)................... 8.50 07/01/20 2,239,188
Massachusetts Industrial Finance Agency,
100 Pioneer Valley Living Care Center at Amherst 1990 Issue.... 7.00 10/01/01 96,609
77 Pioneer Valley Living Care Center at Amherst 1990 Issue.... 0.00 10/01/20 1,535
New Jersey Economic Development Authority,
1,500 Fellowship Village Refg Ser 1998 A......................... 5.50 01/01/25 1,438,050
2,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 1,962,460
2,000 United Methodist Homes Tranche Ser 1998.................... 5.125 07/01/25 1,846,540
2,000 Glen Cove Housing Authority, New York, Mayfair at Glen Cove
Ser 1996 (AMT)............................................. 8.25 10/01/26 2,262,060
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.125% 12/15/18 $ 2,143,180
4,936 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 4,834,665
- -------- ------------
16,608 16,824,287
- -------- ------------
Tax Allocation Revenue (2.0%)
985 Bridgeview, Illinois, Tax Increment Refg Ser 1995........... 9.00 01/01/11 1,134,188
450 Madison Heights Tax Increment Finance Authority, Michigan,
Ser 1991................................................... 8.50 03/15/01 474,269
1,938 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (a).................................................... 9.75 06/01/18 2,054,281
- -------- ------------
3,373 3,662,738
- -------- ------------
Transportation Facilities Revenue (5.7%)
2,000 Foothill/Eastern Transportation Corridor Agency, California,
Sr Lien Toll Road Ser 1995 A............................... 0.00 01/01/13 1,680,720
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 2,338,100
2,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA).......... 5.125 10/01/26 2,012,720
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 2,212,400
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 1,979,800
- -------- ------------
13,000 10,223,740
- -------- ------------
Water & Sewer Revenue (0.6%)
6,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC)..................................................... 0.00 09/01/30 1,163,280
- -------- ------------
Other Revenue (2.4%)
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (a)..................................... 6.40 09/01/11 1,116,292
1,000 Special 1997 Ser B (a)..................................... 5.75 09/01/27 1,024,560
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 2,193,600
- -------- ------------
4,010 4,334,452
- -------- ------------
Refunded (2.8%)
1,635 Illinois Health Facilities Authority, Hindsdale Hospital Ser
1990 C (ETM)............................................... 9.50 11/15/19 1,839,179
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)................. 5.50 02/15/06+ 3,305,250
- -------- ------------
4,635 5,144,429
- -------- ------------
190,814 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $162,900,607)................. 168,934,619
- -------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.3%)
2,000 Idaho Health Facilities Authority, St Luke's Regional
Medical Center Ser 1995 (Demand 03/01/99).................. 3.25* 05/01/22 2,000,000
5,800 Harris County Health Facilities Development Corporation,
Texas, Methodist Hospital Ser 1994 (Demand 03/01/99)....... 3.25* 12/01/25 5,800,000
- -------- ------------
7,800 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
$7,800,000).................................................................... 7,800,000
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$198,614 TOTAL INVESTMENTS (Identified Cost $170,700,607)(c)..................... 97.9% $176,734,619
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................ 2.1 3,710,034
----- ------------
NET ASSETS.............................................................. 100.0% $180,444,653
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
++ Joint exemption in the District of Columbia and Virginia.
+ Prerefunded to call date shown.
* 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 $9,594,849 and the aggregate gross
unrealized depreciation is $3,560,837, resulting in net
unrealized appreciation of $6,034,012.
Bond Insurance:
- -------------------------------------------------------------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
February 28, 1999
<TABLE>
<S> <C>
Alabama.................. 1.1%
Alaska................... 2.3
Arizona.................. 1.2
Arkansas................. 1.3
California............... 3.6
Colorado................. 4.7
Connecticut.............. 1.2
District of Columbia..... 0.7
Florida.................. 4.7
Idaho.................... 1.1
Illinois................. 4.0
Iowa..................... 5.0
Kentucky................. 1.2
Louisiana................ 0.8
Maine.................... 2.7
Massachusetts............ 7.1
Michigan................. 8.7
New Hampshire............ 4.9
New Jersey............... 5.2
New York................. 4.1
Ohio..................... 8.8
Pennsylvania............. 6.1
Texas.................... 5.9
Utah..................... 2.9
Virginia................. 8.1
West Virginia............ 1.2
Joint Exemptions*........ (0.7)
----
Total.................... 97.9%
====
</TABLE>
- ---------------------
* Joint exemptions have been included in each geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost
$170,700,607).............................................. $176,734,619
Cash........................................................ 964,424
Receivable for:
Interest................................................ 2,926,017
Investments sold........................................ 80,116
Prepaid expenses and other assets........................... 3,365
------------
TOTAL ASSETS............................................ 180,708,541
------------
LIABILITIES:
Payable for:
Investment advisory fee................................. 74,477
Administration fee...................................... 44,686
Accrued expenses and other payables......................... 144,725
------------
TOTAL LIABILITIES....................................... 263,888
------------
NET ASSETS.............................................. $180,444,653
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $186,818,478
Net unrealized appreciation................................. 6,034,012
Accumulated undistributed net investment income............. 2,073,075
Accumulated net realized loss............................... (14,480,912)
------------
NET ASSETS.............................................. $180,444,653
============
NET ASSET VALUE PER SHARE,
19,943,507 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.05
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended February 28, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $12,525,910
-----------
EXPENSES
Investment advisory fee..................................... 904,614
Administration fee.......................................... 542,769
Transfer agent fees and expenses............................ 66,387
Professional fees........................................... 59,897
Shareholder reports and notices............................. 56,340
Registration fees........................................... 24,589
Trustees' fees and expenses................................. 18,154
Custodian fees.............................................. 8,920
Other....................................................... 23,418
-----------
TOTAL EXPENSES.......................................... 1,705,088
Less: expense offset........................................ (8,824)
-----------
NET EXPENSES............................................ 1,696,264
-----------
NET INVESTMENT INCOME................................... 10,829,646
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 3,329,621
Net change in unrealized appreciation....................... (4,169,622)
-----------
NET LOSS................................................ (840,001)
-----------
NET INCREASE................................................ $ 9,989,645
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER 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, 1999 FEBRUARY 28, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 10,829,646 $ 11,308,439
Net realized gain.................................. 3,329,621 1,366,225
Net change in unrealized appreciation.............. (4,169,622) 4,521,426
------------ ------------
NET INCREASE................................... 9,989,645 17,196,090
Dividends from net investment income............... (10,525,594) (11,486,315)
Net decrease from transactions in shares of
beneficial interest............................... (242,062) (60,210)
------------ ------------
NET INCREASE (DECREASE)........................ (778,011) 5,649,565
NET ASSETS:
Beginning of period................................ 181,222,664 175,573,099
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,073,075 and $1,774,490, respectively).... $180,444,653 $181,222,664
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Municipal Income Opportunities Trust II (the "Fund"),
formerly Municipal Income Opportunities Trust II, 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
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1999, 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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Advisor 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 Advisor pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Advisor.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Morgan Stanley 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.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1999, 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, 1999 aggregated
$34,680,808 and $46,530,695, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At February 28, 1999, the Fund had
transfer agent fees and expenses payable of approximately $1,200.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,202. At February 28, 1999, the Fund had an accrued pension liability of
$51,313 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, 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
Treasury shares purchased and retired (weighted average
discount 7.00%)*........................................... (28,100) (281) (241,781)
---------- -------- ------------
Balance, February 28, 1999.................................. 19,943,507 $199,436 $186,613,575
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 28, 1999, 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 29, 1998 $0.0425 March 5, 1999 March 19, 1999
March 30, 1999 $0.0425 April 9, 1999 April 23, 1999
March 30, 1999 $0.0425 May 7, 1999 May 21, 1999
March 30, 1999 $0.0425 June 4, 1999 June 18, 1999
</TABLE>
7. FEDERAL INCOME TAX STATUS
During the year ended February 28, 1999, the Fund utilized approximately
$3,439,000 to its net capital loss carryover. At February 28, 1999, the Fund had
a net capital loss carryover of approximately $14,969,000 which may be used to
offset future capital gains to the extent provided by regulations which is
available through February 28 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ---------------------------------------------------
2003 2004 2005 2006
- --------- -------- -------- --------
<S> <C> <C> <C>
$7,049 $2,826 $4,292 $802
====== ====== ====== ====
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER 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*
----------------------------------------------------
1999 1998 1997 1996** 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 9.07 $ 8.79 $ 8.88 $ 8.66 $ 8.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income...................................... 0.55 0.57 0.60 0.66 0.64
Net realized and unrealized gain (loss).................... (0.04) 0.29 (0.05) 0.18 (0.12)
------ ------ ------ ------ ------
Total income from investment operations..................... 0.51 0.86 0.55 0.84 0.52
------ ------ ------ ------ ------
Less dividends from net investment income................... (0.53) (0.58) (0.64) (0.62) (0.60)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 9.05 $ 9.07 $ 8.79 $ 8.88 $ 8.66
====== ====== ====== ====== ======
Market value, end of period................................. $8.688 $9.063 $8.625 $ 8.75 $ 8.00
====== ====== ====== ====== ======
TOTAL RETURN+............................................... 1.77% 12.08% 5.94% 17.87% 6.36%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.94% 0.95%(1) 1.01%(1) 1.01%(1) 1.01%
Net investment income....................................... 5.99% 6.37% 6.87% 7.50% 7.60%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $180,445 $181,223 $175,573 $177,447 $175,038
Portfolio turnover rate..................................... 20% 12% 21% 18% 5%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
** For the year ended February 29.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER 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 Morgan Stanley Dean Witter
Municipal Income Opportunities Trust II (the "Fund"), formerly Municipal Income
Opportunities Trust II, at February 28, 1999, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 13, 1999
--------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (unaudited)
For the year ended February 28, 1999, all of the Fund's
dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
19
<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. Wilson
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- -------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
- -------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST II
Annual Report
February 28, 1999
