<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Municipal Income Trust II (TFB) for the period ended June
30, 1999.
After last year's global economic difficulties, the financial markets have
experienced a period of global healing. The turmoil, which included the Asian
financial crisis, the Russian debt default and the near collapse of a major
hedge fund, has given way to improved financial conditions. A major catalyst for
this return to stability was the liquidity provided by the Federal Reserve
Board's 75-basis-point reduction in the fed funds rate during the fourth quarter
of 1998.
The U.S. economy, led by consumer demand, continued to experience robust growth
in the first half of 1999. Higher materials prices and wage increases caused the
fixed-income markets to focus on the possibility that the Federal Reserve would
begin to take back some of the liquidity provided during last year's financial
crisis. Long-term interest rates reached 30-year lows in 1998 but have begun to
rise. In June, the central bank raised the fed funds rate 25 basis points to
5.00 percent in its first tightening move since early 1997.
MUNICIPAL MARKET CONDITIONS
Municipal securities outperformed U.S. Treasuries in the first six months of
1999. This is in contrast to last year's flight to quality rally that primarily
benefited Treasuries. As global turmoil subsided, Treasury yields increased more
than municipal yields. Since the beginning of the year, Treasury bond yields
rose 85 basis points from 5.10 to 5.95 percent. Long-term insured municipal
index yields rose only 45 basis points from 5.05 to 5.50 percent. The ratio of
long-term municipal yields to Treasury yields, a widely followed indicator of
relative performance, declined from 99 to 92 percent. A declining ratio means
municipals have outperformed Treasuries.
Municipal performance was also aided by a decline in underwriting.
New-issue volume declined 23 percent in the first half of 1999. Higher interest
rates caused a 47 percent decline in refunding activity.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
30-YEAR BOND YIELDS 1994-1999
<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 84.80
7.00 8.00 87.50
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 83.10
5.75 6.94 82.85
5.65 6.91 81.77
5.60 6.78 82.60
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 87.60
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
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
PERFORMANCE
The Fund's net asset value (NAV) decreased from $10.32 per share to $9.89 per
share for the six-month period ended June 30, 1999. Based on this change plus
the reinvestment of tax-free dividends totaling $0.24 per share and a long-term
capital gain distribution of $0.02961 per share, the Fund's total NAV return was
- -1.25 percent. TFB's value on the New York Stock Exchange decreased from $9.50
per share to $8.50 per share during the same period. Based on this change plus
reinvestment dividends and distributions, TFB's total market return was -7.80
percent. The Fund's share price was a 14.05 percent discount to its NAV.
Monthly dividends for the second quarter of 1999 were unchanged at 0.04 per
share. The Fund's level of undistributed net investment income remained
unchanged at $0.11 per share.
PORTFOLIO STRUCTURE
The Fund's net assets of $255.6 million were diversified among 15 long-term
sectors and 66 individual credits. Holdings in the refunded bond category
comprised 10 percent of net assets and will be redeemed on the dates shown in
the portfolio. Average duration, a measure of sensitivity to interest
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
LARGEST LONG-TERM SECTORS AS OF JUNE 30, 1999
(% OF NET ASSETS)
<TABLE>
<S> <C>
ELECTRIC 15%
GENERAL OBLIGATION 12%
HOSPITAL 10%
REFUNDED 10%
EDUCATION 8%
TRANSPORTATION 8%
WATER & SEWER 7%
MORTGAGE 6%
IDR/PCR* 6%
RESOURCE RECOVERY 5%
</TABLE>
*INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS AS OF JUNE 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 51%
Aa or AA 16%
A or A 20%
Baa or BBB 8%
N/R 5%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CALL STRUCTURE AS OF JUNE 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE
CALL PROTECTION: 8 YEARS
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1999 2
2000 3
2001 5
2002 3
2003 8
2004 8
2005 10
2006 13
2007 11
2008 14
2009 10
2010+ 13
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
rate changes, was 8.1 years at the end of June. The Fund's average-weighted
maturity was 19 years. The accompanying charts provide current information on
the portfolio's credit quality, sector diversification and optional redemption
(call) provisions.
LOOKING AHEAD
The Federal Reserve Board raised interest rates in June, this confirmed its
previously signaled intention of becoming less accommodative in the face of
continued strong domestic economic growth. It is anticipated that the central
bank may raise the fed funds rate further in an effort to take back the
liquidity it provided in the fall of 1998. However, we believe municipal bonds
continue to offer long-term investors good value, especially in relationship
to 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 six-month period ended June 30, 1999 the Fund
purchased and retired 346,800 shares of common stock at a weighted average
market discount of 12.59 percent.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset
Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive
Officer and Director of Morgan Stanley Dean Witter Advisors Inc. He also serves
as Chairman, Chief Executive Officer and Director of the Morgan Stanley Dean
Witter Distributors Inc. and Morgan Stanley Dean Witter Trust FSB.
We appreciate your ongoing support of Morgan Stanley Dean Witter Municipal
Income Trust II and look forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
RESULTS OF ANNUAL MEETING
* * *
On June 22, 1999, an annual meeting of the Fund's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For......................................................... 20,907,211
Withheld.................................................... 382,112
Charles A. Fiumefreddo
For......................................................... 20,869,727
Withheld.................................................... 419,596
</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.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 20,806,682
Against..................................................... 157,828
Abstain..................................................... 324,813
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (97.1%)
General Obligation (12.1%)
$ 2,000 Honolulu City & County, Hawaii, Ser 1999 B (FGIC)........... 5.00% 07/01/22 $ 1,880,300
5,000 Chicago, Illinois, Refg Ser 1995 A-2 (AMBAC)................ 6.25 01/01/14 5,524,700
5,000 Illinois, Ser 1999 (FGIC)................................... 5.375 06/01/24 4,895,600
2,000 Rosemont, Illinois, 1993 Ser B.............................. 5.50 12/01/07 2,067,520
2,000 Berkley School District, Michigan, Refg Ser 1998 (FGIC)..... 4.75 01/01/19 1,810,820
3,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 3,244,860
4,000 New York State, Refg Ser 1995 B............................. 5.70 08/15/10 4,160,880
5,000 North Carolina, Public School Building Ser 1999............. 4.60 04/01/17 4,570,000
3,000 Little Miami Local School District, Ohio, Ser 1998 (FGIC)... 4.875 12/01/23 2,772,300
- -------- ------------
31,000 30,926,980
- -------- ------------
Educational Facilities Revenue (7.6%)
5,000 Illinois Educational Facilities Authority, Northwestern
University Ser 1997........................................ 5.25 11/01/32 5,026,900
2,000 Massachusetts Health & Educational Facilities Authority,
Boston College Ser K....................................... 5.25 06/01/18 1,948,440
2,000 New Jersey Economic Development Authority, Educational
Testing Service Ser 1998 A (MBIA).......................... 4.75 05/15/18 1,865,140
New York State Dormitory Authority,
2,000 State University 1990 Ser A................................. 7.50 05/15/13 2,457,240
2,000 State University 1993 Ser A................................. 5.25 05/15/15 1,989,220
4,000 Delaware County Authority, Pennsylvania, Villanova
University
Ser 1995 (AMBAC)........................................... 5.70 08/01/15 4,133,640
2,000 Vermont Educational & Health Building Financing Agency,
Norwich University Ser 1998................................ 5.50 07/01/18 1,894,020
- -------- ------------
19,000 19,314,600
- -------- ------------
Electric Revenue (15.1%)
North Carolina Municipal Power Agency #1,
3,000 Catawba Ser 1998 A (MBIA)................................... 5.50 01/01/14 3,093,960
5,000 Catawba Ser 1998 A (MBIA)................................... 5.50 01/01/15 5,152,900
10,000 South Carolina Public Service Authority, Refg Ser 1996 A
(MBIA)..................................................... 5.75 01/01/13 10,429,901
8,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C.......... 4.70 02/01/06 7,990,800
4,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA).... 5.75 07/01/19 4,091,600
3,000 Chelan County Public Utility District #1, Washington, Hydro
Ser 1997 A (AMT)........................................... 5.60 07/01/32 2,992,650
5,000 Washington Public Power Supply System, Proj #1 Refg Ser 1998
A.......................................................... 5.00 07/01/12 4,842,100
- -------- ------------
38,000 38,593,911
- -------- ------------
Hospital Revenue (9.8%)
5,000 Hawaii Department of Budget & Finance, Queen's Health 1996
Ser A...................................................... 6.00 07/01/20 5,172,050
5,000 Maine Health & Higher Educational Facilities Authority, Ser
1998 B (FSA)............................................... 4.875 07/01/23 4,561,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,300 Massachusetts Health & Educational Facilities Authority, St
Elizabeth Hospital of Boston Ser D & E (FSA)............... 6.70% 08/15/21 $ 4,575,501
4,000 Michigan Hospital Finance Authority, Detroit Medical Center
Ser 1997 A (AMBAC)......................................... 5.25 08/15/27 3,818,920
2,000 University of Missouri, Health Ser 1996 A (AMBAC)........... 5.50 11/01/16 2,001,280
4,000 North Carolina Medical Care Commission, Pitt County Memorial
Hospital Ser 1998 A........................................ 4.75 12/01/28 3,460,760
1,295 Ward County, North Dakota, Trinity Crossover Refg Ser 1991 B 7.50 07/01/21 1,371,029
- -------- ------------
25,595 24,961,040
- -------- ------------
Industrial Development/Pollution Control Revenue (6.4%)
5,000 Wamego, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA).... 7.00 06/01/31 5,318,400
2,000 New York State Energy Research & Development Authority, New
York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA)..... 6.15 07/01/26 2,099,080
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,280,600
Lexington County, South Carolina,
685 Ellett Brothers Inc Refg Ser 1988........................... 7.50 09/01/02 689,651
1,000 Ellett Brothers Inc Refg Ser 1988........................... 7.50 09/01/08 1,009,000
2,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 2,040,520
- -------- ------------
15,685 16,437,251
- -------- ------------
Mortgage Revenue - Single Family (6.2%)
5,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 5,177,300
1,895 Chicago, Illinois, Ser 1997 B (AMT)......................... 6.95 09/01/28 2,111,257
515 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT)
(MBIA)..................................................... 8.00 11/01/20 530,862
3,100 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 3,139,277
1,150 Missouri Housing Development Commission, Home Ownership
1998 Ser D-2 (AMT)......................................... 6.30 03/01/29 1,240,206
1,140 New Hampshire Housing Finance Authority, Residential
GNMA-Backed Ser 1988 A (AMT)............................... 7.70 07/01/29 1,172,786
2,355 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/22 2,410,861
- -------- ------------
15,155 15,782,549
- -------- ------------
Nursing & Health Related Facilities (3.8%)
2,000 Iowa Financing Authority, Care Initiatives Ser 1996......... 9.25 07/01/25 2,582,020
2,783 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989 (b)........ 10.125 05/01/19 2,301,318
Kirbyville Health Facilities Development Authority, Texas,
623 Heartway III Corp Ser 1997 B................................ 0.00# 03/20/04 507,409
3,859 Heartway III Corp Ser 1997 A................................ 10.00 03/20/18 4,341,156
- -------- ------------
9,265 9,731,903
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (1.2%)
$ 3,000 New York State Dormitoty Authority, Court Facilities Ser
1993 A..................................................... 5.625% 05/15/13 $ 3,024,390
- -------- ------------
Resource Recovery Revenue (5.2%)
8,000 Northeast Maryland Waste Disposal Authority, Montgomery
County Ser 1993 A (AMT).................................... 6.30 07/01/16 8,419,360
5,000 Lancaster County Solid Waste Management Authority,
Pennsylvania 1998 Ser B (AMBAC)........................... 5.375 12/15/15 4,954,100
- -------- ------------
13,000 13,373,460
- -------- ------------
Retirement & Life Care Facilities Revenue (0.8%)
Riverside County Public Financing Authority, California, Air
Force Village West Inc COPs................................ 5.75 05/15/19 2,084,607
2,100
- -------- ------------
Tax Allocation Revenue (2.0%)
5,000 Rosemead Redevelopment Agency, California, 1993 Ser A....... 5.60 10/01/33 5,015,200
- -------- ------------
Transportation Facilities Revenue (7.5%)
5,000 Chicago, Illinois, Chicago-O'Hare International Airport
Ser 1996 A (AMBAC)......................................... 5.625 01/01/12 5,123,800
3,000 Massachusetts Turnpike Authority, Metropolitan 1997 Ser A
(MBIA)..................................................... 5.00 01/01/37 2,727,750
2,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)................. 4.50 02/15/24 1,722,180
2,500 Allegheny County, Pennsylvania, Greater Pittsburgh Int'l
Airport Ser 1997 A (AMT) (MBIA)............................ 5.75 01/01/13 2,614,900
4,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 4,187,520
3,000 Pocahontas Parkway Association, Virginia, Route 895
Connector 1998 Ser A....................................... 5.50 08/15/28 2,849,760
- -------- ------------
19,500 19,225,910
- -------- ------------
Water & Sewer Revenue (7.0%)
3,000 Dade County, Florida, Ser 1995 (FGIC)....................... 5.50 10/01/18 3,023,460
2,000 Florida Governmental Utility Authority, Sarasota Utility Ser
1999 (AMBAC)............................................... 5.25 10/01/18 1,978,340
3,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC)....... 4.75 10/01/23 2,711,550
3,000 Tampa Bay Water, Florida, Utility Ser 1998 B (FGIC)......... 4.75 10/01/27 2,682,930
1,570 Massachusetts Water Resources Authority, 1993 Ser C......... 5.25 12/01/20 1,501,862
5,000 Charleston, South Carolina, Refg Cap Impr Ser 1998
(Secondary FGIC)........................................... 4.50 01/01/24 4,271,600
2,000 Loudoun County Sanitation Authority, Virginia, Ser 1998
(MBIA)..................................................... 4.75 01/01/21 1,816,880
- -------- ------------
19,570 17,986,622
- -------- ------------
Other Revenue (2.7%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (b)............................................. 5.75 09/01/27 3,890,960
3,000 New York Local Government Assistance Corporation, Ser 1995 A 6.00 04/01/24 3,129,870
- -------- ------------
7,000 7,020,830
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (9.7%)
$ 20,100 San Francisco Redevelopment Agency, California, George R
Moscone Convention Ctr Ser 1988............................ 0.00%## 07/01/04++ $ 18,330,195
1,170 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,285,830
3,000 Massachusetts, 1995 Ser B (AMBAC)........................... 5.50 07/01/05+ 3,172,770
2,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C (ETM).... 4.70 02/01/06 1,982,120
- -------- ------------
26,270 24,770,915
- -------- ------------
249,140 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $242,276,529)..................... 248,250,168
- -------- ------------
SHORT TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.4%)
3,000 Missouri Health & Educational Facilities Authority,
Washington University Ser C (Demand 07/01/99).............. 3.45* 09/01/30 3,000,000
500 Harris County Health Facilities Development Corporation, 3.50* 12/01/25 500,000
- -------- Texas, Methodist Hospital Ser 1994 (Demand 07/01/99).......
------------
3,500 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
- -------- (Identified Cost $3,500,000)....................................................... 3,500,000
------------
$252,640 TOTAL INVESTMENTS (Identified Cost $245,776,529) (c)....................... 98.5% 251,750,168
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................... 1.5 3,817,442
----- ------------
NET ASSETS.................................................................. 100.0% $255,567,610
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
++ Crossover refunded to call date shown.
* Current coupon of variable rate demand obligation.
# Currently a zero coupon; will convert to 6.00% on March 20,
2000.
## Currently a zero coupon; will convert to 8.50% on July 21,
2002.
(a) Non-income producing security, bond in default.
(b) Sale is restricted to qualified institutional investors.
(c) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $9,733,710 and the aggregate gross
unrealized depreciation is $3,760,071, >resulting in net
unrealized appreciation of $5,973,639.
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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
June 30, 1999
<TABLE>
<S> <C>
Alaska................... 2.0%
California............... 10.0
Connecticut.............. 1.5
Delaware................. 1.6
Florida.................. 4.1
Hawaii................... 2.8
Illinois................. 10.2
Iowa..................... 1.0
Kansas................... 2.3
Maine.................... 3.0
Maryland................. 3.3
Massachusetts............ 5.4
Michigan................. 2.2
Missouri................. 2.4
New Hampshire............ 0.4
New Jersey............... 0.7
New York................. 7.9
North Carolina........... 6.4
North Dakota............. 0.5
Ohio..................... 1.8
Oklahoma................. 2.1
Pennsylvania............. 3.9
South Carolina........... 6.4
Texas.................... 8.4
Utah..................... 1.6
Vermont.................. 0.7
Virginia................. 2.8
Washington............... 3.1
------
Total.................... 98.5%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $245,776,529)............................. $251,750,168
Cash........................................................ 88,589
Receivable for:
Interest................................................ 4,044,974
Investments sold........................................ 78,000
Prepaid expenses and other assets........................... 28,881
-----------
TOTAL ASSETS............................................ 255,990,612
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 175,965
Investment advisory fee................................. 92,924
Administration fee...................................... 58,172
Accrued expenses and other payables......................... 95,941
-----------
TOTAL LIABILITIES....................................... 423,002
-----------
NET ASSETS.............................................. $255,567,610
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $246,040,383
Net unrealized appreciation................................. 5,973,639
Accumulated undistributed net investment income............. 2,843,930
Accumulated undistributed net realized gain................. 709,658
-----------
NET ASSETS.............................................. $255,567,610
===========
NET ASSET VALUE PER SHARE,
25,851,566 shares outstanding (unlimited shares authorized
of $.01 par value)......................................... $9.89
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 7,326,945
------------
EXPENSES
Investment advisory fee..................................... 521,283
Administration fee.......................................... 326,803
Transfer agent fees and expenses............................ 43,867
Professional fees........................................... 24,632
Shareholder reports and notices............................. 20,827
Registration fees........................................... 15,993
Trustees' fees and expenses................................. 8,964
Custodian fees.............................................. 6,724
Other....................................................... 6,658
------------
TOTAL EXPENSES.......................................... 975,751
Less: expense offset........................................ (6,710)
------------
NET EXPENSES............................................ 969,041
------------
NET INVESTMENT INCOME................................... 6,357,904
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 709,678
Net change in unrealized appreciation....................... (11,671,209)
------------
NET LOSS................................................ (10,961,531)
------------
NET DECREASE................................................ $ (4,603,627)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 6,357,904 $ 13,779,848
Net realized gain................................... 709,678 4,509,561
Net change in unrealized appreciation............... (11,671,209) (1,870,258)
------------ ------------
NET INCREASE (DECREASE)......................... (4,603,627) 16,419,151
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................... (6,265,319) (13,897,862)
Net realized gain................................... (769,750) (4,872,870)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (7,035,069) (18,770,732)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................ (3,064,728) (4,052,840)
------------ ------------
NET DECREASE.................................... (14,703,424) (6,404,421)
NET ASSETS:
Beginning of period................................. 270,271,034 276,675,455
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,843,930 and $2,751,346, respectively)..... $255,567,610 $270,271,034
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Municipal Income 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 which is exempt from federal income tax. The Fund was
organized as a Massachusetts business trust on March 15, 1988 and commenced
operations on June 1, 1988.
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 Fund's
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 TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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 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"), an affiliate of Morgan Stanley Dean
Witter Services Company Inc. (the "Administrator"), the Fund pays the Investment
Advisor an advisory fee, calculated weekly and payable monthly, by applying the
following annual rates to the Fund's weekly net assets: 0.40% to the portion of
the Fund's weekly net assets not exceeding $250 million and 0.30% to the portion
of the Fund's weekly net assets exceeding $250 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Advisor pays 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 the Administrator, the Fund pays an
administration fee, calculated weekly and payable monthly, by applying the
following annual rates to the Fund's weekly net assets: 0.25% to the portion of
the Fund's weekly net assets not exceeding $250 million; 0.20% to the portion of
the Fund's weekly net assets exceeding $250 million but not exceeding $500
million; 0.167% of the portion to the Fund's weekly net assets exceeding $500
million but not exceeding $750 million; and 0.133% to the portion of the Fund's
weekly net assets exceeding $750 million.
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
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
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.
4. 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 June 30, 1999 aggregated
$21,164,650 and $27,482,408, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At June 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $13,000.
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 June 30, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,885. At June 30, 1999, the Fund had an accrued pension liability of
$50,823 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
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1997.................................. 26,621,566 $266,215 $252,890,376
Treasury shares purchased and retired (weighted average
discount 8.00%)*........................................... (423,200) (4,232) (4,048,608)
Reclassification due to permanent book /tax differences..... -- -- 1,360
---------- -------- ------------
Balance, December 31, 1998.................................. 26,198,366 261,983 248,843,128
Treasury shares purchased and retired (weighted average
discount 12.59%)*.......................................... (346,800) (3,468) (3,061,260)
---------- -------- ------------
Balance, June 30, 1999...................................... 25,851,566 $258,515 $245,781,868
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
6. DIVIDENDS
On June 29, 1999, the Fund declared the following dividends from net investment
income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- ---------- ----------------- ------------------
<S> <C> <C>
$0.04 July 9, 1999 July 23, 1999
$0.04 August 6, 1999 August 20, 1999
$0.04 September 3, 1999 September 17, 1999
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME 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 DECEMBER 31*
MONTHS ENDED ----------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period...................... $10.32 $10.39 $10.11 $10.35 $ 9.75 $10.81
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income.................................... 0.23 0.53 0.59 0.59 0.65 0.66
Net realized and unrealized gain (loss).................. (0.41) 0.11 0.31 (0.17) 0.70 (0.96)
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations............ (0.18) 0.64 0.90 0.42 1.35 (0.30)
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................................... (0.24) (0.53) (0.56) (0.62) (0.63) (0.64)
Net realized gain........................................ (0.03) (0.19) (0.08) (0.05) (0.12) (0.14)
------ ------ ------ ------ ------ ------
Total dividends and distributions......................... (0.27) (0.72) (0.64) (0.67) (0.75) (0.78)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares......... 0.02 0.01 0.02 0.01 -- 0.02
------ ------ ------ ------ ------ ------
Net asset value, end of period............................ $ 9.89 $10.32 $10.39 $10.11 $10.35 $ 9.75
====== ====== ====== ====== ====== ======
Market value, end of period............................... $ 8.50 $ 9.50 $9.625 $9.125 $10.00 $9.125
====== ====== ====== ====== ====== ======
TOTAL RETURN+............................................. (7.80)%(3) 6.23% 12.82% (2.29)% 18.34% (9.61)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 0.74%(1)(2) 0.76%(1) 0.75%(1) 0.76%(1) 0.74% 0.76%
Net investment income..................................... 4.80%(2) 5.00% 5.79% 5.91% 6.41% 6.48%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $255,568 $270,271 $276,675 $277,901 $287,244 $272,647
Portfolio turnover rate................................... 8%(3) 22% 21% 11% 19% 10%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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 the 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%.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
(This Page Intentionally Left Blank)
<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
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
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 Trust II
Semiannual Report
June 30, 1999
