MUNICIPAL INCOME TRUST II, N-30D, 1997-08-29

MUNICIPAL INCOME TRUST II
N-30D, 1997-08-29

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<PAGE> 1

MUNICIPAL INCOME TRUST II Two World Trade Center, New York, New York 10048

LETTER TO THE SHAREHOLDERS June 30, 1997

DEAR SHAREHOLDER:

We are pleased to present the semiannual report on the operations of Municipal
Income Trust II (TFB) for the six-month period ended June 30, 1997.

A consumer-led acceleration in economic activity in late 1996 carried into the
first quarter of 1997. This contributed to a rise in interest rates between
December 1996 and April 1997. On March 25, 1997, the Federal Reserve Board
raised the federal-funds rate 25 basis points to 5.50 percent in a preemptive
move against a possible increase in the rate of inflation. The bond market
recognized that additional rate hikes by the central bank were possible, but
began to rally when short-term interest rates remained unchanged in May.

MUNICIPAL MARKET CONDITIONS

Municipal yields followed the trend of U.S. Treasury yields, but with less
volatility. Long-term insured revenue bond yields rose from 5.45 percent at the
end of November 1996 to a high of 5.85 percent in mid April 1997 before
declining to 5.50 percent in June.

BOND YIELDS 1994-1997
<TABLE>
<CAPTION>
Insured Municipal
30-Year Insured Revenue Yields as a
Municipal 30-Year U.S. Percentage of
Revenue Yields Treasury Yields U.S. Treasury Yields

<S> <C> <C>
Dec '93 5.45 6.35 0.8586
5.29 6.24 0.8481
5.64 6.66 0.8468
6.19 7.09 0.8728
6.24 7.31 0.854
6.23 7.43 0.8387
Jun '94 6.31 7.61 0.8293
6.15 7.4 0.8314
6.17 7.45 0.828
6.42 7.82 0.8212
6.66 7.97 0.8356
6.99 8 0.8738
Dec '94 6.65 7.88 0.8438
6.42 7.7 0.834
6.12 7.44 0.8222
6.07 7.43 0.8167
6.05 7.34 0.8245
5.84 6.65 0.8784
Jun '95 6 6.62 0.9066
5.99 6.85 0.875
5.98 6.65 0.8997
5.97 6.5 0.9184
5.79 6.33 0.915
5.61 6.13 0.9151
Dec '95 5.49 5.95 0.923
5.42 6.03 0.8989
5.55 6.47 0.8577
5.89 6.67 0.8835
5.94 6.91 0.8601
5.99 6.99 0.8571
Jun '96 5.86 6.87 0.8529
5.77 6.97 0.8278
5.82 7.12 0.8176
5.71 6.92 0.8248
5.6 6.64 0.8431
5.45 6.35 0.8583
Dec '96 5.56 6.64 0.8372
5.63 6.79 0.8293
5.53 6.8 0.8129
5.83 7.1 0.8216
5.74 6.96 0.8251
5.58 6.91 0.8081
Jun '97 5.49 6.78 0.8092

</TABLE>

<PAGE> 2

MUNICIPAL INCOME TRUST II

LETTER TO THE SHAREHOLDERS June 30, 1997, continued

LARGEST SECTORS AS OF JUNE 30, 1997
(% OF NET ASSETS)

<TABLE>
<CAPTION>
<S> <C>
Refunded 14%
Transportation 13%
Mortgage 11%
Electric 10%
General Obligation 9%
IDR/PCR* 8%
Resource Recovery 8%
Water & Sewer 6%
All Others 21%
</TABLE>

* Industrial Development/Pollution Control Revenue

Portfolio structure is subject to change.

CREDIT RATINGS AS OF JUNE 30, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)

As measured by Moody's Investor Service, Inc. or
Standard & Poor's Corp.

Portfolio structure is subject to change.

CALL STRUCTURE AS OF JUNE 30, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)

<TABLE>
<CAPTION>
Years Bonds Percent
Callable Callable
<S> <C>
1997 0.7%
1998 27.1%
1999 4.9%
2000 4.4%
2001 4.8%
2002 2.9%
2003 11.2%
2004 7.6%
2005 11.2%
2006 15.0%
2007+ 10.2%
</TABLE>

WEIGHTED AVERAGE CALL PROTECTION: 5.6 YEARS

<PAGE> 3

MUNICIPAL INCOME TRUST II

LETTER TO THE SHAREHOLDERS June 30, 1997, continued

The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
declined from 86 percent at the end of November 1996 to 81 percent in June 1997.
A declining ratio means that municipals have outperformed Treasuries, but have
become relatively less attractive. The annual range of the ratio averaged
between 80 percent and 92 percent over the past three years.

Relative to last year, new-issue municipal volume was ahead only two percent for
the first six months of 1997. Estimated underwriting volume of $180 billion for
the full year is expected to exceed bond maturities and redemptions of $130
billion.

PERFORMANCE

Municipal Income Trust II's net asset value (NAV) increased slightly from $10.11
to $10.14 during the six-month period ended June 30, 1997. Based on this NAV
change plus reinvestment of tax-free dividends totaling $0.29 per share, the
Fund's total NAV return for the period was 3.37 percent.

Over the same period, TFB's market price on the New York Stock Exchange
increased from $9.125 to $9.625 per share. Based on this change in market price
plus reinvestment of tax-free dividends, TFB's total market return was 8.71
percent. On June 30, 1997 the Fund was trading at a five percent discount to
NAV. Undistributed net investment income available for dividends moved from
$0.080 to $0.086 per share. The Fund's net assets were in excess of $273
million.

PORTFOLIO STRUCTURE

The Fund remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 14 long-term sectors and 56 credits. The
portfolio's average maturity was 19 years. The distribution of bond call dates
produced an average call protection of 5.6 years. The portfolio has consistently
maintained its high quality profile with over 85 percent of its long-term
holdings rated single "A" or better.

LOOKING AHEAD

Since the election-year collapse of flat-tax proposals, municipal bonds have
outperformed U.S. Treasury securities. Tax-free yields are currently somewhat
less attractive in their historical relationship with Treasury yields. However,
the long-term benefits of tax-exempt income remain intact and have fostered
demand for municipal bonds.

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,
<PAGE> 4

MUNICIPAL INCOME TRUST II

LETTER TO THE SHAREHOLDERS June 30, 1997, continued

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 six-month period ended
June 30, 1997, the Fund purchased and retired 532,600 shares of beneficial
interest at a weighted average market discount of 7.28 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> 5

MUNICIPAL INCOME TRUST II

RESULTS OF ANNUAL MEETING (unaudited)

* * *

On May 20, 1997, an annual meeting of the Fund's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:

(1) ELECTION OF TRUSTEES:

<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................ 22,179,092
Withheld........................................................... 555,986

Dr. Manuel H. Johnson
For................................................................ 22,178,960
Withheld........................................................... 556,118

John L. Schroeder
For................................................................ 22,193,370
Withheld........................................................... 541,708
</TABLE>

The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire,
Michael E. Nugent and Philip J. Purcell.

(2) APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:

<TABLE>
<S> <C>
For................................................................ 21,308,099
Against............................................................ 342,569
Abstain............................................................ 1,084,410
</TABLE>

(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:

<TABLE>
<S> <C>
For................................................................ 21,935,418
Against............................................................ 152,026
Abstain............................................................ 647,634
</TABLE>
<PAGE> 6

MUNICIPAL INCOME TRUST II

PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.5%)
General Obligation (8.3%)
$ 2,000 California, Various Purpose dtd 10/01/92 (MBIA)......................... 6.00% 10/01/21 $ 2,052,940
3,000 Moulton-Niguel Water District, California, Refg 1993 (MBIA)............. 5.00 09/01/19 2,744,370
5,000 Chicago, Illinois, Refg Ser 1995 A-2 (AMBAC)............................ 6.25 01/01/14 5,477,650
2,000 Rosemont, Illinois, 1993 Ser B.......................................... 5.50 12/01/07 2,033,580
3,000 Massachusetts, 1995 Ser B (AMBAC)....................................... 5.50 07/01/15 3,013,740
3,000 New York City, New York, 1995 Ser D (MBIA).............................. 6.20 02/01/07 3,261,840
4,000 New York State, Refg Ser 1995 B......................................... 5.70 08/15/10 4,217,080
- -------- ------------
22,000 22,801,200
- -------- ------------

Educational Facilities Revenue (4.9%)
3,000 Massachusetts Health & Educational Facilities Authority, Boston College
Ser K.................................................................. 5.25 06/01/18 2,867,850
2,000 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 B (MBIA)...................................................... 6.25 05/15/25 2,125,500
New York State Dormitory Authority,
2,000 State University 1990 Ser A............................................ 7.50 05/15/13 2,391,300
2,000 State University 1993 Ser A............................................ 5.25 05/15/15 1,901,940
4,000 Delaware County Authority, Pennsylvania, Villanova University Ser 1995
(AMBAC)................................................................ 5.70 08/01/15 4,072,240
- -------- ------------
13,000 13,358,830
- -------- ------------

Electric Revenue (9.5%)
10,000 South Carolina Public Service Authority, Refg Ser 1996 A (MBIA)......... 5.75 01/01/13 10,318,200
12,000 San Antonio, Texas, Electric & Gas Refg Ser 1994........................ 4.70 02/01/06 11,661,240
4,000 Intermountain Power Agency, Utah, Refg Ser 1997 B (MBIA)................ 5.75 07/01/19 4,000,000
- -------- ------------
26,000 25,979,440
- -------- ------------

Hospital Revenue (3.1%)
5,000 Hawaii Department of Budget & Finance, Queen's Health 1996 Ser A........ 6.00 07/01/20 5,113,150
2,000 University of Missouri, Health System Ser 1996 A (AMBAC)................ 5.50 11/01/16 1,990,420
1,295 Ward County, North Dakota, Trinity Obligated Group Crossover Refg Ser
1991 B................................................................. 7.50 07/01/21 1,390,882
- -------- ------------
8,295 8,494,452
- -------- ------------

Industrial Development/Pollution Control Revenue (7.5%)
5,500 Wamego, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)................ 7.00 06/01/31 6,006,275
3,000 New York State Energy Research & Development Authority, New York State
Electric & Gas Corp 1987 Ser A (AMT) (MBIA)............................ 6.15 07/01/26 3,094,920
2,000 Dayton, Ohio, Emery Air Freight Corp. Ser 1988 A........................ 12.50 10/01/09 2,183,160
5,000 Tulsa Municipal Airport Trust, Oklahoma, American Airlines Inc Ser 1988
(AMT).................................................................. 7.375 12/01/20 5,374,300
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7

MUNICIPAL INCOME TRUST II

PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lexington County, South Carolina,
$ 885 Ellett Brothers Inc Refg Ser 1988...................................... 10.625% 09/01/02 $ 906,001
1,000 Ellett Brothers Inc Refg Ser 1988...................................... 10.625 09/01/08 1,023,820
2,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995..................... 6.00 11/01/14 2,017,900
- -------- ------------
19,385 20,606,376
- -------- ------------

Mortgage Revenue - Single Family (7.4%)
5,000 Alaska Housing Finance Corporation, 1997 Ser A (MBIA)................... 6.00 06/01/27 5,050,600
9,970 Pinnellas County Housing Finance Authority, Florida, Ser 1983........... 0.00 01/01/15 1,686,326
965 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT) (MBIA)............. 8.00 11/01/20 1,010,037
5,500 Maine Housing Authority, Purchase 1990 Ser A-4 (AMT).................... 6.40 11/15/23 5,629,305
1,935 New Hampshire Housing Finance Authority, Residential GNMA-Backed
Ser 1988 A (AMT)....................................................... 7.70 07/01/29 2,037,768
33,230 Southeast Texas Housing Finance Corporation, GNMA-Backed Ser 1988 A..... 0.00 04/01/21 4,757,539
- -------- ------------
56,600 20,171,575
- -------- ------------

Nursing & Health Related Facilities Revenue (3.8%)
3,000 Iowa Financing Authority, Care Initiatives Ser 1996..................... 9.25 07/01/25 3,550,740
2,900 Chester County Industrial Development Authority, Pennsylvania, RHA/PA
Nursing Homes Inc Ser 1989............................................. 10.125 05/01/19 2,789,249
4,580 Kirbyville Health Facilities Development Corporation, Texas, Heartway
III Corp Ser 1988 A (a)................................................ 11.25 03/20/21 3,893,000
- -------- ------------
10,480 10,232,989
- -------- ------------

Public Facilities Revenue (1.1%)
3,000 New York State Dormitory Authority, Court Facilities Ser A.............. 5.625 05/15/13 2,988,870
- -------- ------------

Resource Recovery Revenue (8.2%)
1,500 Regional Waste Systems Inc, Maine, 1986 Ser D-F (AMT)................... 8.15 07/01/11 1,611,420
8,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993
A (AMT)................................................................ 6.30 07/01/16 8,227,440
12,000 Lancaster County Solid Waste Management Authority, Pennsylvania,
1988 Ser A (AMT)....................................................... 8.50 12/15/10 12,523,200
- -------- ------------
21,500 22,362,060
- -------- ------------

Tax Allocation (3.7%)
5,000 El Cajon Redevelopment Agency, California, Refg Ser 1992 (AMBAC)........ 6.60 10/01/22 5,427,800
5,000 Rosemead Redevelopment Agency, California, 1993 Ser A................... 5.60 10/01/33 4,684,300
- -------- ------------
10,000 10,112,100
- -------- ------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8

MUNICIPAL INCOME TRUST II

PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (13.1%)
$ 5,000 Chicago, Illinois, Chicago-O'Hare International Airport Ser 1996 A
(AMBAC)................................................................ 5.625% 01/01/12 $ 5,057,300
3,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)............................. 5.50 02/15/26 2,957,250
Allegheny County, Pennsylvania,
5,500 Greater Pittsburgh Int'l Airport Ser 1988 C (AMT) (MBIA)............... 8.25 01/01/16 5,710,650
10,500 Greater Pittsburgh Int'l Airport Ser 1988 D (AMT) (FGIC)............... 7.75 01/01/19 10,670,940
4,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)............... 6.125 11/15/25 4,115,680
7,000 Virginia Port Authority, Commonwealth Port Ser 1988 (AMT)............... 8.20 07/01/08 7,374,430
- -------- ------------
35,000 35,886,250
- -------- ------------

Water & Sewer Revenue (6.5%)
3,000 Dade County, Florida, Ser 1995 (FGIC)................................... 5.50 10/01/18 2,966,370
2,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA)........................... 6.375 01/01/24 2,138,860
4,000 Massachusetts Water Resources Authority, 1993 Ser C..................... 5.25 12/01/20 3,734,440
6,800 Prince William County Service Authority, Virginia, Refg Ser 1993
(FGIC)................................................................. 5.00 07/01/21 6,231,384
3,000 Upper Occoquan Sewerage Authority, Virginia, Ser 1995 A (MBIA).......... 5.00 07/01/25 2,758,920
- -------- ------------
18,800 17,829,974
- -------- ------------

Other Revenue (3.8%)
3,500 California Special Districts Finance Authority, 1988 Ser A COPs......... 8.50 07/01/18 3,688,860
4,360 Tampa, Florida, Cap Impr Ser 1988 A..................................... 8.25 10/01/18 4,567,405
2,000 New York Local Government Assistance Corporation, Ser 1995 A............ 6.00 04/01/24 2,057,780
- -------- ------------
9,860 10,314,045
- -------- ------------

Refunded (16.6%)
20,100 San Francisco Redevelopment Agency, California, George R Moscone
Convention Ctr Ser 1988................................................ 0.00+ 07/01/04++ 16,541,094
19,580 Boulder County, Colorado, National Center for Atmospheric Research Ser
1988................................................................... 8.25 12/01/98++ 20,820,001
1,280 Illinois Health Facilities Authority, Glen Oaks Medical Center Inc
Refg 1990 Ser D........................................................ 9.50 11/15/00+ 1,503,091
3,500 New York State Medical Care Facilities Finance Agency, Montefiore
Medical Center - FHA Insured Mtge. 1989 Ser A.......................... 7.25 02/15/99+ 3,734,570
2,575 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990
B...................................................................... 7.00 07/01/00+ 2,814,990
- -------- ------------
47,035 45,413,746
- -------- ------------

300,955 TOTAL MUNICIPAL BONDS (Identified Cost $252,416,879)........................................... 266,551,907
- -------- ------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9

MUNICIPAL INCOME TRUST II

PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued

1,700 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $1,700,000)............................ 1,700,000
- --------
------------

$302,655 TOTAL INVESTMENTS (Identified Cost $254,116,879) (b).................................. 98.1%
======== 268,251,907

CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.9 5,158,634
---- ------------

NET ASSETS............................................................................. 100.0% $273,410,541
====== ============
</TABLE>

- ---------------------

AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ Currently a zero coupon bond; will convert to 8.50% on July 1,
2002.
+ Prerefunded to call date shown.
++ Refunded to call date shown by crossover refunding.
* Current coupon of variable rate demand obligation.
(a) Bond in default; non-income producing.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$15,555,702 and the aggregate gross unrealized depreciation is
$1,420,674, resulting in net unrealized appreciation of
$14,135,028.

Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.

GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
June 30, 1997

<TABLE>
<S> <C>
Alaska................... 1.8%
California............... 12.9
Colorado................. 7.6
Florida.................. 3.4
Hawaii................... 1.9
Illinois................. 5.9
Iowa..................... 1.3
Kansas................... 2.6
Louisiana................ 0.4
Maine.................... 2.6%
Maryland................. 3.0
Massachusetts............ 3.5
Missouri................. 0.7
New Hampshire............ 0.8
New Jersey............... 0.8
New York................. 8.6
North Dakota............. 0.5
Ohio..................... 1.9
Pennsylvania............. 13.1%
South Carolina........... 6.4
Texas.................... 9.7
Utah..................... 1.5
Virginia................. 6.0
Washington............... 1.2
----

Total.................... 98.1%
====
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10

MUNICIPAL INCOME TRUST II

FINANCIAL STATEMENTS

<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $254,116,879)....................................... $268,251,907
Cash.................................................................. 34,017
Receivable for:
Interest.......................................................... 4,957,076
Investments sold.................................................. 417,652
Prepaid expenses and other assets..................................... 35,526
------------

TOTAL ASSETS...................................................... 273,696,178
------------

LIABILITIES:
Payable for:
Investment advisory fee........................................... 91,197
Administration fee................................................ 57,249
Shares of beneficial interest repurchased......................... 24,108
Accrued expenses and other payables................................... 113,083
------------

TOTAL LIABILITIES................................................. 285,637
------------

NET ASSETS:
Paid-in-capital....................................................... 256,330,863
Net unrealized appreciation........................................... 14,135,028
Accumulated undistributed net investment income....................... 2,318,232
Accumulated undistributed net realized gain........................... 626,418
------------

NET ASSETS........................................................ $273,410,541
============

NET ASSET VALUE PER SHARE,
26,952,766 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $10.14
======
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11

MUNICIPAL INCOME TRUST II

FINANCIAL STATEMENTS, continued

<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $8,872,332
----------

EXPENSES
Investment management fee............................................... 532,006
Administration fee...................................................... 333,952
Transfer agent fees and expenses........................................ 48,420
Professional fees....................................................... 32,450
Shareholder reports and notices......................................... 22,606
Registration fees....................................................... 16,036
Custodian fees.......................................................... 7,534
Trustees' fees and expenses............................................. 6,398
Other................................................................... 6,793
----------
TOTAL EXPENSES...................................................... 1,006,195

LESS: EXPENSE OFFSET................................................ (7,416)
----------

NET EXPENSES........................................................ 998,779
----------

NET INVESTMENT INCOME............................................... 7,873,553
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain....................................................... 845,247
Net change in unrealized appreciation................................... (492,649)
----------

NET GAIN............................................................ 352,598
----------

NET INCREASE............................................................ $8,226,151
==========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12

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, 1997 DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 7,873,553 $ 16,487,955
Net realized gain (loss)........................... 845,247 (218,829)
Net change in unrealized appreciation.............. (492,649) (4,563,939)
----------- -----------

NET INCREASE................................... 8,226,151 11,705,187
----------- -----------

DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income.............................. (7,754,007) (17,197,100)
Net realized gain.................................. -- (1,332,341)
----------- -----------

TOTAL.......................................... (7,754,007) (18,529,441)
----------- -----------
Net decrease from transactions in shares of
beneficial interest............................... (4,962,998) (2,518,715)
----------- -----------

NET DECREASE................................... (4,490,854) (9,342,969)
NET ASSETS:
Beginning of period................................ 277,901,395 287,244,364
----------- -----------

END OF PERIOD
(Including undistributed net investment income
of $2,318,232 and $2,198,686, respectively).... $273,410,541 $ 277,901,395
=========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13

MUNICIPAL INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS June 30, 1997 (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'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 income and net realized capital
gains are determined in accordance with federal income tax regulations
<PAGE> 14

MUNICIPAL INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS June 30, 1997 (unaudited) continued

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"), an affiliate of Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays the Investment Adviser an advisory fee,
calculated weekly and payable monthly, by applying the following annual rates to
the Fund's weekly net assets: 0.40% to the portion of the Fund's weekly net
assets not exceeding $250 million and 0.30% to the portion of the Fund's weekly
net assets exceeding $250 million.

Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment 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.

3. ADMINISTRATION AGREEMENT

Pursuant to an Administration Agreement with the Administrator, the Fund pays an
administration fee, calculated weekly and payable monthly, by applying the
following annual rates to the Fund's weekly net assets: 0.25% to the portion of
the Fund's weekly net assets not exceeding $250 million; 0.20% to the portion of
the Fund's weekly net assets exceeding $250 million but not exceeding $500
million; 0.167% of the portion to the Fund's weekly net assets exceeding $500
million but not exceeding $750 million; and 0.133% to the portion of the Fund's
weekly net assets exceeding $750 million.

Under the terms of the Administration Agreement, the Administrator maintains
certain of the Fund's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical,
<PAGE> 15

MUNICIPAL INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS June 30, 1997 (unaudited) continued

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, 1997 aggregated
$5,000,000 and $15,046,747, respectively.

Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At June 30, 1997, the Fund had
transfer agent fees and expenses payable of approximately $30,100.

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, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,261. At June 30, 1997, the Fund had an accrued pension liability of
$47,418 which is included in accrued expenses in the Statement of Assets and
Liabilities.

5. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995...................................................... 27,757,966 $277,579 $263,534,997
Treasury shares purchased and retired (weighted average discount 8.26%)*........ (272,600) (2,726) (2,515,989)
--------- ------- -----------
Balance, December 31, 1996...................................................... 27,485,366 274,853 261,019,008
Treasury shares purchased and retired (weighted average discount 7.28%)*........ (532,600) (5,326) (4,957,672)
---------- -------- ------------
Balance, June 30, 1997.......................................................... 26,952,766 $269,527 $256,061,336
========== ======== ============
</TABLE>

- ---------------------
* The Trustees have voted to retire the shares purchased.
<PAGE> 16

MUNICIPAL INCOME TRUST II

NOTES TO FINANCIAL STATEMENTS June 30, 1997 (unaudited) continued

6. FEDERAL INCOME TAX STATUS

At December 31, 1996, the Fund had a net capital loss carryover of approximately
$199,000 which will be available through December 31, 2004 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 $20,000 during fiscal 1996.

7. DIVIDENDS

On July 1, 1997, the Fund declared the following dividends from net investment
income:

<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ------------------ -------------------
<S> <C> <C>
$0.0475 July 11, 1997 July 25, 1997
$0.0475 August 8, 1997 August 22, 1997
$0.0475 September 5, 1997 September 19, 1997
</TABLE>
<PAGE> 17

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, ----------------------------------------------
1997* 1996 1995 1994++
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.11 $ 10.35 $ 9.75 $ 10.81
------ ------ ------ ------
Net investment income........................................ 0.30 0.59 0.65 0.66
Net realized and unrealized gain (loss)...................... 0.01 (0.17) 0.70 (0.96)
------ ------ ------ ------
Total from investment operations............................. 0.31 0.42 1.35 (0.30)
------ ------ ------ ------
Less dividends and distributions from:
Net investment income..................................... (0.29) (0.62) (0.63) (0.64)
Net realized gain......................................... -- (0.05) (0.12) (0.14)
------ ------ ------ ------
Total dividends and distributions............................ (0.29) (0.67) (0.75) (0.78)
------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares............ 0.01 0.01 -- 0.02
------ ------ ------ ------
Net asset value, end of period............................... $ 10.14 $ 10.11 $ 10.35 $ 9.75
====== ====== ====== ======
Market value, end of period.................................. $ 9.625 $ 9.125 $ 10.00 $ 9.125
====== ====== ====== ======
TOTAL INVESTMENT RETURN++.................................... 8.71%(1) (2.29)% 18.34% (9.61)%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.75%(2) 0.76%(3) 0.74% 0.76%
Net investment income........................................ 5.89%(2) 5.91% 6.41% 6.48%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $273,411 $277,901 $287,244 $272,647
Portfolio turnover rate...................................... 2%(1) 11% 19% 10%

<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,*
------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.46 $ 10.34
------ -----
Net investment income........................................ 0.69 0.70
Net realized and unrealized gain (loss)...................... 0.35 0.12
------ -----
Total from investment operations............................. 1.04 0.82
------ -----
Less dividends and distributions from:
Net investment income..................................... (0.69) (0.69)
Net realized gain......................................... --** (0.01)
------ -----
Total dividends and distributions............................ (0.69) (0.70)
------ -----
Anti-dilutive effect of acquiring treasury shares............ -- --
------ -----
Net asset value, end of period............................... $ 10.81 $ 10.46
====== =====
Market value, end of period.................................. $10.875 $ 10.50
====== ======
TOTAL INVESTMENT RETURN++.................................... 10.32% 12.23%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.75% 0.86%
Net investment income........................................ 6.46% 6.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $310,180 $300,173
Portfolio turnover rate...................................... 12% %7
</TABLE>

- ---------------------
* 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 brokerage commissions.
++ Restated for comparative purposes.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18

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<PAGE> 19

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<PAGE> 20

TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder

OFFICERS

Charles A. Fiumefreddo
Chairman and Chief Executive Officer

Barry Fink
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

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.

MUNICIPAL
INCOME
TRUST II

Semiannual Report
June 30, 1997