<PAGE> 1
MUNICIPAL INCOME TRUST II
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
--------------------------------------------------------------------------------
Fixed-income market conditions have steadily improved since late last year.
Bonds began to rally on signs of slower economic growth in the wake of
progressive tightening of monetary policy by the Federal Reserve Board. The
trend toward lower long-term interest rates reversed the prevailing pattern
during 1994, when rapidly rising rates created a severe bear market in bonds.
Long-term municipal bond yields, as tracked by The Bond Buyer Revenue Bond
Index*, moved from 6.97 percent in December to 6.28 percent at the end of June.
This 69 basis point decline in yield corresponded to a 6 percent price increase
for municipal bonds with 30-year maturities. One-year yields declined 116 basis
points over the past six months and the yield spread (difference between long-
and short-term municipal bond interest rates) widened.
The seasonal demand for municipals in December and January more than offset
the uncertainty caused by the Orange County, California bankruptcy filing.
Tax-exempt bonds outperformed U.S. Treasury bonds through February. The ratio of
the Revenue Bond Index yield to the 30-year U.S. Treasury bond yield moved from
a high of 89 percent in December to 84 percent by the end of February. A
declining ratio means that municipal bond prices have been stronger than U.S.
Treasury prices. Congressional tax reform proposals that advocated the flat tax
concept were partially responsible for municipals underperforming Treasuries
from March through June. By the end of June, the Revenue Bond Index/Treasury
bond yield ratio had risen to 95 percent.
The pace of new-issue underwriting over the first six months of 1995 was 25
percent below the same period last year. With bond maturities and calls for
redemption estimated to exceed new issues coming to market this year, the
outstanding supply of municipal securities is expected to decline. This scarcity
of municipal issues should strengthen market conditions.
PERFORMANCE
The net asset value (NAV) of Municipal Income Trust II (TFB) rose from
$9.75 to $10.13 per share during the six-month period ended June 30, 1995. Based
on this NAV change plus reinvestment of tax-free dividends totaling $0.32 per
share, the Fund's total NAV return for the period was 7.48 percent. The Fund's
market price on the New York Stock Exchange increased from $9.125 to $9.375 per
share. Based on this stock price change and reinvestment of dividends, the
Fund's total market return for the period was 6.17 percent. On June 30, 1995,
the Fund had undistributed net investment income of $0.097 per share. Six months
ago undistributed net investment income totaled $0.084 per share. This dividend
reserve or "cushion" was available to maintain the Fund's monthly dividend at
$0.0525 per share. TFB's market price began the period trading at a 6.4 percent
discount to NAV and closed at a 7.5 percent discount to NAV. At the end of the
period, the Fund had net assets in excess of $282 million.
PORTFOLIO STRUCTURE
At the end of June, the Fund was predominantly invested in long-term exempt
bonds. Long-term investments were diversified among 15 municipal sectors and 54
separate credits. The three largest municipal sectors -- refunded, resource
recovery revenue and mortgage revenue/single family bonds --
---------------
*The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE> 2
represented 40 percent of the net assets. The average maturity and call
protection of the Fund's long-term holdings was 19 and 5.9 years, respectively.
The credit quality ratings of the Fund's long-term portfolio are summarized
below:
<TABLE>
<CAPTION>
Moody's or Standard & Poor's Ratings Percent
---------------------------------------------------------------------------- ----
<S> <C>
Aaa or AAA.................................................................. 20%
Aa or AA.................................................................... 13
A or A...................................................................... 35
Baa or BBB.................................................................. 21
Ba or BB.................................................................... 1
Not rated................................................................... 10
----
100%
===
</TABLE>
LOOKING AHEAD
Slower economic growth in 1995 and the extent of the Federal Reserve
Board's previous interest rate moves have improved bond market expectations. The
decreasing supply of municipal bonds as a result of significant bond maturities,
calls for redemption and diminished new-issue supply should be positive for the
market. Tax reduction proposals will continue to receive publicity and cloud the
outlook for municipal bonds. However, to achieve significant reductions in tax
rates, elected officials and the public must address difficult issues such as
the mortgage interest deduction and middle-class tax burden. With long-term
tax-exempt bonds yielding more than 90 percent of the yield on Treasuries, the
market appears to have discounted much of the possibility that a flat tax might
eventually become law.
Among the factors that will determine the Fund's future dividend level are
changes in market yields and the sale of portfolio holdings which are expected
to be redeemed. Even with the move to higher yields that occurred last year, the
Fund cannot replace the yield attributable to many older investments which may
be called or sold in the next few years.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
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, whichever is
lower at the time of purchase. During the fiscal year ended June 30, 1995, the
Fund purchased 129,100 shares of common stock at a weighted average market
discount of 6.02 percent.
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, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- -------- --------- -------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.9%)
GENERAL OBLIGATION (6.1%)
$ 2,250 California, Various Purpose dtd 10/01/92 (MBIA)........ 6.00 % 10/01/21 $ 2,206,035
3,000 Moulton Niguel Water District, California, Refg 1993
(MBIA)............................................... 5.00 09/01/19 2,595,480
2,450 Rosemont, Illinois, 1993 Ser B......................... 5.50 12/01/07 2,430,278
3,000 Massachusetts, 1995 Ser B (AMBAC)...................... 5.50 07/01/15 2,839,950
3,000 New York City, New York 1995 Ser D (MBIA).............. 6.20 02/01/07 3,209,880
4,000 New York State, Refg Ser 1995 B........................ 5.70 08/15/10 3,930,120
--------- -------------
17,700 17,211,743
--------- -------------
EDUCATIONAL FACILITIES REVENUE (5.0%)
4,000 California Public Works Board, University of California
1993 Ser A........................................... 5.50 06/01/21 3,556,320
3,000 Massachusetts Health & Educational Facilities
Authority, Boston College Ser K...................... 5.25 06/01/18 2,690,640
New York State Dormitory Authority, State University
2,000 1990 Ser A........................................... 7.50 05/15/13 2,268,980
2,000 1993 Ser A........................................... 5.25 05/15/15 1,759,540
4,000 Delaware County Authority, Pennsylvania, Villanova
University Ser 1995 (AMBAC).......................... 5.70 08/01/15 3,829,240
--------- -------------
15,000 14,104,720
--------- -------------
ELECTRIC REVENUE (4.9%)
12,000 San Antonio, Texas, Electric & Gas Refg Ser 1994....... 4.70 02/01/06 11,056,320
2,575 Washington Public Power Supply System, Nuclear Proj #2
Refg Ser 1990 B...................................... 7.00 07/01/12 2,723,526
--------- -------------
14,575 13,779,846
--------- -------------
HOSPITAL REVENUE (6.5%)
1,360 Illinois Health Facilities Authority, Glen Oaks Medical
Center Inc Refg 1990 Ser D........................... 9.50 11/15/15 1,582,673
4,500 Missoula County, Montana, Community Medical Center Inc
Refg Ser 1988 B...................................... 9.00 06/01/18 4,928,490
3,500 New York State Medical Care Facilities Finance Agency,
Montefiore Medical Center - FHA Insured Mtge 1989 Ser
A.................................................... 7.25 02/15/24 3,772,930
1,295 Ward County, North Dakota, Trinity Obligated Group
Crossover Refg Ser 1991 B............................ 7.50 07/01/21 1,378,981
6,500 Muskingum County, Ohio, Franciscan Health Advisory
Services Ser 1987.................................... 7.50 03/01/12 6,737,185
--------- -------------
17,155 18,400,259
--------- -------------
</TABLE>
<PAGE> 4
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1995 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- -------- --------- -------------
<C> <S> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL
REVENUE (7.3%)
$ 5,500 Wamego, Kansas, Kansas Gas & Electric Co Ser 1991
(MBIA)............................................... 7.00 % 06/01/31 $ 6,041,475
5,000 New York State Energy Research & Development Authority,
New York State Electric & Gas Corp 1987 Ser A (AMT)
(MBIA)............................................... 6.15 07/01/26 4,931,850
2,000 Dayton, Ohio, Emery Air Freight Corp Ser 1988 A........ 12.50 10/01/09 2,291,300
5,000 Tulsa Municipal Airport Trust, Oklahoma, American
Airlines Inc Ser 1988 (AMT).......................... 7.375 12/01/20 5,170,850
Lexington County, South Carolina, Ellett Brothers Inc
1,000 Refg Ser 1988........................................ 10.625 09/01/02 1,050,820
1,000 Refg Ser 1988........................................ 10.625 09/01/08 1,050,820
--------- -------------
19,500 20,537,115
--------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (0.6%)
2,715 Eden Prairie, Minnesota, Fountain Place Apts Phase II
--------- Ser 1989 A........................................... 9.75 07/15/19 1,791,900
-------------
MORTGAGE REVENUE - SINGLE FAMILY (8.1%)
5,000 Alaska Housing Finance Corporation Inc, 1993 1st Ser... 5.90 12/01/33 4,704,650
23,625 Pinnellas County Housing Finance Authority, Florida,
Ser 1983. 0.00 01/01/15 3,058,020
11,590 Illinois Housing Development Authority, Ser 1984 B..... 0.00 02/01/16 1,363,679
1,235 Olathe, Kansas, GNMA Collaterized Ser 1989 A (AMT)..... 8.00 11/01/20 1,327,600
5,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT)... 6.40 11/15/23 5,400,670
2,230 New Hampshire Housing Finance Authority, Residential
GNMA-Backed Ser A (AMT).............................. 7.70 07/01/29 2,334,074
36,225 Southeast Texas Housing Finance Corporation, GNMA-Backed
Ser 1988 A........................................... 0.00 04/01/21 4,554,207
--------- -------------
85,405 22,742,900
--------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (3.5%)
3,000 Iowa Finance Authority, Mercy Health Initiatives Ser
1989................................................. 9.95 07/01/19 3,190,620
2,975 Chester County Industrial Development Authority,
Pennsylvania, RHA/PA Nursing Homes Inc............... 10.125 05/01/19 3,205,443
4,580 Kirbyville Health Facilities Development Corporation,
Texas, Heartway III Corp Ser 1988 A.................. 11.25 03/20/21 3,343,400
--------- -------------
10,555 9,739,463
--------- -------------
PUBLIC FACILITIES REVENUE (4.5%)
5,000 New York State Dormitory Authority, Court Facs Ser A... 5.625 05/15/13 4,580,400
460 New York State Urban Development Corporation,
Correctional 1991 Ser I.............................. 7.50 04/01/02 512,348
7,000 Virginia Port Authority, Commonwealth Port Ser 1988
(AMT)................................................ 8.20 07/01/08 7,730,240
--------- -------------
12,460 12,822,988
--------- -------------
</TABLE>
<PAGE> 5
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1995 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- -------- --------- -------------
<C> <S> <C> <C> <C>
RESOURCE RECOVERY REVENUE (9.2%)
$ 1,500 Regional Waste Systems Inc, Maine, 1986 Ser D-F
(AMT)................................................ 8.15 % 07/01/11 $ 1,652,730
7,095 Greater Detroit Resource Recovery Authority, Michigan, Ser
H.................................................... 9.25 12/13/08 7,410,798
16,000 Lancaster County Solid Waste Management Authority,
Pennsylvania, 1988 Ser A (AMT)....................... 8.50 12/15/10 17,057,600
--------- -------------
24,595 26,121,128
--------- -------------
TAX ALLOCATION (3.3%)
5,000 El Cajon Redevelopment Agency, California, Refg Ser
1992 (AMBAC)......................................... 6.60 10/01/22 5,249,700
5,000 Rosemead Redevelopment Agency, California, 1993 Ser
A.................................................... 5.60 10/01/33 4,088,050
--------- -------------
10,000 9,337,750
--------- -------------
TRANSPORTATION FACILITIES REVENUE (6.9%)
2,000 Port Authority of New York & New Jersey, Cons Ser 61
(AMT)**.............................................. 8.125 08/15/23 2,050,000
Allegheny County, Pennsylvania, Greater Pittsburgh Intl
Airport
5,500 Ser 1988 C (AMT) (MBIA).............................. 8.25 01/01/16 6,055,720
10,500 Ser 1988 D (AMT) (FGIC).............................. 7.75 01/01/19 11,251,170
--------- -------------
18,000 19,356,890
--------- -------------
WATER & SEWER REVENUE (2.0%)
2,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA).......... 6.375 01/01/24 2,035,060
4,000 Massachusetts Water Resources Authority, 1993 Ser C.... 5.25 12/01/20 3,512,000
--------- -------------
6,000 5,547,060
--------- -------------
OTHER REVENUE (7.4%)
3,500 California Special Districts Finance Authority, COPs
1988 Ser A........................................... 8.50 07/01/18 3,776,920
Tampa, Florida, Cap Impr
4,360 Ser 1988 A........................................... 8.25 10/01/18 4,751,572
10,000 Ser 1988 B........................................... 8.375 10/01/18 10,627,600
2,000 New York Local Government Assistance Corporation, Ser
1995 A............................................... 6.00 04/01/24 1,938,580
--------- -------------
19,860 21,094,672
--------- -------------
REFUNDED (22.6%)
20,100 San Francisco Redevelopment Agency, California, George
R Moscone Convention Ctr Ser 1988 (Crossover Ref).... 8.625* 07/01/14 13,672,221
19,580 Boulder County, Colorado, National Center for
Atmospheric Research Ser 1988 (Crossover Refunded)... 8.25 12/01/13 21,917,852
3,580 Hall County, Georgia, Ser 1988......................... 8.625 01/01/08 4,007,703
Indianapolis, Local Public Improvement Bond Bank,
Indiana,
30,000 Ser 1988 D (AMT)..................................... 0.00 02/01/18 5,089,200
10,000 Ser 1988 D (AMT)..................................... 8.50 02/01/18 11,209,100
5,000 Kokomo Hospital Authority, Indiana, St Joseph's
Hospital & Health Center Refg 1988 Ser A............. 8.75 02/15/13 5,704,350
</TABLE>
<PAGE> 6
MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS June 30, 1995 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- -------- --------- -------------
<C> <S> <C> <C> <C>
$ 2,000 Montgomery County Higher Education & Health Authority,
Pennsylvania, Frankford Hospital Ser 1986............ 7.875 % 01/01/19 $ 2,143,840
--------- -------------
90,260 63,744,266
--------- -------------
$ 363,780 TOTAL INVESTMENTS (IDENTIFIED COST $263,024,195) (a)............... 97.9% 276,332,700
========= CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES..................... 2.1 5,803,249
----- -------------
NET ASSETS......................................................... 100.0% $ 282,135,949
====== =============
<FN>
---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
* Currently a zero coupon bond that will convert to interest rate shown at a future date.
** Joint exemption in New York and New Jersey.
(a) The aggregate cost for federal income tax purposes is $263,024,195; the aggregate gross unrealized appreciation
is $19,343,144 and the aggregate gross unrealized depreciation is $6,034,639, resulting in net unrealized
appreciation of $13,308,505.
Bond Insurance:
---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
--------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percentage of Net Assets
June 30, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Alaska.............. 1.7%
California.......... 12.5
Colorado............ 7.8
Florida............. 6.5
Georgia............. 1.4
Illinois............ 2.6
Indiana............. 7.8%
Iowa................ 1.1
Kansas.............. 2.6
Maine............... 2.5
Massachusetts....... 3.2
Michigan............ 2.6
Minnesota........... 0.7%
Montana............. 1.8
New Hampshire....... 0.8
New York............ 9.5
North Dakota........ 0.5
Ohio................ 3.2
Oklahoma............ 1.8%
Pennsylvania........ 15.4
South Carolina...... 0.8
Texas............... 6.7
Virginia............ 2.7
Washington.......... 1.0
Joint Issuers....... 0.7
----
TOTAL............... 97.9%
====
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE> 7
MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
--------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $263,024,195)............ $ 276,332,700
Cash........................................ 222,421
Receivable for:
Investments sold.......................... 5,982,323
Interest.................................. 4,858,204
Prepaid expenses and other assets........... 22,261
-------------
TOTAL ASSETS........................ 287,417,909
-------------
LIABILITIES:
Payable for:
Investments purchased..................... 5,001,708
Investment advisory fee................... 106,162
Administration fee........................ 66,768
Accrued expenses and other payables......... 107,322
-------------
TOTAL LIABILITIES................... 5,281,960
-------------
NET ASSETS:
Paid-in-capital............................. 264,660,330
Net unrealized appreciation................. 13,308,505
Accumulated undistributed net investment
income.................................... 2,711,636
Accumulated undistributed net realized
gain...................................... 1,455,478
-------------
NET ASSETS.......................... $ 282,135,949
=============
NET ASSET VALUE PER SHARE,
27,846,016 shares outstanding (unlimited
shares authorized of $.01 par value)...... $10.13
======
<CAPTION>
STATEMENT OF OPERATIONS For the six months
ended June 30, 1995 (unaudited)
--------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME........................... $ 10,193,244
-------------
EXPENSES
Investment advisory fee................. 541,843
Administration fee...................... 340,509
Transfer agent fees and expenses........ 60,757
Professional fees....................... 32,946
Registration fees....................... 16,362
Trustees' fees and expenses............. 14,385
Shareholder reports and notices......... 11,001
Other................................... 10,583
-------------
TOTAL EXPENSES...................... 1,028,386
-------------
NET INVESTMENT INCOME............... 9,164,858
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 1,541,818
Net change in unrealized appreciation..... 8,802,933
-------------
NET GAIN............................ 10,344,751
-------------
NET INCREASE........................ $ 19,509,609
=============
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the six
months For the year
ended ended
June 30, 1995 December 31,
(unaudited) 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................................... $ 9,164,858 $ 18,783,792
Net realized gain................................................... 1,541,818 1,345,242
Net change in unrealized appreciation............................... 8,802,933 (28,993,284)
------------- -------------
Net increase (decrease)........................................... 19,509,609 (8,864,250)
------------- -------------
Dividends and distributions to shareholders from:
Net investment income............................................... (8,798,338) (18,024,634)
Net realized gain................................................... -- (3,962,043)
------------- -------------
Total............................................................. (8,798,338) (21,986,677)
Net decrease from transactions in shares of beneficial interest....... (1,222,176) (6,682,683)
------------- -------------
Total increase (decrease)......................................... 9,489,095 (37,533,610)
NET ASSETS:
Beginning of period................................................... 272,646,854 310,180,464
------------- -------------
END OF PERIOD (including undistributed net investment income of
$2,711,636 and $2,345,116, respectively)............................ $ 282,135,949 $ 272,646,854
============= =============
</TABLE>
See Notes to Financial Statements
<PAGE> 8
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 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. The Fund amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. 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% to the portion of the Fund's average weekly net
assets exceeding $250 million.
Under the terms of the Agreement, the Investment Adviser 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 Investment Adviser. The Investment Adviser also bears the cost of
telephone services, heat, light, power and other utilities provided to the Fund.
<PAGE> 9
MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
3. ADMINISTRATION AGREEMENT -- Pursuant to an Administration Agreement with
Dean Witter Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, 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% to the portion of the Fund's average weekly net assets
not exceeding $250 million; 0.20% to the portion of the Fund's average weekly
net assets exceeding $250 million but not exceeding $500 million; 0.167% to the
portion to the Fund's average weekly net assets exceeding $500 million but not
exceeding $750 million; and 0.133% to the portion of the Fund's average 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
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, 1995 aggregated $20,717,060 and
$15,917,969, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At June 30, 1995, the Fund had
transfer agent fees and expenses payable of approximately $23,000.
The Fund established 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,
1995 included in Trustees' fees and expenses in the Statement of Operations
amounted to $3,475. At June 30, 1995, the Fund had an accrued pension liability
of $49,312 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>
Par Value Capital Paid
of in Excess of
Shares Shares Par Value
----------- --------- -------------
<S> <C> <C> <C>
Balance, December 31, 1993.......................... 28,685,916 $ 286,859 $ 272,278,330
Treasury shares purchased and retired
(weighted average discount 6.88%)*................ (710,800) (7,108) (6,675,575)
----------- --------- -------------
Balance, December 31, 1994.......................... 27,975,116 279,751 265,602,755
Treasury shares purchased and retired
(weighted average discount 6.02%)*................ (129,100) (1,291) (1,220,885)
----------- --------- -------------
Balance, June 30, 1995.............................. 27,846,016 $ 278,460 $ 264,381,870
========== ========= =============
<FN>
---------------
* The Trustees have voted to retire the shares purchased.
</TABLE>
<PAGE> 10
MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
--------------------------------------------------------------------------------
6. DIVIDENDS -- The Fund has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
Amount
Declaration per Record Payable
Date Share Date Date
----------------------- -------- ----------------------- -----------------------
<S> <C> <C> <C>
July 3, 1995 $ 0.0525 July 14, 1995 July 28, 1995
August 1, 1995 0.0525 August 11, 1995 August 25, 1995
</TABLE>
7. FEDERAL INCOME TAX STATUS -- 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 $86,000 during fiscal 1994. As of
December 31, 1994, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
8. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------
6/30/95 3/31/95
------------------- -------------------
Per Per
Total* Share Total* Share
------- ------ ------- ------
<S> <C> <C> <C> <C>
Total investment income................................................... $ 5,117 $ 0.18 $ 5,076 $ 0.18
Net investment income..................................................... 4,597 0.17 4,568 0.16
Net realized and unrealized gain.......................................... 1,252 0.04 9,093 0.33
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------------------
12/31/94 9/30/94 6/30/94 3/31/94
-------------------- ----------------- ------------------- -------------------
Per Per Per Per
Total* Share Total* Share Total* Share Total* Share
--------- ------- ------- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income......... $5,185 $0.18 $ 5,239 $ 0.19 $5,230 $0.18 $5,320 $0.19
Net investment income........... 4,620 0.16 4,710 0.17 4,686 0.16 4,768 0.17
Net realized and unrealized gain
(loss)........................ (10,186) (0.33) 1,454 0.05 (7,155) (0.25) (11,761) (0.41)
<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 unrealized
gain (loss)................. (410) (0.01) 2,644 0.09 3,176 0.11 4,644 0.16
<FN>
---------------
* Totals expressed in thousands.
</TABLE>
<PAGE> 11
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
June 30, For the year ended December 31,
1995* -------------------------------------------------------------
(unaudited) 1994* 1993* 1992* 1991* 1990*
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 9.75 $ 10.81 $ 10.46 $ 10.34 $ 9.79 $ 9.90
-------- --------- --------- --------- --------- ---------
Net investment income.................... 0.33 0.66 0.69 0.70 0.71 0.77
Net realized and unrealized gain
(loss)................................. 0.37 (0.94) 0.35 0.12 0.54 (0.13)
-------- --------- --------- --------- --------- ---------
Total from investment operations......... 0.70 (0.28) 1.04 0.82 1.25 0.64
-------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income................ (0.32) (0.64) (0.69) (0.69) (0.67) (0.73)
Net realized gain.................... -- (0.14) -- ** (0.01) (0.03) (0.02)
-------- --------- --------- --------- --------- ---------
Total dividends and distributions........ (0.32) (0.78) (0.69) (0.70) (0.70) (0.75)
-------- --------- --------- --------- --------- ---------
Net asset value, end of period........... $ 10.13 $ 9.75 $ 10.81 $ 10.46 $ 10.34 $ 9.79
========= ========= ========= ========= ========= =========
Market value, end of period.............. $ 9.375 $ 9.125 $ 10.875 $ 10.50 $ 10.00 $ 9.25
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN+................. 6.17%(1) (9.61)% 10.32% 12.23% 16.12% (0.60)%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 0.74%(2) 0.76% 0.75% 0.86% 0.86% 0.88%
Net investment income................ 6.59%(2) 6.48% 6.46% 6.70% 7.05% 7.24%
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................. $282,136 $ 272,647 $ 310,180 $ 300,173 $ 296,554 $ 280,344
Portfolio turnover rate.................. 6%(1) 10% 12% 7% 15% 24%
<FN>
---------------
* The per share amounts were computed using an average number of shares outstanding during the period.
** Includes a distribution of $0.004 per share.
+ 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.
</TABLE>
See Notes to Financial Statements
--------------------------------------------------------------------------------
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> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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, 1995
