<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL Two World Trade Center
INCOME OPPORTUNITIES TRUST II New York, New York 10048
LETTER TO THE SHAREHOLDERS February 29, 2000
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion into the new year with
strong growth sustaining full employment. Rising commodity prices, led by oil,
which moved above $30 per barrel, heightened concern about inflation. The
Federal Reserve Board reacted by raising the federal funds rate by 25 basis
points in February and March. This marked the fourth and fifth times in less
than a year that the central bank has increased short-term rates. Economic
growth and a less accommodative monetary policy caused long-term interest rates
to rise throughout 1999 and into January 2000. In February, the U.S. Treasury
announced its plan to use the federal budget surplus to retire debt,
precipitating a rally in long Treasury securities.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began 1999 near a record low yield of 5.05
percent, but increased to 5.97 percent by year-end. This index reached a high of
6.18 percent in January 2000 before closing February at 6.04 percent. Because
bond prices move inversely to changes in interest rates, higher yields caused
bond prices to decline significantly. For the 1999 calendar year the increase in
the index yield translated into a 13 percent price decline for a generic
insured-municipal bond with a 30-year maturity.
The ratio of municipal yields as a percentage of Treasury yields has been used
historically as a measure of relative value. Over the past five years the ratio
has ranged between an average high of 93 percent and an average low of 85
percent. The increase in the ratio from 92 percent at the beginning of 1999, to
98 percent in February 2000 is primarily attributed to the magnitude of the
rally in long-term Treasuries. A rising yield ratio indicates weaker relative
performance by municipals.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent. Refunding activity, the most interest-rate-sensitive
component of supply, was down more than
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
50 percent. In the first two months of this year, volume was 30 percent lower
than the same period last year.
30-YEAR BOND YIELDS 1994-2000
<TABLE>
Insured Municipal Yields as
U.S. Treasury Yields Insured Municipal Yields a Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 6.34% 5.40% 85.17%
6.24 5.40 86.54
6.66 5.80 87.09
7.09 6.40 90.27
7.32 6.35 86.75
7.43 6.25 84.12
7.61 6.50 85.41
7.39 6.25 84.57
7.45 6.30 84.56
7.81 6.55 83.87
7.96 6.75 84.80
8.00 7.00 87.50
7.88 6.75 85.66
1995 7.70 6.40 83.12
7.44 6.15 82.66
7.43 6.15 82.77
7.34 6.20 84.47
6.66 5.80 87.09
6.62 6.10 92.15
6.86 6.10 88.92
6.66 6.00 90.09
6.48 5.95 91.82
6.33 5.75 90.84
6.14 5.50 89.58
5.94 5.35 90.07
1996 6.03 5.40 89.55
6.46 5.60 86.69
6.66 5.85 87.84
6.89 5.95 86.36
6.99 6.05 86.55
6.89 5.90 85.63
6.97 5.85 83.93
7.11 5.90 82.98
6.93 5.70 82.25
6.64 5.65 85.09
6.35 5.50 86.61
6.63 5.60 84.46
1997 6.79 5.70 83.95
6.80 5.65 83.09
7.10 5.90 83.10
6.94 5.75 82.85
6.91 5.65 81.77
6.78 5.60 82.60
6.30 5.30 84.13
6.61 5.50 83.21
6.40 5.40 84.38
6.15 5.35 86.99
6.05 5.30 87.60
5.92 5.15 86.99
1998 5.80 5.15 88.79
5.92 5.20 87.84
5.93 5.25 88.53
5.95 5.35 89.92
5.80 5.20 89.66
5.65 5.20 92.04
5.71 5.18 90.72
5.27 5.03 95.45
5.00 4.95 99.00
5.16 5.05 97.87
5.06 5.00 98.81
5.10 5.05 99.02
1999 5.09 5.00 98.23
5.58 5.10 91.40
5.63 5.15 91.47
5.66 5.20 91.87
5.83 5.30 90.91
5.96 5.47 91.78
6.10 5.55 90.98
6.06 5.75 94.88
6.05 5.85 96.69
6.16 6.03 97.90
6.29 6.00 95.39
6.48 5.97 92.13
2000 6.49 6.18 95.22
6.14 6.04 98.37
</TABLE>
PERFORMANCE
The performance of Morgan Stanley Dean Witter Municipal Income Opportunities
Trust II (OIB) was affected by the higher-interest-rate environment outlined
above. For the 12-month period ended February 29, 2000, the Fund's net asset
value (NAV) declined from $9.05 to $8.30 per share. Based on this change, plus
the reinvestment of tax-free dividends totaling $0.51 per share, the Fund's
total NAV return was -2.04 percent. OIB's price on the New York Stock Exchange
(NYSE) fell from $8.6875 to $7.25 per share during this period. Based on this
change, plus reinvestment of tax-free dividends, OIB's total market return was
- -10.96 percent. As of February 29, 2000, OIB's share price was at a 12.65
percent discount to its NAV.
Monthly dividends for the first quarter of 2000, declared in January, were
unchanged at $0.0425 per share. The Fund's level of undistributed net investment
income was $0.126 per share on February 29, 2000, versus $0.104 per share 12
months ago.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $159 million were diversified among 14 long-term
sectors and 70 credits. At the end of February the portfolio's average maturity
was 22 years and its average duration, a measure of sensitivity to interest rate
changes was 8.2 years. Nonrated securities comprise more than half of OIB's
assets. The bonds of one issuer representing 2 percent of net assets were
currently not accruing interest. Three other issues, totaling 4.7 percent of net
assets, were accruing income but may experience difficulty with future debt
service payments. The accompanying charts provide current information on the
portfolio's credit quality, sector distribution and geographic diversification.
Optional call provisions by year and their respective cost (book) yields are
also charted.
LOOKING AHEAD
The Federal Reserve Board has expressed concern over prices and rising consumer
wealth. It is anticipated that the central bank will continue to increase
short-term interest rates in an effort to slow the economy. 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 year ended February 29, 2000,
the Fund purchased and retired 789,800 shares of common stock at a weighted
average market discount of 11.63 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.
<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>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
[LONG TERM SECTORS PIE CHART]
<TABLE>
<CAPTION>
LARGEST SECTORS as of February 29, 2000 (% of Net Assets)
<S> <C>
IDR/PCR* 20%
Mortgage 15%
Nursing & Health 12%
Retirement & Life Care 12%
Education 8%
Recreational Facilities 8%
Hospital 8%
Transportation 5%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
[CREDIT RATINGS PIE CHART]
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF FEBRUARY 29, 2000
(% of Total Long-Term Portfolio)
<S> <C>
Aaa/AAA 9%
Aa/AA 6%
A/A 3%
Baa/BBB 17%
Ba/BB 5%
NR 60%
</TABLE>
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
Portfolio structure is subject to change.
GEOGRAPHIC SUMMARY OF INVESTMENTS TABLE
BASED ON MARKET VALUE AS A PERCENT OF NET ASSETS
FEBRUARY 29, 2000
<TABLE>
<S> <C>
Alabama 0.90%
Alaska 2.40
Arizona 1.30
Arkansas 2.50
California 7.30
Colorado 5.40
Connecticut 1.20
District of Columbia 0.60
Florida 5.50
Illinois 1.00
Iowa 5.20
Kentucky 1.20
Louisiana 0.70
Maine 2.00
Maryland 1.20
Massachusetts 10.70
Michigan 9.50
Missouri 5.20
New Hampshire 3.70
New Jersey 4.80
New York 3.50
Ohio 5.10
Pennsylvania 4.30
Texas 1.40
Utah 0.60
Vermont 1.20
Virginia 9.00
West Virginia 1.30
Joint Exemptions* (0.60)
-------
Total 98.10%
=======
</TABLE>
- -----------------
* Joint exemptins have been included in each geographic location.
Portfolio structure is subject to change.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
LETTER TO THE SHAREHOLDERS February 29, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
YEARS BONDS CALLABLE PERCENT CALLABLE*
- -------------------- -----------------
<S> <C>
2000 15%
2001 7%
2002 2%
2003 4%
2004 3%
2005 8%
2006 11%
2007 10%
2008 14%
2009 14%
2010+ 12%
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
BOOK YIELD: 7.26%
COST (BOOK) YIELD **
--------------------
<S> <C>
2000 10.13%
2001 9.7%
2002 5.92%
2003 6.93%
2004 7.48%
2005 6.74%
2006 7.03%
2007 6.05%
2008 5.77%
2009 6.42%
2010+ 6.94%
</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 9.70% ON 7% OF THE LONG-TERM
PORTFOLIO THAT ARE CALLABLE IN 2001.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (94.1%)
Educational Facilities Revenue (7.9%)
$ 1,600 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs....................................................... 7.50% 05/01/11 $ 1,664,336
2,000 San Diego County, California, The Burnham Institute COPs.... 6.25 09/01/29 1,907,060
2,000 Volusia County Educational Facilities Authority, Florida,
Embry-Riddle Aeronautical University Ser 1996 A............ 6.125 10/15/26 1,922,540
3,000 South Berwick, Maine, Berwick Academy Ser 1998.............. 5.55 08/01/23 2,513,850
New Hampshire Higher Educational & Health Facilities
Authority,
1,500 Brewster Academy Ser 1995.................................. 6.75 06/01/25 1,484,550
2,000 Colby-Sawyer College Ser 1996.............................. 7.50 06/01/26 2,049,000
1,000 New York State Dormitory Authority, State University 1993
Ser A...................................................... 5.25 05/15/15 942,890
- -------- ------------
13,100 12,484,226
- -------- ------------
Electric Revenue (0.5%)
1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary
FSA)**..................................................... 5.00 07/01/21 860,020
- -------- ------------
Hospital Revenue (8.4%)
2,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1999 B..................................... 5.625 09/01/28 1,610,580
Massachusetts Health & Educational Facilities Authority,
2,000 Dana Farber Cancer Institute Ser G -1...................... 6.25 12/01/14 1,995,940
3,000 Dana Farber Cancer Institute Ser G -1...................... 6.25 12/01/22 2,849,790
3,000 Michigan Hospital Finance Authority, Sinai Hospital of
Greater Detroit Refg Ser 1995.............................. 6.70 01/01/26 2,653,140
New Hampshire Higher Educational & Health Facilities
Authority,
1,000 Littleton Hospital Association Ser 1998 B.................. 5.80 05/01/18 803,170
2,000 Littleton Hospital Association Ser 1998 B.................. 5.90 05/01/28 1,541,380
2,000 New Jersey Health Care Facilities Financing Authority
Raritan Bay Medical Center Ser 1994........................ 7.25 07/01/27 1,823,900
- -------- ------------
15,000 13,277,900
- -------- ------------
Industrial Development/Pollution Control Revenue (19.9%)
1,015 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser 1991
(AMT)++.................................................... 10.125 09/01/11 1,014,442
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT)............ 6.00 06/01/27 1,462,035
2,000 Perry County, Kentucky, TJ International Inc Ser 1997
(AMT)...................................................... 6.55 04/15/27 1,949,840
2,600 Holyoke, Massachusetts, McCormack/Partyka Ser 1990 (AMT).... 7.50 08/15/10 1,974,518
3,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993.............................................. 5.875 08/01/08 2,897,550
Lapeer Economic Development Corporation, Michigan,
1,975 Dott Manufacturing Co Ser 1989 B (AMT)..................... 9.00 11/15/19 1,441,750
1,935 Dott Manufacturing Co Ser 1989 A (AMT)..................... 10.625 11/15/19 1,412,550
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 2000, 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 $ 1,112,230
5,207 Kasle Steel Corp Ser 1989 (AMT)............................ 9.50 10/01/14 5,274,142
1,365 Sanilac County Economic Development Corporation, Michigan,
Dott Manufacturing Co Ser 1989 (AMT)....................... 10.625 08/15/19 996,450
2,000 New Jersey Economic Development Authority, Kapkowski Road
Landfill Ser 1998 A........................................ 6.375 04/01/31 1,873,380
2,000 New York City Industrial Development Agency, New York,
Brooklyn Navy Yard Cogeneration Partners LP Ser 1997
(AMT)...................................................... 5.65 10/01/28 1,731,340
1,500 Dayton, Ohio, Emery Air Freight Corp Refg Ser 1998 A........ 5.625 02/01/18 1,340,295
2,000 Beaver County Industrial Development Authority,
Pennsylvania, Toledo Edison Co Collateralized Ser 1995 B... 7.75 05/01/20 2,115,760
3,000 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade LP Ser 1994 A (AMT).................. 7.55 01/01/19 3,085,440
2,000 Upshur County, West Virginia, TJ International Inc Ser 1995
(AMT)...................................................... 7.00 07/15/25 2,018,660
- -------- ------------
34,197 31,700,382
- -------- ------------
Mortgage Revenue - Multi-Family (4.1%)
3,065 Boulder County, Colorado, Village Place at Longmont Ser 1989
A (AMT).................................................... 10.125 07/15/19 3,066,747
Alexandria Redevelopment & Housing Authority, Virginia,
2,000 Courthouse Commons Apts Ser 1990 A (AMT)................... 10.00 01/01/21 2,000,580
10,572 Courthouse Commons Apts Ser 1990 B (AMT)................... 0.00 01/01/21 1,391,275
- -------- ------------
15,637 6,458,602
- -------- ------------
Mortgage Revenue - Single Family (10.7%)
4,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 3,874,521
3,255 Colorado Housing Finance Authority, 1998 Ser B-3............ 6.55 05/01/25 3,389,073
1,495 Chicago, Illinois, GNMA-Backed 1998 Ser A-1 (AMT)........... 6.45 09/01/29 1,511,116
625 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 626,131
2,500 Missouri Housing Development Commission, Homeownership
GNMA/FNMA Collateralized 2000 Ser A-1 (AMT) WI............. 7.50 03/01/31 2,734,925
4,990 Ohio Housing Finance Agency, Residential GNMA-Collateralized
1996 Ser B-2 (AMT)......................................... 6.10 09/01/28 4,801,229
Utah Housing Finance Agency,
85 Ser 1990 A-2 (AMT)......................................... 7.80 07/01/10 85,565
65 Ser 1990 A-2 (AMT)......................................... 7.875 07/01/22 65,344
- -------- ------------
17,015 17,087,904
- -------- ------------
Nursing & Health Related Facilities Revenue (12.4%)
2,220 Arkansas Development Finance Authority, Wynwood Nursing
Center Ser 1989 (AMT)...................................... 10.50 11/01/19 2,292,172
2,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services, Inc Ser 1999......... 6.75 04/01/34 1,760,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Iowa Health Facilities Development Financing Authority, Care
Initiatives Ser 1996....................................... 9.25% 07/01/25 $ 3,582,840
3,140 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990................ 10.25 01/01/20 3,238,251
1,100 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........... 8.375 10/01/13 1,161,160
975 Massachusetts Development Finance Agency, New England Center
for Children Ser 1998...................................... 5.875 11/01/18 811,083
1,000 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Civic Facility Ser 1999......... 6.15 06/01/19 860,740
4,768 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989 (a)........ 10.125 05/01/19 3,789,511
2,500 Tarrant County Health Facilities Development Corporation,
Texas, 3927 Foundation Inc Ser 1989........................ 10.125 09/01/09 2,188,825
- -------- ------------
20,703 19,684,582
- -------- ------------
Public Facilities Revenue (0.5%)
1,000 Orange County Community Facilities District #86-2,
California, 1998 Ser A..................................... 5.55 08/15/17 858,550
- -------- ------------
Recreational Facilities Revenue (7.8%)
2,000 West Jefferson Amusement & Public Park Authority, Alabama
VisionLand Ser 1999........................................ 6.375 02/01/29 1,410,060
2,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A.................................... 6.25 01/01/30 1,796,520
2,000 San Diego County, California, San Diego Natural History
Museum COPs................................................ 5.70 02/01/28 1,703,080
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (b)..................................... 6.40 09/01/11 1,035,250
1,000 Special 1997 Ser B (b)..................................... 5.75 09/01/27 885,560
2,500 American National Fish & Wildlife Museum District, Missouri,
Ser 1999................................................... 7.00 09/01/19 2,405,075
3,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 3,121,950
- -------- ------------
13,510 12,357,495
- -------- ------------
Retirement & Life Care Facilities Revenue (11.5%)
1,965 Pima County Industrial Development Authority, Arizona,
Country Club at La Cholla Ser 1990 (AMT)................... 8.50 07/01/20 2,113,259
1,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A........................................ 8.00 01/01/30 970,080
1,500 Massachusetts Development Finance Agency, Loomis Communities
Ser 1999 A................................................. 5.75 07/01/23 1,205,625
New Jersey Economic Development Authority,
1,500 Fellowship Village Refg Ser 1998 A......................... 5.50 01/01/25 1,166,850
2,000 Franciscan Oaks Ser 1997................................... 5.75 10/01/23 1,604,180
1,500 United Methodist Homes Ser 1998............................ 5.125 07/01/25 1,085,145
2,000 Glen Cove Housing Authority, New York, Mayfair at Glen Cove
Ser 1996 (AMT)............................................. 8.25 10/01/26 2,098,260
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 2000, 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 $ 1,986,820
2,000 Vermont Economic Development Authority, Wake Robin Corp Ser
1999 A..................................................... 6.75 03/01/29 1,830,180
4,936 Chesterfield County Industrial Development Authority,
Virginia, Brandermill Woods Ser 1998....................... 6.50 01/01/28 4,290,087
- -------- ------------
20,401 18,350,486
- -------- ------------
Tax Allocation Revenue (2.6%)
2,000 Anne Arundel County, Maryland, Arundel Mills Ser 1999....... 7.10 07/01/29 1,961,560
235 Madison Heights Tax Increment Finance Authority, Michigan,
Ser 1991................................................... 8.50 03/15/01 239,545
1,905 Muskegon Downtown Development Authority, Michigan, 1989 Ser
A-1 (b).................................................... 9.75 06/01/18 1,954,244
- -------- ------------
4,140 4,155,349
- -------- ------------
Transportation Facilities Revenue (4.9%)
4,000 Foothill/Eastern Transportation Corridor Agency, California,
Ser 1999................................................... 0.00 01/15/27 1,997,680
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B
(MBIA)..................................................... 0.00 09/01/14 2,124,000
2,000 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 2,028,240
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 1,580,780
- -------- ------------
13,000 7,730,700
- -------- ------------
Water & Sewer Revenue (1.9%)
2,000 Northern Palm Beach County Improvement District, Florida,
Water Control & Improvement #9A Ser 1996 A................. 7.30 08/01/27 2,076,400
6,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B
(FGIC)..................................................... 0.00 09/01/30 875,520
- -------- ------------
8,000 2,951,920
- -------- ------------
Other Revenue (1.0%)
2,000 Capistrano Unified School District, California, Community
Facilities District #98-2 Ladera Special Tax Ser 1999...... 5.75 09/01/29 1,661,880
- -------- ------------
178,703 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $160,829,349)................. 149,619,996
- -------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.0%)
4,200 Massachusetts Health & Educational Facilities Authority,
Capital Assets Ser D (MBIA) (Demand 03/01/00).............. 3.80* 01/01/35 4,200,000
1,100 Massachusetts Industrial Finance Agency, May Institute for
Autistic Children Inc 1990 Issue........................... 9.75 06/01/00+ 1,136,212
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
PORTFOLIO OF INVESTMENTS February 29, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000 Roanoke Industrial Development Authority, Virginia, Roanoke
Memorial Hospitals Ser 1995 A (Demand 03/01/00)............ 3.85*% 07/01/19 $ 1,000,000
- -------- ------------
6,300 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
$6,336,212).................................................................... 6,336,212
- -------- ------------
$185,003 TOTAL INVESTMENTS (Identified Cost $167,165,561)(c)................... 98.1% 155,956,208
========
OTHER ASSETS IN EXCESS OF LIABILITIES................................... 1.9 2,987,074
------ ------------
NET ASSETS............................................................. 100.0% $158,943,282
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase
of "when-issued" securities.
(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 identified cost. The aggregate gross unrealized
appreciation is $1,878,209 and the aggregate gross
unrealized depreciation is $13,087,562, resulting in net
unrealized depreciation of $11,209,353.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000
ASSETS:
Investments in securities, at value
(identified cost $167,165,561).......... $155,956,208
Cash..................................... 145,913
Receivable for:
Interest............................. 3,005,873
Investments sold..................... 2,846,827
Prepaid expenses and other assets........ 26,342
------------
TOTAL ASSETS......................... 161,981,163
------------
LIABILITIES:
Payable for:
Investments purchased................ 2,725,000
Investment advisory fee.............. 69,735
Shares of beneficial interest
repurchased......................... 59,581
Administration fee................... 41,841
Accrued expenses and other payables...... 141,724
------------
TOTAL LIABILITIES.................... 3,037,881
------------
NET ASSETS........................... $158,943,282
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $180,872,195
Net unrealized depreciation.............. (11,209,353)
Accumulated undistributed net investment
income.................................. 2,444,834
Accumulated net realized loss............ (13,164,394)
------------
NET ASSETS........................... $158,943,282
============
NET ASSET VALUE PER SHARE,
19,153,707 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $8.30
============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended February 29, 2000
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 11,992,642
------------
EXPENSES
Investment advisory fee.................. 859,785
Administration fee....................... 515,871
Professional fees........................ 97,290
Transfer agent fees and expenses......... 54,312
Registration fees........................ 23,125
Trustees' fees and expenses.............. 18,548
Shareholder reports and notices.......... 11,651
Custodian fees........................... 10,505
Other.................................... 20,579
------------
TOTAL EXPENSES....................... 1,611,666
Less: expense offset..................... (10,483)
------------
NET EXPENSES......................... 1,601,183
------------
NET INVESTMENT INCOME................ 10,391,459
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 1,355,636
Net change in unrealized appreciation.... (17,243,365)
------------
NET LOSS............................. (15,887,729)
------------
NET DECREASE............................. $ (5,496,270)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
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 29, 2000 FEBRUARY 28, 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 10,391,459 $ 10,829,646
Net realized gain.................................. 1,355,636 3,329,621
Net change in unrealized appreciation.............. (17,243,365) (4,169,622)
------------ ------------
NET INCREASE (DECREASE)........................ (5,496,270) 9,989,645
Dividends from net investment income............... (10,058,818) (10,525,594)
Decrease from transactions in shares of beneficial
interest.......................................... (5,946,283) (242,062)
------------ ------------
NET DECREASE................................... (21,501,371) (778,011)
NET ASSETS:
Beginning of period................................ 180,444,653 181,222,664
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,444,834 and $2,073,075, respectively)....... $158,943,282 $180,444,653
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 2000
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 2000, 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"), 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"), 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.
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.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 2000, 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 29, 2000 aggregated
$31,867,880 and $34,707,792, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent.
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 29, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,833. At February 29, 2000, the Fund had an accrued pension liability of
$52,413 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, 1998.................................. 19,971,607 $199,717 $186,855,356
Treasury shares purchased and retired (weighted average
discount 7.00%)*........................................... (28,100) (281) (241,781)
Reclassification due to permanent book/tax differences...... -- -- 5,467
---------- -------- ------------
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
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
NOTES TO FINANCIAL STATEMENTS February 29, 2000, 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 28, 1999 $0.0425 March 3, 2000 March 17, 2000
March 28, 2000 $0.0425 April 7, 2000 April 20, 2000
March 28, 2000 $0.0425 May 5, 2000 May 19, 2000
March 28, 2000 $0.0425 June 9, 2000 June 23, 2000
</TABLE>
7. FEDERAL INCOME TAX STATUS
During the year ended February 29, 2000, the Fund utilized approximately
$1,356,000 of its net capital loss carryover. 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>
16
<PAGE> 17
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*
-------------------------------------------------------------
2000** 1999 1998 1997 1996**
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 9.05 $ 9.07 $ 8.79 $ 8.88 $ 8.66
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income...................................... 0.53 0.55 0.57 0.60 0.66
Net realized and unrealized gain (loss).................... (0.81) (0.04) 0.29 (0.05) 0.18
-------- -------- -------- -------- --------
Total income (loss) from investment operations.............. (0.28) 0.51 0.86 0.55 0.84
-------- -------- -------- -------- --------
Less dividends from net investment income................... (0.51) (0.53) (0.58) (0.64) (0.62)
-------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.04 -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 8.30 $ 9.05 $ 9.07 $ 8.79 $ 8.88
======== ======== ======== ======== ========
Market value, end of period................................. $ 7.25 $ 8.688 $ 9.063 $ 8.625 $ 8.75
======== ======== ======== ======== ========
TOTAL RETURN+............................................... (10.96)% 1.77% 12.08% 5.94% 17.87%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.94%(1) 0.94% 0.95%(1) 1.01%(1) 1.01%(1)
Net investment income....................................... 6.04% 5.99% 6.37% 6.87% 7.50%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $158,943 $180,445 $181,223 $175,573 $177,447
Portfolio turnover rate..................................... 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)Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
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") at February 29, 2000, 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
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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 29, 2000 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 14, 2000
--------------------------------------------------------------------
2000 FEDERAL TAX NOTICE (unaudited)
For the year ended February 29, 2000, all of the Fund's
dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME OPPORTUNITIES TRUST II
REVISED INVESTMENT POLICY
On January 26, 2000, the Trustees of Morgan Stanley Dean Witter Municipal Income
Opportunities Trust II (the "Fund") approved an investment policy whereby the
Fund would be permitted to invest up to 10% of its assets in inverse floating
rate municipal obligations. The inverse floating rate municipal obligations in
which the Fund will invest are typically created through a division of a fixed
rate municipal obligation into two separate instruments, a short-term obligation
and a long-term obligation. The interest rate on the short-term obligation is
set at periodic auctions. The interest rate on the long-term obligation is the
rate the issuer would have paid on the fixed income obligation: (i) plus the
difference between such fixed rate and the rate on the short-term obligation, if
the short-term rate is lower than the fixed rate; or (ii) minus such difference
if the interest rate on the short-term obligation is higher than the fixed rate.
The interest rates on these obligations generally move in the reverse direction
of market interest rates. If market interest rates fall, the interest rate on
the obligation will increase and if market interest rates increase, the interest
rate on the obligation will fall. Inverse floating rate municipal obligations
offer the potential for higher income than is available from fixed rate
obligations of comparable maturity and credit rating. They also carry greater
risks. In particular, the prices of inverse floating rate municipal obligations
are more volatile, i.e., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate obligations.
19
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
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
- ----------------------------------
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
INCOME
OPPORTUNITIES
TRUST II
Annual Report
February 29, 2000
