<PAGE> 1
MUNICIPAL INCOME TRUST II
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Strong economic growth and a shift in Federal Reserve Board monetary policy
during the first half of 1994 resulted in the sharpest increase in interest
rates in more than six years. At the beginning of the year, most economic
indicators were pointing toward a vigorous recovery. Concerns over potential
inflationary pressure developed as the job market approached full employment and
commodity prices remained volatile. The Federal Reserve Board responded by
tightening monetary policy. Between February and May, the central bank raised
the federal-funds rate -- the interest rate banks charge each other for
overnight loans -- from 3.00 percent to 4.25 percent in four separate moves. In
May, the discount rate -- the interest rate the Federal Reserve charges member
banks for loans -- was increased by 50 basis points to 3.50 percent.
Long-term municipal bond yields, as measured by The Bond Buyer Revenue Bond
Index,* were little changed between October and January. However, in February
and March the Index yield rose 89 basis points from 5.50 percent to 6.39
percent. During April, May and June the municipal market began to show signs of
stability, despite 15 to 20 basis point yield changes each month. At the end of
June the Index yielded 6.56 percent.
The municipal market is also influenced by unique supply and demand
conditions. New-issue underwriting totaled a record $290 billion in 1993. The
pace of new-issue activity over the first half of 1994, however, slowed 40
percent to a projected annual rate of $180 billion. By way of comparison, bond
maturities and calls for redemptions will reduce municipal debt outstanding by
approximately $190 billion. This imbalance helped municipal securities
outperform their U.S. Treasury counterparts during the second quarter.
PERFORMANCE
For the six-month period ended June 30, 1994, Municipal Income Trust II
(NYSE symbol: TFB) paid shareholders tax-free income dividends totaling $0.32
per share and capital gains distributions totaling $0.09 per share. The Fund's
total return for this period was -5.40 percent and is based on a change in New
York Stock Exchange (NYSE) market price from $10.875 on December 31, 1993 to
$9.875 per share on June 30, 1994 and includes the reinvestment of all dividends
and distributions. Over the same period, the Fund's per share net asset value
(NAV) declined by 2.96 percent (adjusted for dividends) from $10.81 to $10.08.
Performance was aided by the defensive nature of the high-coupon bonds in the
portfolio, as well as the large number of prerefunded bonds (bonds to be
redeemed on optional call dates from proceeds held in escrow).
- ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Ratings of these
bonds range from Aa1 to Baa1, as measured by Moody's and AA+ to A-, as
measured by Standard & Poor's.
<PAGE> 2
PORTFOLIO STRUCTURE
At the end of the period, the portfolio's long-term investments were
diversified among 14 specific municipal sectors and 54 credits. The three
largest sectors were public facilities, hospital and resource recovery revenue
bonds, representing 37.5 percent of net assets. The average maturity and call
protection of the Fund's long-term holdings were 19 years and 7 years,
respectively. Bonds subject to the alternative minimum tax (AMT) comprised
approximately 21 percent of net assets. At the end of the period, the Fund's net
assets exceeded $285 million. The credit quality ratings of the long-term
portfolio are summarized below:
<TABLE>
<CAPTION>
MOODY'S OR STANDARD & POOR'S RATING PERCENT
--------------------------------------------------------------------------- -------
<S> <C>
Aaa or AAA................................................................. 17
Aa or AA................................................................... 11
A or A..................................................................... 37
Baa or BBB................................................................. 27
Not rated.................................................................. 8
</TABLE>
LOOKING AHEAD
A continuation of low new-issue supply coupled with significant bond calls
and maturities should sustain investor demand for municipal securities. However,
the overall direction of interest rates will primarily be determined by the
strength of the economy, the trend of inflation and the Federal Reserve Board's
response to economic conditions. The level of interest rates and bond redemption
activity are the key factors expected to influence the Fund's future results.
We would like to remind you that the Trustees have approved a procedure
whereby the Fund, when appropriate, may attempt to reduce or eliminate a market
value discount from net asset value by repurchasing shares in the open market or
in privately negotiated transactions at a price not above market value, if any,
or net asset value, whichever is lower at the time of purchase.
We appreciate your ongoing support of Municipal Income Trust II and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
--------------------------
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (94.7%)
GENERAL OBLIGATION (2.5%)
$ 2,250 California, Various Purpose dtd 10/1/92 (MBIA Insured)....... 6.00 % 10/ 1/21 $ 2,139,885
3,000 Moulton Niguel Water District, California, Refg 1993 (MBIA
Insured)................................................... 5.00 9/ 1/19 2,455,350
2,450 Rosemont, Illinois, 1993 Ser B............................... 5.50 12/ 1/07 2,357,659
165 New York City, New York, 1991 Ser F.......................... 8.25 11/15/17 190,369
- ---------- ------------
7,865 7,143,263
- ---------- ------------
EDUCATIONAL FACILITIES REVENUE (3.5%)
4,000 California Public Works Board, University of California 1993
Ser A...................................................... 5.50 6/ 1/21 3,329,400
3,000 Massachusetts Health & Education Facilities Authority, Boston
College Ser K.............................................. 5.25 6/ 1/18 2,593,350
New York State Dormitory Authority, State University
2,000 1990 Ser A................................................... 7.50 5/15/13 2,253,020
2,000 1993 Ser A................................................... 5.25 5/15/15 1,722,520
- ---------- ------------
11,000 9,898,290
- ---------- ------------
ELECTRIC REVENUE (3.6%)
3,000 North Carolina Municipal Power Agency #1, Catawba Ser 1992... 6.25 1/ 1/17 2,932,710
6,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 INFLOS...... 6.37+ 2/ 1/06 4,612,500
2,575 Washington Public Power Supply System, Nuclear Proj #2
Refg Ser 1990 B............................................ 7.00 7/ 1/12 2,647,873
- ---------- ------------
11,575 10,193,083
- ---------- ------------
HOSPITAL REVENUE (11.6%)
1,400 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D................................. 9.50 11/15/15 1,609,412
5,000 Kokomo Hospital Authority, Indiana, St Joseph's Hospital &
Health Center Refg 1988 Ser A (Prerefunded)................ 8.75 2/15/13 5,766,100
4,500 Missoula County, Montana, Community Medical Center Inc
Refg Ser 1988 B............................................ 9.00 6/ 1/18 4,907,655
3,500 New York State Medical Care Facilities Finance Agency,
Montefiore Medical Center -- FHA Insured Mtge 1989 Ser A... 7.25 2/15/24 3,719,975
5,750 North Carolina Medical Care Commission, Scotland Memorial
Hospital Ser 1988 (Prerefunded)............................ 8.625 10/ 1/11 6,627,278
1,295 Ward County, North Dakota, Trinity Obligated Group Crossover
Refg Ser 1991 B............................................ 7.50 7/ 1/21 1,357,937
6,500 Muskingum County, Ohio, Franciscan Health Advisory Services
Ser 1987................................................... 7.50 3/ 1/12 6,979,115
2,000 Montgomery County Higher Education & Health Authority,
Pennsylvania, Frankford Hospital Ser 1986.................. 7.875 1/ 1/19 2,089,100
- ---------- ------------
29,945 33,056,572
- ---------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL
REVENUE (6.8%)
5,500 Wamego, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA
Insured)................................................... 7.00 6/ 1/31 5,848,150
2,000 Dayton, Ohio, Emery Air Freight Corp 1988 Ser A.............. 12.50 10/ 1/09 2,270,000
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines
Inc Ser 1988 (AMT)......................................... 7.375 12/ 1/20 4,877,600
Lexington County, South Carolina, Ellett Brothers
1,000 Refg Ser 1988................................................ 10.625 9/ 1/02 1,071,430
1,000 Refg Ser 1988................................................ 10.625 9/ 1/08 1,072,010
5,000 Sabine River Authority, Texas, Texas Utilities Electric Co
Ser 1993................................................... 5.85 5/ 1/22 4,437,750
- ---------- ------------
19,500 19,576,940
- ---------- ------------
MORTGAGE REVENUE -- MULTI-FAMILY (0.7%)
2,715 Eden Prairie, Minnesota, Fountain Place Apts Phase II Ser
A.......................................................... 9.75 7/15/19 1,900,500
- ---------- ------------
MORTGAGE REVENUE -- SINGLE FAMILY (8.4%)
5,000 Alaska Housing Finance Corporation Inc, 1993 1st Ser......... 5.90 12/ 1/33 4,459,600
35,485 Pinnellas County Housing Finance Authority, Florida, Ser
1983....................................................... 0.00 1/ 1/15 4,195,747
11,590 Illinois Housing Development Authority, Ser 1984 B........... 0.00 2/ 1/16 1,236,421
</TABLE>
<PAGE> 4
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
$ 1,675 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT)......... 8.00 % 11/ 1/20 $ 1,748,834
5,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)......... 6.40 11/15/23 5,207,950
2,305 New Hampshire Housing Finance Authority, Residential
GNMA-Backed Ser A (AMT).................................... 7.70 7/ 1/29 2,354,834
46,045 Southeast Texas Housing Finance Corporation, GNMA-Backed Ser
1988 A..................................................... 0.00 4/ 1/21 4,808,479
- ---------- ------------
107,600 24,011,865
- ---------- ------------
NURSING & LIFE CARE REVENUE (3.6%)
3,000 Iowa Finance Authority, Mercy Health Initiatives Ser 1989.... 9.95 7/ 1/19 3,170,820
3,000 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc..................... 10.125 5/ 1/19 3,170,850
4,630 Kirbyville Health Facilities Development Corporation, Texas,
Heartway III Corp Ser 1988 A............................... 11.25 3/20/21 4,028,100
- ---------- ------------
10,630 10,369,770
- ---------- ------------
PUBLIC FACILITIES REVENUE (16.9%)
20,100 San Francisco Redevelopment Agency, California, George R
Moscone
Convention Ctr Ser 1988 (Crossover Refunded)............... 0.00 7/ 1/14 12,512,250
3,725 Hall County, Georgia, Ser 1988 (Prerefunded)................. 8.625 1/ 1/08 4,239,460
2,250 Collinsville, Illinois, Metropolitan Exposition Auditorium &
Office Building Hotel Motel Food & Beverage Tax
(Prerefunded).............................................. 8.625 1/ 1/17 2,553,186
Indianapolis Local Public Improvement Bond Bank, Indiana
32,235 Ser 1988 D (Prerefunded)..................................... 0.00 2/ 1/18 5,002,227
10,000 Ser 1988 D (Prerefunded)..................................... 8.50 2/ 1/18 11,331,100
5,000 New York State Dormitory Authority, New York City Courts Ser
I 1993 A................................................... 5.625 5/15/13 4,487,650
460 New York State Urban Development Corporation, Correctional
1991 Ser I................................................. 7.50 4/ 1/02 506,705
7,000 Virginia Port Authority, Commonwealth Port Fund Ser 1988
(AMT)...................................................... 8.20 7/ 1/08 7,748,790
- ---------- ------------
80,770 48,381,368
- ---------- ------------
RESOURCE RECOVERY REVENUE (9.0%)
1,500 Regional Waste Systems Inc, Maine, 1986 Ser D-F (AMT)........ 8.15 7/ 1/11 1,602,840
7,095 Greater Detroit Resource Recovery Authority, Michigan, Ser
H.......................................................... 9.25 12/13/08 7,574,267
16,000 Lancaster County Solid Waste Management Authority,
Pennsylvania, 1988 Ser A (AMT)............................. 8.50 12/15/10 16,609,120
- ---------- ------------
24,595 25,786,227
- ---------- ------------
TAX ALLOCATION REVENUE (3.2%)
5,000 El Cajon Redevelopment Agency, California Refg Ser 1992
(AMBAC Insured)............................................ 6.60 10/ 1/22 5,102,750
5,000 Rosemead Redevelopment Agency, California 1993 Ser A......... 5.60 10/ 1/33 4,137,400
- ---------- ------------
10,000 9,240,150
- ---------- ------------
TRANSPORTATION REVENUE (7.4%)
2,000 Port Authority of New York & New Jersey, Cons Ser 61
(AMT)**.................................................... 8.125 8/15/23 2,109,240
Allegheny County, Pennsylvania, Greater Pittsburgh Intl
Airport
5,500 Ser 1988 C (AMT)(MBIA Insured)............................... 8.25 1/ 1/16 6,102,195
10,500 Ser 1988 D (AMT)(FGIC Insured)............................... 7.75 1/ 1/19 11,309,025
2,000 Puerto Rico Highway & Transportation Authority, Refg Ser 1993
X.......................................................... 5.25 7/ 1/21 1,674,880
- ---------- ------------
20,000 21,195,340
- ---------- ------------
WATER & SEWER REVENUE (3.0%)
4,750 Fulton County, Georgia, Water & Sewer (Prerefunded).......... 8.25 1/ 1/14 5,335,010
4,000 Massachusetts Water Resources Authority, 1993 Ser C.......... 5.25 12/ 1/20 3,317,880
- ---------- ------------
8,750 8,652,890
- ---------- ------------
</TABLE>
<PAGE> 5
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
OTHER REVENUE (14.5%)
$ 3,500 California Special Districts Finance Authority, COPs 1988 Ser
A.......................................................... 8.50 % 7/ 1/18 $ 3,833,725
19,580 Boulder County, Colorado, National Center for Atmospheric
Research Ser 1988 (Prerefunded)............................ 8.25 12/ 1/13 22,123,442
Tampa, Florida, Cap Impr
4,360 Ser 1988 A................................................... 8.25 10/ 1/18 4,663,805
10,000 Ser 1988 B................................................... 8.375 10/ 1/18 10,704,400
- ---------- ------------
37,440 41,325,372
- ---------- ------------
382,385 TOTAL MUNICIPAL BONDS
- ----------
(IDENTIFIED COST $258,645,980)...................................................... 270,731,630
------------
SHORT-TERM MUNICIPAL OBLIGATIONS (3.4%)
5,100 District of Columbia, General Fund Recovery Ser B-2
(Tender 7/1/94)............................................ 3.60* 6/ 1/03 5,100,000
4,500 Illinois Health Facilities Authority, Franciscan Sisters
Health Corp Ser 1992 (Tender 7/1/94)....................... 3.50* 1/ 1/18 4,500,000
- ---------- ------------
9,600 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS
- ----------
(IDENTIFIED COST $9,600,000)........................................................ 9,600,000
------------
$391,985 TOTAL INVESTMENTS
==========
(IDENTIFIED COST $268,245,980)(A)...................................... 98.1% 280,331,630
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES......................... 1.9 5,465,480
------ ------------
NET ASSETS............................................................. 100.0% $285,797,110
====== ============
<FN>
- ---------------
AMT -- Alternative Minimum Tax
COPs -- Certificates of Participation
INFLOS -- Inverse Floating Rate Securities
* Variable or floating rate securities. Coupon rate shown reflects current
rate.
** Jointly issued by New York and New Jersey.
+ Current coupon rate for residual interest bonds. This rate resets
periodically as the auction rate on the related short-term securities
fluctuates.
(a) The aggregate cost for federal income tax purposes is $268,245,980; the
aggregate gross unrealized appreciation is $19,801,078 and the aggregate
gross unrealized depreciation is $7,715,428, resulting in net unrealized
appreciation of $12,085,650.
See Notes to Financial Statements
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
June 30, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska.............. 1.6% Indiana............. 7.7% Montana............. 1.7% Pennsylvania........ 13.7%
California.......... 11.7 Iowa................ 1.1 New Hampshire....... 0.8 Puerto Rico......... 0.6
Colorado............ 7.7 Kansas.............. 2.7 New York............ 4.5 South Carolina...... 0.8
District of
Columbia.......... 1.8 Maine............... 2.4 North Carolina...... 3.3 Texas............... 6.3
Florida............. 6.8 Massachusetts....... 2.1 North Dakota........ 0.5 Virginia............ 2.7
Georgia............. 3.4 Michigan............ 2.7 Ohio................ 3.2 Washington.......... 0.9
Illinois............ 4.3 Minnesota........... 0.7 Oklahoma............ 1.7 Joint Issuers....... 0.7
----
Total............... 98.1%
====
</TABLE>
<PAGE> 6
MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1994 (unaudited)
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $268,245,980) (Note
1)....................................... $ 280,331,630
Cash....................................... 380,942
Receivable for:
Interest................................. 4,896,585
Investments sold......................... 423,690
Prepaid expenses and other assets.......... 21,344
-------------
TOTAL ASSETS....................... 286,054,191
-------------
LIABILITIES:
Payable for:
Investment advisory fee (Note 2)......... 104,622
Administration fee (Note 3).............. 65,856
Accrued expenses (Note 4).................. 86,603
-------------
TOTAL LIABILITIES.................. 257,081
-------------
NET ASSETS:
Paid-in-capital............................ 269,315,131
Accumulated undistributed net realized gain
on
investments.............................. 2,496,725
Net unrealized appreciation on
investments.............................. 12,085,650
Accumulated undistributed net investment
income................................... 1,899,604
-------------
NET ASSETS......................... $ 285,797,110
=============
NET ASSET VALUE PER SHARE,
28,352,516 shares outstanding (unlimited
shares authorized of $.01 par value)..... $10.08
======
STATEMENT OF OPERATIONS
For the six months ended June 30, 1994 (unaudited)
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 10,550,166
-------------
EXPENSES
Investment advisory fee (Note 2)......... 569,143
Administration fee (Note 3).............. 358,710
Transfer agent fees and expenses......... 63,350
Professional fees........................ 34,763
Shareholder reports and notices (Note
4)..................................... 26,363
Registration fees........................ 15,766
Trustees' fees and expenses.............. 14,944
Other.................................... 13,079
-------------
TOTAL EXPENSES......................... 1,096,118
-------------
NET INVESTMENT INCOME................ 9,454,048
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1):
Net realized gain on investments......... 2,496,705
Net change in unrealized appreciation on
investments............................ (21,413,206)
-------------
NET LOSS ON INVESTMENTS................ (18,916,501)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ (9,462,453)
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
six months ended For the
June 30, 1994 year ended
(unaudited) December 31, 1993
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................................. $ 9,454,048 $ 19,860,821
Net realized gain on investments....................................... 2,496,705 2,645,205
Net change in unrealized appreciation on investments................... (21,413,206) 7,409,189
---------------- -----------------
Net increase (decrease) in net assets resulting from operations.... (9,462,453) 29,915,215
---------------- -----------------
Dividends and distributions to shareholders from:
Net investment income.................................................. (9,140,402) (19,793,282)
Net realized gain on investments....................................... (2,530,441) (114,744)
---------------- -----------------
Total dividends and distributions.................................. (11,670,843) (19,908,026)
---------------- -----------------
Net decrease from transactions in shares of beneficial interest (Note
5)..................................................................... (3,250,058) -0-
---------------- -----------------
Total increase (decrease).......................................... (24,383,354) 10,007,189
---------------- -----------------
NET ASSETS:
Beginning of period...................................................... 310,180,464 300,173,275
---------------- -----------------
END OF PERIOD (including undistributed net investment income of
$1,899,604 and $1,585,958, respectively)................................ $ 285,797,110 $ 310,180,464
================= ====================
</TABLE>
See Notes to Financial Statements
<PAGE> 7
MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- 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 was organized as
a Massachusetts business trust on March 15, 1988 and commenced operations on
June 1, 1988.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued for the Fund
by an outside independent pricing service approved by the Trustees. The
pricing service has informed the Fund that in valuing the Fund's portfolio
securities, it uses both a computerized grid 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.
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 on the identified cost
method. In computing net investment income, the Fund amortizes premiums and
original issue discounts. With respect to market discount on bonds
purchased after April 30, 1993, a portion of any capital gain realized upon
disposition may be recharacterized as taxable investment income. Interest
income is accrued daily.
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 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 Dean Witter InterCapital Inc. (the "Investment Adviser"), the
Fund pays its Investment Adviser an advisory fee, calculated weekly and payable
monthly, by applying the following annual rates to the Fund's average weekly net
assets: 0.40% to the portion of the Fund's average weekly net assets not
exceeding $250 million and 0.30% of the portion of the Fund's average weekly net
assets exceeding $250 million.
<PAGE> 8
MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT -- Through December 31, 1993, pursuant to an
Administration Agreement with Dean Witter InterCapital Inc. (the "Former
Administrator"), the Fund paid an administration fee, calculated weekly and
payable monthly, by applying the following annual rates to the Fund's average
weekly net assets: 0.25% of the portion of the Fund's average weekly net assets
not exceeding $250 million; 0.20% of the portion of the Fund's average weekly
net assets exceeding $250 million but not exceeding $500 million; 0.167% of the
portion of the Fund's average weekly net assets exceeding $500 million but not
exceeding $750 million; and 0.133% of the portion of the Fund's average weekly
net assets exceeding $750 million. On January 1, 1994, the Administration
Agreement between the Former Administrator and the Fund has been terminated and
a new Administration Agreement has been entered into between Dean Witter
Services Company Inc. (the "Administrator"), a wholly-owned subsidiary of the
Former Administrator, and the Fund. The nature and scope of the services being
provided to the Fund or any fees being paid by the Fund under the new Agreement
are identical to those of the previous Agreement.
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.
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, 1994 aggregated $12,473,000 and
$24,368,570, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser, is the
Fund's transfer agent. At June 30, 1994, the Fund had transfer agent fees and
expenses payable of approximately $13,000.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all Trustees of the Fund who will have served as
an independent Trustee 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, 1994, included in Trustees' fees and expenses in the Statement of
Operations amounted to $4,047. At June 30, 1994, the Fund had an accrued pension
liability of $43,060 which is included in accrued expenses in the Statement of
Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Fund by virtue of a common Fund
Trustee and Director of Bowne & Co., Inc. During the six months ended June 30,
1994, the Fund paid Bowne & Co., Inc. $4,124 for printing of shareholders
reports.
<PAGE> 9
MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Capital
Par Value Paid in
of Excess of
Shares Shares Par Value
---------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1992 and December 31, 1993... 28,685,916 $ 286,859 $272,278,330
Treasury shares purchased and retired (weighted
average discount 5.21%)*......................... (333,400) (3,334) (3,246,724)
---------- --------- ------------
Balance, June 30, 1994............................. 28,352,516 $ 283,525 $269,031,606
========== ========= =============
<FN>
- ---------------
*The Trustees have voted to retire the shares repurchased.
</TABLE>
6. DIVIDENDS -- The Fund has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
Declaration Amount Per Record Payable
Date Share Date Date
- -------------- ---------- --------------- ----------------
<S> <C> <C> <C>
June 28, 1994 $ 0.0525 July 8, 1994 July 22, 1994
July 26, 1994 $ 0.0525 August 5, 1994 August 19, 1994
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
Quarters Ended*
------------------------------------
6/30/94 3/31/94
---------------- -----------------
Per Per
Total Share Total Share
------- ------ -------- ------
<S> <C> <C> <C> <C>
Total investment income................................... $ 5,230 $ 0.18 $ 5,320 $ 0.19
Net investment income..................................... 4,686 0.16 4,768 0.17
Net realized and unrealized loss on investments........... (7,155) (0.25) (11,761) (0.41)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
-----------------------------------------------------------------------
12/31/93 9/30/93 6/30/93 3/31/93
--------------- -------------- ---------------- -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------ ------ ------ ----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment
income................ $5,480 $ 0.19 $5,601 $0.20 $ 5,567 $ 0.19 $ 5,512 $ 0.19
Net investment income... 4,946 0.17 5,025 0.18 4,992 0.17 4,898 0.17
Net realized and unreal-
ized gain (loss) on
investments........... (410) (0.01) 2,644 0.09 3,176 0.11 4,644 0.16
<FN>
- ---------------
*Totals expressed in thousands of dollars.
</TABLE>
<PAGE> 10
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
months ended For the year ended December 31,
June 30, 1994 -----------------------------------------------------
(unaudited)** 1993 1992 1991 1990 1989
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 10.81 $ 10.46 $ 10.34 $ 9.79 $ 9.90 $ 9.72
--------------- -------- -------- -------- -------- --------
Net investment income....... 0.33 0.69 0.70 0.71 0.77 0.71
Net realized and unrealized
gain (loss) on
investments............... (0.65) 0.35 0.12 0.54 (0.13) 0.27
--------------- -------- -------- -------- -------- --------
Total from investment
operations................ (0.32) 1.04 0.82 1.25 0.64 0.98
--------------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Dividends from net
investment income....... (0.32) (0.69) (0.69) (0.67) (0.73) (0.73)
Distributions from net
realized gain on
investments............. (0.09) -0-* (0.01) (0.03) (0.02) (0.07)
--------------- -------- -------- -------- -------- --------
Total dividends and
distributions............. (0.41) (0.69) (0.70) (0.70) (0.75) (0.80)
--------------- -------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 10.08 $ 10.81 $ 10.46 $ 10.34 $ 9.79 $ 9.90
============= ======== ======== ======== ======== ========
Market value, end of
period.................... $ 9.875 $ 10.875 $ 10.50 $ 10.00 $ 9.25 $ 10.00
============= ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+...... (5.40%)(1) 10.32% 12.23% 16.12% (.60%) 11.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............ $ 285,797 $310,180 $300,173 $296,554 $280,344 $285,124
Ratio of expenses to average
net assets................ 0.74%(2) 0.75% 0.86% 0.86% 0.88% 0.87%
Ratio of net investment in-
come to average net
assets.................... 6.38%(2) 6.46% 6.70% 7.05% 7.24% 7.20%
Portfolio turnover rate..... 4% 12% 7% 15% 24% 35%
<FN>
- ---------------
* Includes distribution of $0.004 per share.
** 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 sales charges or brokerage
commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
</TABLE>
- --------------------------------------------------------------------------------
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.
<PAGE> 11
[This Page Intentionally Left Blank]
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
TRUST II
Semiannual Report
June 30, 1994
