<PAGE> 1
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economic expansion continued during the six-month period ended June 30,
2000. Real personal consumption accelerated and unemployment reached a 30-year
low. At the same time, a surge in oil prices 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. This 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 trend of Treasury yields. Long-term interest rates rose in April but began
to decline in May and June as signs of an economic slowdown developed.
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 and ended June at 5.84 percent.
Because bond prices move inversely to changes in interest rates, higher yields
caused bond prices to decline significantly last year and improve marginally in
the first six months of this year.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. The increase in the ratio
from 92 percent at the end of 1999 to 99 percent at the end of June may be
attributed to the magnitude of the rally in long-term Treasuries. A rising yield
ratio indicates weaker relative performance by municipals. Over the past five
years, the ratio has ranged between an average annual high of 93 percent and an
average annual low of 85 percent.
During the first six months of this year, new-issue volume was 22 percent lower
than the same period last year. Refunding activity, the most interest
<PAGE> 2
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
rate sensitive component of new issue 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 Insured Municipal Yields as a
Municipal Yields U.S. 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
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.90
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
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal
Group and Bloomberg L.P.
PERFORMANCE
For the six-month period ended June 30, 2000, the net asset value (NAV) of
Morgan Stanley Dean Witter Municipal Income Trust II (TFB) increased from $9.42
to $9.61 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 5.21
percent. TFB's value on the New York Stock Exchange (NYSE) increased from
$8.0625 to $8.6875 per share during the same period. Based on this change plus
reinvestment of tax-free dividends TFB's total market return was 11.12 percent.
TFB's share price was trading at a 9.60 percent discount to its NAV on June 30,
2000.
Monthly dividends for the second and third quarters of 2000, declared in March
and June, respectively, were unchanged at $0.0425 per share. The Fund's level of
undistributed net investment income was $0.10 per share on June 30, 2000, versus
$0.11 per share six months ago.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $235 million were diversified among 16 long-term
sectors and 61 credits. Issues in the refunded bond category comprised 9 percent
of net assets. Refunded bonds have been refinanced and will be redeemed on the
dates shown in the portfolio. At the end of June, the portfolio's average
maturity was 17 years. Average duration, a measure of sensitivity to
interest-rate changes, was 8.2 years. The accompanying charts provide current
information on the portfolio's credit quality, maturity distribution and sector
concentrations. Optional call provisions and their respective cost (book) yields
are also charted by year.
LOOKING AHEAD
The Federal Reserve Board has expressed concern about consumer wealth and rising
prices. We anticipate that the central bank will continue to focus on inflation
and may increase short-term rates if it feels that the economic momentum is not
slowing sufficiently. 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 June 30, 2000 the
Fund purchased and retired 403,600 shares of common stock at a weighted average
market discount of 12.7 percent. The anti-dilutive effect on NAV of the share
repurchase program is shown in table of Financial Highlights.
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
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
[LARGEST SECTORS BAR CHART]
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF JUNE 30, 2000 (% OF NET ASSETS)
-----------------------------------------------------
<S> <C>
ELECTRIC 16%
GENERAL OBLIGATION 13%
REFUNDED 9%
HOSPITAL 9%
EDUCATION 8%
WATER & SEWER 7%
TRANSPORTATION 7%
IDR/PCR* 6%
RESOURCE RECOVERY 6%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
</TABLE>
[CREDIT RATINGS PIE CHART]
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF JUNE 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
----------------------------------
<S> <C>
Aaa or AAA 49%
Aa or AA 16%
A or A 22%
Baa or BBB 8%
NR 5%
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
Portfolio structure is subject to change.
</TABLE>
[DISTRIBUTION BY MATURITY BAR CHART]
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF NET ASSETS)
------------------------------------------
WEIGHTED AVERAGE
MATURITY 17 YEARS
<S> <C>
Under 1 Year 1.4%
1-5 Years 8.4%
5-10 Years 6.0%
10-20 Years 43.6%
20-30 Years 31.2%
30+ Years 7.4%
Portfolio structure is subject to change.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE
JUNE 30, 2000
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
CALL PROTECTION: 7 YEARS BOOK YIELD: 6.1%
PERCENT CALLABLE* COST (BOOK) YIELD**
----------------- --------------------
<S> <C> <C>
2000 4.00% 8.2%
2001 5.00% 6.2%
2002 1.00% 6.3%
2003 8.00% 6.0%
2004 9.00% 8.2%
2005 9.00% 6.0%
2006 14.00% 5.7%
2007 9.00% 6.0%
2008 13.00% 5.3%
2009 11.00% 5.2%
2010+ 17.00% 6.4%
* % 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 6.2% on the 5% of the bonds in the
long-term portfolio that are callable in 2001.
Portfolio structure is subject to change.
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME 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 one proposal, the results of which were as follows:
ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Wayne E. Hedien
For.................... 20,531,240
Withheld............... 365,975
Dr. Manuel H. Johnson
For.................... 20,534,735
Withheld............... 362,480
John L. Schroeder
For.................... 20,524,226
Withheld............... 372,989
</TABLE>
The following Trustees were not standing for reelection at this meeting: Michael
Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent and Philip J.
Purcell. Additionally, James F. Higgins was elected as a Trustee of the Fund by
the Board of Trustees effective July 25, 2000.
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.7%)
General Obligation (13.4%)
$ 2,000 District of Columbia, Ser 1999 A (FSA)...................... 5.375% 06/01/24 $ 1,868,640
Florida Board of Education
2,000 Capital Outlay Refg Ser 1999 B (MBIA)...................... 4.50 06/01/24 1,643,440
3,000 Capital Outlay Ser 1998 A.................................. 4.75 06/01/28 2,532,600
2,000 Hawaii, 1999 Ser CT (FSA)................................... 5.875 09/01/16 2,055,080
2,000 Honolulu City & County, Hawaii, Ser 1999 B (FGIC)........... 5.00 07/01/22 1,788,840
5,000 Chicago, Illinois, Refg Ser 1995 A-2 (AMBAC)................ 6.25 01/01/14 5,398,750
2,000 Berkley School District, Michigan, Refg Ser 1999 (FGIC)..... 4.75 01/01/19 1,743,100
3,000 New York City, New York, 1995 Ser D (MBIA).................. 6.20 02/01/07 3,211,890
4,000 New York State, Refg Ser 1995 B............................. 5.70 08/15/10 4,122,360
5,000 North Carolina, Public School Building Ser 1999............. 4.60 04/01/17 4,398,200
3,000 Little Miami Local School District, Ohio, Ser 1998 (FGIC)... 4.875 12/01/23 2,632,890
-------- -----------
33,000 31,395,790
-------- -----------
Educational Facilities Revenue (8.0%)
5,000 Illinois Educational Facilities Authority, Northwestern
University Ser 1997........................................ 5.25 11/01/32 4,886,400
2,000 Massachusetts Health & Educational Facilities Authority,
Boston College Ser K....................................... 5.25 06/01/18 1,906,160
2,000 New Jersey Economic Development Authority, Educational
Testing Service Ser 1998 A (MBIA).......................... 4.75 05/15/18 1,774,220
New York State Dormitory Authority,
2,000 State University 1990 Ser A................................. 7.50 05/15/13 2,383,860
2,000 State University 1993 Ser A................................ 5.25 05/15/15 1,971,480
4,000 Delaware County Authority, Pennsylvania, Villanova
University Ser 1995 (AMBAC)................................ 5.70 08/01/15 4,056,040
2,000 Vermont Educational & Health Building Financing Agency,
Norwich University Ser 1998................................ 5.50 07/01/18 1,779,860
-------- -----------
19,000 18,758,020
-------- -----------
Electric Revenue (16.1%)
North Carolina Municipal Power Agency #1,
3,000 Catawba Ser 1998 A (MBIA).................................. 5.50 01/01/14 3,031,350
5,000 Catawba Ser 1998 A (MBIA).................................. 5.50 01/01/15 5,034,800
10,000 South Carolina Public Service Authority, Refg Ser 1996 A
(MBIA)..................................................... 5.75 01/01/13 10,269,400
8,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C.......... 4.70 02/01/06 7,922,320
4,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA).... 5.75 07/01/19 4,000,000
3,000 Chelan County Public Utility District #1, Washington, Hydro
Ser 1997 A (AMT)........................................... 5.60 07/01/32 2,844,600
5,000 Washington Public Power Supply System, Project #1 Refg Ser
1998 A..................................................... 5.00 07/01/12 4,757,150
-------- -----------
38,000 37,859,620
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Hospital Revenue (8.5%)
$ 5,000 Hawaii Department of Budget & Finance, Queen's Health 1996
Ser A...................................................... 6.00% 07/01/20 $ 4,808,800
5,000 Maine Health & Higher Educational Facilities Authority, Ser
1998 B (FSA)............................................... 4.875 07/01/23 4,258,900
4,300 Massachusetts Health & Educational Facilities Authority, St
Elizabeth Hospital of Boston Ser D & E (FSA)............... 6.70 08/15/21 4,452,822
2,000 University of Missouri, Health Ser 1996 A (AMBAC)........... 5.50 11/01/16 1,968,100
4,000 North Carolina Medical Care Commission, Pitt County Memorial
Hospital Ser 1998 A........................................ 4.75 12/01/28 3,266,280
1,295 Ward County, North Dakota, Trinity Crossover Refg Ser 1991
B.......................................................... 7.50 07/01/21 1,322,234
-------- -----------
21,595 20,077,136
-------- -----------
Industrial Development/Pollution Control Revenue (5.8%)
5,000 Wamego, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA).... 7.00 06/01/31 5,186,650
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/01/20 5,082,500
Lexington County, South Carolina,
535 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/02 529,773
1,000 Ellett Brothers Inc Refg Ser 1988.......................... 7.50 09/01/08 969,050
2,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 1,909,220
-------- -----------
13,535 13,677,193
-------- -----------
Mortgage Revenue - Single Family (5.1%)
5,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)....... 6.00 06/01/27 4,901,601
1,785 Chicago, Illinois, Ser 1997 B (AMT)......................... 6.95 09/01/28 1,888,137
415 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT)
(MBIA)..................................................... 8.00 11/01/20 420,814
300 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)........ 6.40 11/15/23 303,534
1,145 Missouri Housing Development Commission, Home Ownership 1998
Ser D-2 (AMT).............................................. 6.30 03/01/29 1,143,363
925 New Hampshire Housing Finance Authority, Residential
Mortgage Ser 1989 B (AMT).................................. 7.70 07/01/29 941,576
2,355 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/22 2,426,780
-------- -----------
11,925 12,025,805
-------- -----------
Nursing & Health Related Facilities Revenue (3.8%)
2,000 Iowa Financing Authority, Care Initiatives Ser 1996......... 9.25 07/01/25 2,383,220
2,861 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc Ser 1989 (a)(b)..... 10.125 05/01/19 2,257,558
Kirbyville Health Facilities Development Authority, Texas,
623 Heartway III Corp Ser 1997 B (a)........................... 6.00 03/20/04 439,502
3,786 Heartway III Corp Ser 1997 A............................... 10.00 03/20/18 3,930,627
-------- -----------
9,270 9,010,907
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (1.3%)
$ 3,000 New York State Dormitory Authority, Court Facilities Ser
1993 A..................................................... 5.625% 05/15/13 $ 2,974,050
-------- -----------
Recreational Facilities Revenue (1.5%)
4,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1997 Ser B (b)............................................. 5.75 09/01/27 3,574,080
-------- -----------
Resource Recovery Revenue (5.6%)
8,000 Northeast Maryland Waste Disposal Authority, Montgomery
County Ser 1993 A (AMT).................................... 6.30 07/01/16 8,140,320
5,000 Lancaster County Solid Waste Management Authority,
Pennsylvania, 1998 Ser B (AMBAC)........................... 5.375 12/15/15 4,914,950
-------- -----------
13,000 13,055,270
-------- -----------
Retirement & Life Care Facilities Revenue (0.8%)
2,100 Riverside County Public Financing Authority, California, Air
-------- Force Village West Inc COPs................................ 5.75 05/15/19 1,887,879
-----------
Tax Allocation Revenue (2.0%)
5,000 Rosemead Redevelopment Agency, California, 1993 Ser A....... 5.60 10/01/33 4,645,200
-------- -----------
Transportation Facilities Revenue (6.9%)
5,000 Chicago, Illinois, Chicago-O'Hare International Airport Ser
1996 A (AMBAC)............................................. 5.625 01/01/12 5,090,250
3,000 Regional Transportation Authority, Illinois, Refg Ser 1999
(FSA)...................................................... 5.75 06/01/21 3,021,690
2,500 Allegheny County, Pennsylvania, Greater Pittsburgh Int'l
Airport Ser 1997 A (AMT) (MBIA)............................ 5.75 01/01/13 2,562,800
4,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 4,036,200
2,000 Pocahontas Parkway Association, Virginia, Route 895
Connector Ser 1998 A....................................... 5.50 08/15/28 1,614,500
-------- -----------
16,500 16,325,440
-------- -----------
Water & Sewer Revenue (7.2%)
3,000 Dade County, Florida, Ser 1995 (FGIC)....................... 5.50 10/01/18 2,962,320
2,000 Florida Governmental Utility Authority, Sarasota Utility Ser
1999 (AMBAC)............................................... 5.25 10/01/18 1,927,080
3,000 Lee County, Florida, Water & Sewer 1999 Ser A (AMBAC)....... 4.75 10/01/23 2,600,370
Massachusetts Water Resources Authority,
2,000 2000 Ser A (FGIC).......................................... 6.125 08/01/11 2,175,400
1,570 1993 Ser C................................................. 5.25 12/01/20 1,470,933
5,000 Charleston, South Carolina, Refg Cap Impr Ser 1998
(Secondary FGIC)........................................... 4.50 01/01/24 4,094,100
2,000 Loudoun County Sanitation Authority, Virginia, Ser 1998
(MBIA)..................................................... 4.75 01/01/21 1,730,640
-------- -----------
18,570 16,960,843
-------- -----------
Other Revenue (1.3%)
3,000 New York Local Government Assistance Corporation, Ser 1995
A.......................................................... 6.00 04/01/24 3,029,490
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (9.4%)
$ 20,100 San Francisco Redevelopment Agency, California, George R
Moscone Convention Ctr Ser 1988 (GAINS).................... 0.00#% 07/01/04++ $ 18,952,491
1,110 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D (ETM)........................... 9.50 11/15/15 1,152,557
2,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C (ETM).... 4.70 02/01/06 1,959,540
-------- ------------
23,210 22,064,588
-------- ------------
234,705 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $229,076,310)................. 227,321,311
-------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (1.3%)
1,200 Missouri Health & Educational Facilities Authority,
Washington University Ser D (Demand 07/03/00).............. 4.50* 09/01/30 1,200,000
2,000 Harris County Health Facilities Development Corporation,
Texas, St Luke's Episcopal Hospital Ser 1997 A (Demand
07/03/00).................................................. 4.55* 02/15/27 2,000,000
-------- ------------
3,200 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
$3,200,000).................................................................... 3,200,000
-------- ------------
$237,905 TOTAL INVESTMENTS (Identified Cost $232,276,310) (c).................. 98.0% 230,521,311
========
OTHER ASSETS IN EXCESS OF LIABILITIES.................................... 2.0 4,608,170
----- ------------
NET ASSETS............................................................. 100.0% $235,129,481
===== ============
</TABLE>
---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
GAINS Growth and Income Security.
++ Crossover refunded to call date shown.
# Currently a zero coupon; will convert to 8.50% on July 1,
2002.
* Current coupon of variable rate demand obligation.
(a) Non-income producing; 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 $5,830,957 and the aggregate gross
unrealized depreciation is $7,585,956, resulting in net
unrealized depreciation of $1,754,999.
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 TRUST II
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
<TABLE>
<S> <C>
Alaska...................... 2.1%
California.................. 10.8
Connecticut................. 1.5
District of Columbia........ 0.8
Florida..................... 5.0
Hawaii...................... 3.7
Illinois.................... 9.1
Iowa........................ 1.0
Kansas...................... 2.4
Maine....................... 1.9
Maryland.................... 3.5
Massachusetts............... 4.3
Michigan.................... 0.7
Missouri.................... 1.8
New Hampshire............... 0.4
New Jersey.................. 0.8
New York.................... 7.5
North Carolina.............. 6.7
North Dakota................ 0.6
Ohio........................ 1.1
Oklahoma.................... 2.2
Pennsylvania................ 5.9
South Carolina.............. 6.7
Texas....................... 9.4
Utah........................ 1.7
Vermont..................... 0.8
Virginia.................... 2.4
Washington.................. 3.2
----
Total....................... 98.0%
====
</TABLE>
---------------------
Portfolio structure is subject to change.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $232,276,310).......... $230,521,311
Cash..................................... 87,274
Receivable for:
Interest............................. 3,786,933
Investments sold..................... 1,010,729
Prepaid expenses and other assets........ 29,362
------------
TOTAL ASSETS......................... 235,435,609
------------
LIABILITIES:
Payable for:
Investment advisory fee.............. 89,634
Shares of beneficial interest
repurchased......................... 77,567
Administration fee................... 56,021
Accrued expenses and other payables...... 82,906
------------
TOTAL LIABILITIES.................... 306,128
------------
NET ASSETS........................... $235,129,481
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $234,773,949
Net unrealized depreciation.............. (1,754,999)
Accumulated undistributed net investment
income.................................. 2,513,003
Accumulated net realized loss............ (402,472)
------------
NET ASSETS........................... $235,129,481
============
NET ASSET VALUE PER SHARE,
24,478,566 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $9.61
============
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 6,909,927
------------
EXPENSES
Investment advisory fee.................. 466,044
Administration fee....................... 291,278
Transfer agent fees and expenses......... 36,575
Professional fees........................ 32,066
Shareholder reports and notices.......... 27,854
Registration fees........................ 16,115
Trustees' fees and expenses.............. 8,882
Custodian fees........................... 6,709
Other.................................... 7,686
------------
TOTAL EXPENSES....................... 893,209
Less: expense offset..................... (6,698)
------------
NET EXPENSES......................... 886,511
------------
NET INVESTMENT INCOME................ 6,023,416
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................ 161,361
Net change in unrealized depreciation.... 4,188,086
------------
NET GAIN............................. 4,349,447
------------
NET INCREASE............................. $ 10,372,863
============
</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 FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 6,023,416 $12,617,766
Net realized gain (loss)........................... 161,361 (563,833)
Net change in unrealized depreciation.............. 4,188,086 (23,587,933)
------------ ------------
NET INCREASE (DECREASE)........................ 10,372,863 (11,534,000)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (6,298,058) (12,581,467)
Net realized gain.................................. -- (769,729)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............. (6,298,058) (13,351,196)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................... (3,323,403) (11,007,759)
------------ ------------
NET INCREASE (DECREASE)........................ 751,402 (35,892,955)
NET ASSETS:
Beginning of period................................ 234,378,079 270,271,034
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,513,003 and $2,787,645, respectively).... $235,129,481 $234,378,079
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (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, 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 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/ADMINISTRATION AGREEMENTS
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.
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.
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 June 30, 2000 aggregated
$2,118,760 and $6,325,661, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Fund's transfer agent. At June 30, 2000, the Fund had
transfer agent fees and expenses payable of approximately $900.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited) continued
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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,970. At June 30, 2000, the Fund had an accrued pension liability of
$51,842 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
EXCESS OF
SHARES PAR VALUE PAR VALUE
----------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1998.................................. 26,198,366 $261,983 $248,843,128
Treasury shares purchased and retired (weighted average
discount 13.98%)*.......................................... (1,316,200) (13,162) (10,994,597)
----------- -------- ------------
Balance, December 31, 1999.................................. 24,882,166 248,821 237,848,531
Treasury shares purchased and retired (weighted average
discount 12.71%)*.......................................... (403,600) (4,036) (3,319,367)
----------- -------- ------------
Balance, June 30, 2000...................................... 24,478,566 $244,785 $234,529,164
=========== ======== ============
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
5. DIVIDENDS
On June 27, 2000, the Fund declared the following dividends from net investment
income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ----------------- ------------------
<S> <C> <C>
$0.0425 July 7, 2000 July 21, 2000
$0.0425 August 4, 2000 August 18, 2000
$0.0425 September 8, 2000 September 22, 2000
</TABLE>
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
At December 31, 1999, the Fund had a net capital loss carryover of approximately
$375,000 which will be available through December 31, 2007 to offset future
capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $189,000 during fiscal 1999.
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, 2000* 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period....... $ 9.42 $10.32 $10.39 $10.11 $10.35 $ 9.75
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income..................... 0.24 0.49 0.53 0.59 0.59 0.65
Net realized and unrealized gain (loss)... 0.19 (0.94) 0.11 0.31 (0.17) 0.70
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations................................ 0.43 (0.45) 0.64 0.90 0.42 1.35
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income..................... (0.26) (0.49) (0.53) (0.56) (0.62) (0.63)
Net realized gain......................... -- (0.03) (0.19) (0.08) (0.05) (0.12)
------ ------ ------ ------ ------ ------
Total dividends and distributions.......... (0.26) (0.52) (0.72) (0.64) (0.67) (0.75)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury
shares.................................... 0.02 0.07 0.01 0.02 0.01 --
------ ------ ------ ------ ------ ------
Net asset value, end of period............. $ 9.61 $ 9.42 $10.32 $10.39 $10.11 $10.35
====== ====== ====== ====== ====== ======
Market value, end of period................ $8.688 $8.063 $ 9.50 $9.625 $9.125 $10.00
====== ====== ====== ====== ====== ======
TOTAL RETURN+.............................. 11.12%(3) (9.88)% 6.23% 12.82% (2.29)% 18.34%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.77%(1)(2) 0.75%(1) 0.76%(1) 0.75%(1) 0.76%(1) 0.74%
Net investment income...................... 5.16%(2) 4.92% 5.00% 5.79% 5.91% 6.41%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.... $235,129 $234,378 $270,271 $276,675 $277,901 $287,244
Portfolio turnover rate.................... 1%(3) 13% 22% 21% 11% 19%
</TABLE>
---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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
the price 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%.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME 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.
19
<PAGE> 20
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
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. Read the prospectus carefully before
investing.
MORGAN STANLEY
DEAN WITTER
MUNICIPAL
INCOME TRUST II
SEMIANNUAL REPORT
JUNE 30, 2000
