<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II Two World Trade Center
LETTER TO THE SHAREHOLDERS August 31, 2000 New York, New York 10048
</TABLE>
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion during the six-month
period ended August 31, 2000. Real personal consumption accelerated and
unemployment reached a 30-year low. At the same time, surging oil prices also
heightened the risk of inflation. The Federal Reserve Board responded by further
tightening monetary policy. Three increases in the federal funds rate, totaling
100 basis points have occurred since February. The rate now stands at a
nine-year high of 6.50 percent.
Strong economic growth and a less accommodative monetary policy caused long-term
interest rates to increase throughout 1999. In January, however, the U.S.
Treasury announced plans to use the federal budget surplus to reduce its debt.
This announcement initially precipitated a 50 to 75 basis point drop in yields
of longer-maturity Treasuries. Municipal bond yields also declined but lagged
the downward trend of Treasury yields. Although long-term interest rates rose in
April and May, indications of a slowdown in economic growth caused rates to
decline over the last three months.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began the year at 5.97 percent. This index
reached a high of 6.19 percent in mid January before ending August at 5.62
percent. Because bond prices move inversely to changes in interest rates bond
prices declined significantly last year but improved in the first eight months
of 2000.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. This ratio increased from
92 percent at the end of 1999 to 99 percent at the end of August and can be
attributed primarily to the magnitude of the rally in long-term Treasuries. Over
the past five years the ratio has ranged between an average high of 93 percent
and an average low of 85 percent. A rising yield ratio indicates weaker relative
performance by municipals.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
During the first eight months of 2000, municipal underwriting was 22 percent
lower than in the same period last year. Refunding activity, the most
interest-rate-sensitive component of supply, dropped more than 70 percent and
represented less than 10 percent of total volume. Approximately 40 percent of
the underwritings were enhanced with bond insurance.
30-YEAR BOND YIELDS 1994 - 2000
<TABLE>
<CAPTION>
Insured U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.40% 6.34% 85.17%
5.40 6.24 86.54
5.80 6.66 87.09
6.40 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.50 7.61 85.41
6.25 7.39 84.57
6.30 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7.00 8.00 87.5
6.75 7.88 85.66
1995 6.40 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.20 7.34 84.47
5.80 6.66 87.09
6.10 6.62 92.15
6.10 6.86 88.92
6.00 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.50 6.14 89.58
5.35 5.94 90.07
1996 5.40 6.03 89.55
5.60 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.90 6.89 85.63
5.85 6.97 83.93
5.90 7.11 82.98
5.70 6.93 82.25
5.65 6.64 85.09
5.50 6.35 86.61
5.60 6.63 84.46
1997 5.70 6.79 83.95
5.65 6.80 83.09
5.90 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.60 6.78 82.6
5.30 6.30 84.13
5.50 6.61 83.21
5.40 6.40 84.38
5.35 6.15 86.99
5.30 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.20 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.20 5.80 89.66
5.20 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
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.89
6.00 6.29 95.39
5.97 6.48 92.13
2000 6.18 6.49 95.22
6.04 6.14 98.37
5.82 5.83 99.83
5.91 5.96 99.16
5.91 6.01 98.34
5.84 5.90 98.98
5.73 5.78 99.13
5.62 5.67 99.12
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
For the six-month period ended August 31, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Municipal Income Opportunities Trust II (OIB)
increased from $8.30 to $8.44 per share. Based on this change plus the
reinvestment of tax-free dividends totaling $0.255 per share, the Fund's total
NAV return was 5.30 percent. OIB's value on the New York Stock Exchange (NYSE)
increased from $7.25 to $7.50 per share during the same period. Based on this
change plus reinvestment of tax-free dividends. OIB's total market return was
7.13 percent. OIB's share price was trading at a 11.14 percent discount to its
NAV on August 31, 2000.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
Monthly dividends for the fourth quarter of 2000, declared in September, were
unchanged at $0.0425 per share. The Fund's level of undistributed net investment
income was $0.137 per share on August 31, 2000, versus $0.126 per share 6 months
earlier.
PORTFOLIO STRUCTURE
The Fund's investments were diversified among 14 long-term sectors and 73
credits. At the end of August, the portfolio's average maturity was 22 years.
Average duration, a measure of portfolio sensitivity to interest rates, was 7.6
years. Bonds with longer durations have greater volatility. For example, the
duration of a new 30-year insured municipal bond was approximately 14 years.
Nonrated securities comprise more than half of OIB's assets. The bonds of two
issuers representing 2.5 percent of net assets were not accruing interest. The
accompanying charts and tables provide current information on the portfolio's
credit quality, sector concentrations and maturity distribution. Optional call
provisions and their respective cost (book) yields by year are also shown.
LOOKING AHEAD
While the Federal Reserve Board has continued to express concern about
inflation, the slower pace of economic growth has reduced the pressure on the
Fed to further tighten monetary policy. We believe municipal bonds continue to
offer tax-conscious investors good long-term value.
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 may, when
appropriate, 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 period ended August 31, 2000,
the Fund purchased and retired 389,629 shares of common stock at a weighted
average market discount of 12.9 percent. The anti-dilutive effect on the NAV of
the share repurchase program is shown in the Financial Highlights.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
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.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
[LARGEST SECTORS BAR GRAPH]
LARGEST SECTORS AS OF AUGUST 31, 2000
(% OF NET ASSETS)
<TABLE>
<S> <C>
IDR/PCR* 21%
MORTGAGE 15%
RETIREMENT & LIFE CARE FACILITIES 12%
NURSING & HEALTH RELATED FACILITIES 11%
EDUCATION 8%
HOSPITAL 8%
RECREATIONAL FACILITIES 8%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF AUGUST 31, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
NR 60%
Baa OR BBB 18%
Aaa OR AAA 13%
A OR A 6%
Aa OR AA 3%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
DISTRIBUTION BY MATURITY
(% OF NET ASSETS)
WEIGHTED AVERAGE
MATURITY: 22 YEARS
<TABLE>
<S> <C>
UNDER 1 YEAR 1.2%
1-5 YEARS 1.0%
5-10 YEARS 5.4%
10-20 YEARS 34.6%
20-30 YEARS 52.2%
30+ YEARS 4.8%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
AUGUST 31, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
<TABLE>
<CAPTION>
PERCENT CALLABLE*
YEARS BONDS CALLABLE
<S> <C>
2000 7%
2001 12%
2002 2%
2003 4%
2004 3%
2005 8%
2006 10%
2007 11%
2008 14%
2009 14%
2010+ 15%
</TABLE>
COST (BOOK) YIELD **
WEIGHTED AVERAGE
BOOK YIELD: 7.10%
<TABLE>
<S> <C>
2000 10.0%
2001 9.8%
2002 5.9%
2003 6.9%
2004 7.5%
2005 6.7%
2006 7.1%
2007 6.1%
2008 5.8%
2009 6.4%
2010+ 6.9%
</TABLE>
* % BASED ON LONG-TERM PORTFOLIO.
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING EXPENSES. FOR
EXAMPLE, THE FUND EARNED A BOOK YIELD OF 9.8% ON 12% OF THE BONDS IN THE
LONG-TERM PORTFOLIO THAT ARE CALLABLE IN 2001.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On June 22, 2000, an annual meeting of the Fund's shareholders was held for the
purpose of voting on the following matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For......................................................... 15,676,945
Withheld.................................................... 259,336
Charles A. Fiumefreddo
For......................................................... 15,671,497
Withheld.................................................... 264,784
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent,
Philip J. Purcell and John L. Schroeder. Additionally, James F. Higgins was
elected as a Trustee of the Fund by the Board of Trustees effective August 24,
2000.
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.9%)
Educational Facilities Revenue (8.3%)
$ 1,600 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50% 05/01/11 $ 1,719,760
2,000 San Diego County, California, The Burnham Institute COPs.... 6.25 09/01/29 2,047,940
2,000 Volusia County Educational Facilities Authority, Florida,
Embry-Riddle Aeronautical University Ser 1996 A............ 6.125 10/15/26 2,041,460
3,000 South Berwick, Maine, Berwick Academy Ser 1998.............. 5.55 08/01/23 2,724,840
New Hampshire Higher Educational & Health Facilities
1,500 Authority, Brewster Academy Ser 1995....................... 6.75 06/01/25 1,528,740
2,000 Colby-Sawyer College Ser 1996.............................. 7.50 06/01/26 2,097,660
New York State Dormitory Authority, State University 1993
1,000 Ser A...................................................... 5.25 05/15/15 1,008,090
-------- -----------
13,100 13,168,490
-------- -----------
Electric Revenue (0.6%)
Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
1,000 FSA)....................................................... 5.00 07/01/21 924,370
-------- -----------
Hospital Revenue (8.1%)
2,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1999 B..................................... 5.625 09/01/28 1,635,140
1,000 Maryland Health & Higher Educational Facilities Authority,
University of Maryland Medical Ser 2000.................... 6.75 07/01/30 1,022,230
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/14 2,037,040
3,000 Dana Farber Cancer Institute Ser G-1....................... 6.25 12/01/22 3,006,570
1,000 Michigan Hospital Finance Authority, Sinai Hospital of
Greater Detroit
Refg Ser 1995.............................................. 6.70 01/01/26 887,130
New Hampshire Higher Educational & Health Facilities
1,000 Authority, Littleton Hospital Association Ser 1998 B....... 5.80 05/01/18 811,050
2,000 Littleton Hospital Association Ser 1998 B.................. 5.90 05/01/28 1,555,520
New Jersey Health Care Facilities Financing Authority,
2,000 Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 1,821,800
-------- -----------
14,000 12,776,480
-------- -----------
Industrial Development/Pollution Control Revenue (21.3%)
1,015 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,017,365
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,479,030
2,000 Perry County, Kentucky, TJ International Inc Ser 1997
(AMT)...................................................... 6.55 04/15/27 1,986,840
2,426 Holyoke, Massachusettes, McCormack/Partyka Ser 1990 (AMT)... 7.50 08/15/10 2,359,309
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 3,013,140
Lapeer Economic Development Corporation, Michigan,
1,975 Dott Manufacturing Co Ser 1989 B (AMT)..................... 9.00 11/15/19 1,301,031
1,935 Dott Manufacturing Co Ser 1989 A (AMT)..................... 10.625 11/15/19 1,274,681
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Michigan Strategic Fund,
$ 1,100 Kasle Steel Corp Ser 1989 (AMT)............................ 9.375% 10/01/06 $ 1,109,721
5,207 Kasle Steel Corp Ser 1989 (AMT)............................ 9.50 10/01/14 5,258,731
1,340 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)....................... 10.625 08/15/19 881,050
2,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Ser 1998 A........................................ 6.375 04/01/31 1,951,280
2,000 New York City Industrial Development Agency, New York,
Brooklyn Navy Yard Cogeneration Partners LP Ser 1997
(AMT)...................................................... 5.65 10/01/28 1,824,800
1,500 Dayton, Ohio, Emery Air Freight Corp Refg Ser 1998 A........ 5.625 02/01/18 1,381,860
2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co
Collateralized Ser 1995 B.................................. 7.75 05/01/20 2,146,740
1,000 Carbon County Industrial Development Authority,
Pennsylvania, Panther Creek Partners Refg 2000 Ser (AMT)... 6.65 05/01/10 1,013,170
600 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 2000 B....... 6.05 05/01/29 602,922
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade LP Ser 1994 A (AMT).................. 7.55 01/01/19 3,112,260
Upshur County, West Virginia, TJ International Inc Ser 1995
2,000 (AMT)...................................................... 7.00 07/15/25 2,050,060
-------- -----------
35,598 33,763,990
-------- -----------
Mortgage Revenue - Multi-Family (4.1%)
3,065 Boulder County, Colorado, Village Place at Longmont Ser 1989
A (AMT).................................................... 7.50 07/15/19 3,066,716
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 2,009,160
10,572 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,465,174
-------- -----------
15,637 6,541,050
-------- -----------
Mortgage Revenue - Single Family (10.9%)
4,000 Alaska Housing Finance Corporation, 1997 D Ser A (MBIA)..... 6.00 06/01/27 4,059,360
3,245 Colorado Housing Finance Authority, 1998 Ser B-3............ 6.55 05/01/25 3,476,888
1,495 Chicago, Illinois, GNMA-Backed 1998 Ser A-1 (AMT)........... 6.45 09/01/29 1,536,098
210 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 212,606
2,500 Missouri Housing Development Commission, Homeownership
GNMA/FNMA Collateralized 2000 Ser A-1 (AMT)................ 7.50 03/01/31 2,773,025
4,990 Ohio Housing Finance Agency, Residential GNMA-Collateralized
1996 Ser B-2 (AMT)......................................... 6.10 09/01/28 5,059,310
Utah Housing Finance Agency,
65 Ser 1990 A-2 (AMT)......................................... 7.80 07/01/10 65,557
50 Ser 1990 A-2 (AMT)......................................... 7.875 07/01/22 50,371
-------- -----------
16,555 17,233,215
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Nursing & Health Related Facilities Revenue (11.3%)
$ 2,220 Arkansas Development Finance Authority, Wynwood Nursing
Center Ser 1989 (AMT)...................................... 10.50% 11/01/19 $ 2,292,150
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999.......... 6.75 04/01/34 1,773,660
3,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25 07/01/25 3,596,311
3,140 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990................ 10.25 01/01/20 3,139,937
1,000 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,055,850
1,450 Massachusetts Development Finance Agency, New England Center
for Children Ser 1998...................................... 5.875 11/01/18 1,221,277
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Civic Facility Ser 1999......... 6.15 06/01/19 870,550
4,768 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989 (a)........ 10.125 05/01/19 3,108,688
Tarrant County Health Facilities Development Corporation,
2,500 Texas, 3927 Foundation Inc Ser 1989........................ 10.125 09/01/09 889,050
-------- -----------
21,078 17,947,473
-------- -----------
Public Facilities Revenue (0.6%)
Orange County, Community Facilities District #86-2,
1,000 California, 1998 Ser A..................................... 5.55 08/15/17 943,160
-------- -----------
Recreational Facilities Revenue (8.0%)
2,000 West Jefferson Amusement & Public Park Authority, Alabama,
VisionLand Ser 1999........................................ 6.375 02/01/29 1,312,220
2,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................... 6.25 01/01/30 1,929,560
2,000 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.70 02/01/28 1,911,900
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (b)..................................... 6.40 09/01/11 1,066,863
1,000 Special 1997 Ser B (b)..................................... 5.75 09/01/27 931,130
2,500 American National Fish & Wildlife Museum District, Missouri,
Ser 1999................................................... 7.00 09/01/19 2,451,200
Saint Louis Industrial Development Authority, Missouri, Kiel
3,000 Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 3,123,510
-------- -----------
13,510 12,726,383
-------- -----------
Retirement & Life Care Facilities Revenue (11.7%)
1,955 Pima County Industrial Development Authority, Arizona,
Country Club at La Cholla Ser 1990 (AMT)................... 8.50 07/01/20 2,105,770
1,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A........................................ 8.00 01/01/30 979,910
1,500 Massachusetts Development Finance Agency, Loomis Communities
Ser 1999 A................................................. 5.75 07/01/23 1,223,370
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New Jersey Economic Development Authority,
$ 1,500 Fellowship Village Refg Ser 1998 A......................... 5.50% 01/01/25 $ 1,183,230
2,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 1,645,800
1,500 United Methodist Homes Ser 1998............................ 5.125 07/01/25 1,102,485
2,000 Glen Cove Housing Authority, New York, Mayfair at Glen Cove
Ser 1996 (AMT)............................................. 8.25 10/01/26 2,110,780
2,000 Lorain County, Ohio, Laurel Lakes Ser 1993.................. 7.125 12/15/18 2,003,780
2,000 Vermont Economic Development Authority, Wake Robin Corp Ser
1999 A..................................................... 6.75 03/01/29 1,823,440
Chesterfield County Industrial Development Authority,
4,936 Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 4,323,996
-------- -----------
20,391 18,502,561
-------- -----------
Tax Allocation Revenue (3.5%)
Anne Arundel County, Maryland,
2,000 Arundel Mills Ser 1999..................................... 7.10 07/01/29 2,031,420
1,500 National Business Park Ser 2000............................ 7.375 07/01/28 1,527,630
Muskegon Downtown Development Authority, Michigan, 1989 Ser
1,869 A-1 (b).................................................... 9.75 06/01/18 1,919,485
-------- -----------
5,369 5,478,535
-------- -----------
Transportation Facilities Revenue (5.3%)
4,000 Foothill/Eastern Transportation Corridor Agency, California,
Ser 1999................................................... 0.00 01/15/27 2,281,520
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 2,361,700
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 2,113,300
Pocahontas Parkway Association, Virginia, Route 895
2,000 Connector 1998 Ser A....................................... 5.50 08/15/28 1,657,180
-------- -----------
13,000 8,413,700
-------- -----------
Water & Sewer Revenue (2.0%)
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 2,126,360
Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
6,000 (FGIC)..................................................... 0.00 09/01/30 1,063,920
-------- -----------
8,000 3,190,280
-------- -----------
Other Revenue (1.2%)
2,000 Capistrano Unified School District, California, Community
-------- Facilities District #98-2 Ladera Special Tax Ser 1999...... 5.75 09/01/29 1,866,860
-----------
180,238 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Cost $162,132,376)............................ 153,476,547
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.2%)
$ 1,800 Massachusetts Health & Educational Facilities Authority,
Capital Assets Ser D (MBIA) (Demand 09/01/00).............. 4.25*% 01/01/35 $ 1,800,000
Madison Heights Tax Increment Finance Authority, Michigan,
90 Ser 1991................................................... 8.50 03/15/01 91,022
-------- ------------
1,890 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Cost $1,891,022)............. 1,891,022
-------- ------------
$182,128 TOTAL INVESTMENTS (Cost $164,023,398) (c)............................. 98.1% 155,367,569
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 1.9 2,986,643
----- ------------
NET ASSETS............................................................. 100.0% $158,354,212
===== ============
</TABLE>
---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
++ Joint exemption in locations shown.
* Current coupon of variable rate demand obligation.
(a) Non-income producing security; bond in default.
(b) Resale is restricted to qualified institutional investors.
(c) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $2,643,842 and the aggregate gross unrealized
depreciation is $11,299,671, resulting in net unrealized depreciation
of $8,655,829.
Bond Insurance:
---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
<TABLE>
<S> <C>
Alabama..................... 0.8%
Alaska...................... 2.6
Arizona..................... 1.3
Arkansas.................... 2.5
California.................. 8.0
Colorado.................... 5.6
Connecticut................. 1.3
District of Columbia........ 0.6
Florida..................... 5.7
Illinois.................... 1.1
Iowa........................ 5.2
Kentucky.................... 1.3
Louisiana................... 0.7
Maine....................... 1.9
Maryland.................... 2.9
Massachusetts............... 8.9
Michigan.................... 8.0
Missouri.................... 5.3
New Hampshire............... 3.8
New Jersey.................. 4.9
New York.................... 3.7
Ohio........................ 5.3
Pennsylvania................ 4.6
Texas....................... 0.9
Utah........................ 0.7
Vermont..................... 1.2
Virginia.................... 8.6
West Virginia............... 1.3
Joint Exemptions*........... (0.6)
----
Total....................... 98.1%
====
</TABLE>
---------------------
* Joint exemptions have been included in each geographic location.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(cost $164,023,398)........................................ $155,367,569
Cash........................................................ 84,284
Receivable for:
Interest................................................ 2,898,900
Investments sold........................................ 245,000
Prepaid expenses and other assets........................... 14,472
------------
TOTAL ASSETS............................................ 158,610,225
------------
LIABILITIES:
Payable for:
Investment advisory fee................................. 73,622
Administration fee...................................... 44,173
Shares of beneficial interest repurchased............... 44,149
Accrued expenses and other payables......................... 94,069
------------
TOTAL LIABILITIES....................................... 256,013
------------
NET ASSETS.............................................. $158,354,212
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $178,044,167
Net unrealized depreciation................................. (8,655,829)
Accumulated undistributed net investment income............. 2,578,351
Accumulated net realized loss............................... (13,612,477)
------------
NET ASSETS.............................................. $158,354,212
============
NET ASSET VALUE PER SHARE,
18,764,078 shares outstanding
(unlimited shares authorized of $.01 par value)............ $8.44
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended August 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $5,705,992
----------
EXPENSES
Investment advisory fee..................................... 398,851
Administration fee.......................................... 239,311
Transfer agent fees and expenses............................ 24,700
Professional fees........................................... 24,276
Shareholder reports and notices............................. 18,426
Registration fees........................................... 12,421
Trustees' fees and expenses................................. 6,898
Custodian fees.............................................. 5,539
Other....................................................... 9,649
----------
TOTAL EXPENSES.......................................... 740,071
Less: expense offset........................................ (5,528)
----------
NET EXPENSES............................................ 734,543
----------
NET INVESTMENT INCOME................................... 4,971,449
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (448,083)
Net change in unrealized depreciation....................... 2,553,524
----------
NET GAIN................................................ 2,105,441
----------
NET INCREASE................................................ $7,076,890
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
-------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 4,971,449 $ 10,391,459
Net realized gain (loss)............................ (448,083) 1,355,636
Net change in unrealized depreciation............... 2,553,524 (17,243,365)
------------ ------------
NET INCREASE (DECREASE)......................... 7,076,890 (5,496,270)
Dividends from net investment income................ (4,837,932) (10,058,818)
Decrease from transactions in shares of beneficial
interest........................................... (2,828,028) (5,946,283)
------------ ------------
NET DECREASE.................................... (589,070) (21,501,371)
NET ASSETS:
Beginning of period................................. 158,943,282 180,444,653
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,578,351 and $2,444,834, respectively)..... $158,354,212 $158,943,282
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) 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 tax purposes are reported as distributions of paid-in-capital.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), 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.
Pursuant to an Administration Agreement with Morgan Stanley Dean Witter Services
Company Inc. (the "Administrator"), an affiliate of the Investment Advisor, 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.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended August 31, 2000 aggregated
$4,479,597 and $3,940,560, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At August 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $900.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended August 31, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3003. At August 31, 2000, the
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) continued
Fund had an accrued pension liability of $52,973 which is included in accrued
expenses in the Statement of Assets and Liabilities.
4. 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, 1999.................................. 19,943,507 $199,436 $186,619,042
Treasury shares purchased and retired (weighted average
discount 11.63%)*.......................................... (789,800) (7,898) (5,938,385)
---------- -------- ------------
Balance, February 29, 2000.................................. 19,153,707 191,538 180,680,657
Treasury shares purchased and retired (weighted average
discount 12.87%)*.......................................... (389,629) (3,896) (2,824,132)
---------- -------- ------------
Balance, August 31, 2000.................................... 18,764,078 $187,642 $177,856,525
========== ======== ============
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
5. 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>
June 27, 2000 $0.0425 September 9, 2000 September 22, 2000
September 26, 2000 $0.0425 October 6, 2000 October 20, 2000
September 26, 2000 $0.0425 November 3, 2000 November 17, 2000
September 26, 2000 $0.0425 December 8, 2000 December 22, 2000
</TABLE>
6. FEDERAL INCOME TAX STATUS
At February 29, 2000, the Fund had a net capital loss carryover of approximately
$13,613,000 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>
$5,694 $2,826 $4,292 $801
====== ====== ====== ====
</TABLE>
19
<PAGE> 20
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 SIX FOR THE YEAR ENDED FEBRUARY 28*
MONTHS ENDED --------------------------------------------------------------
AUGUST 31, 2000* 2000** 1999 1998 1997 1996**
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period..... $ 8.30 $ 9.05 $ 9.07 $ 8.79 $ 8.88 $ 8.66
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income................... 0.26 0.53 0.55 0.57 0.60 0.66
Net realized and unrealized gain
(loss)................................ 0.12 (0.81) (0.04) 0.29 (0.05) 0.18
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations.............................. 0.38 (0.28) 0.51 0.86 0.55 0.84
------ ------ ------ ------ ------ ------
Less dividends from net investment
income.................................. (0.26) (0.51) (0.53) (0.58) (0.64) (0.62)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring
treasury shares......................... 0.02 0.04 -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period........... $ 8.44 $ 8.30 $ 9.05 $ 9.07 $ 8.79 $ 8.88
====== ====== ====== ====== ====== ======
Market value, end of period.............. $ 7.50 $ 7.25 $8.688 $9.063 $8.625 $ 8.75
====== ====== ====== ====== ====== ======
TOTAL RETURN+............................ 7.13%(1) (10.96)% 1.77% 12.08% 5.94% 17.87%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 0.93%(2)(3) 0.94%(3) 0.94% 0.95%(3) 1.01%(3) 1.01%(3)
Net investment income.................... 6.23%(2) 6.04% 5.99% 6.37% 6.87% 7.50%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................... $158,354 $158,943 $180,445 $181,223 $175,573 $177,447
Portfolio turnover rate.................. 3%(1) 19% 20% 12% 21% 18%
</TABLE>
---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
** For the year ended February 29.
+ Total 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 return
does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE> 21
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
21
<PAGE> 22
(This Page Intentionally Left Blank)
<PAGE> 23
(This Page Intentionally Left Blank)
<PAGE> 24
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Julie C. Morrone
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISOR
----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME
OPPORTUNITIES
TRUST II
Semiannual Report
August 31, 2000
