<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 12
Statement of Operations.......................... 13
Statement of Changes in Net Assets............... 14
Financial Highlights............................. 15
Notes to Financial Statements.................... 16
Dividend Reinvestment Plan....................... 22
</TABLE>
VOT SAR 6/97
<PAGE> 2
LETTER TO SHAREHOLDERS
June 5, 1997
Dear Shareholder,
As mentioned in your previous
report, VK/AC Holding, Inc., the parent
company of Van Kampen American Capital,
Inc., was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. More recently, on February [photo]
5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. announced
their agreement to merge, and you
received a proxy in April. The merger DENNIS J. MCDONNELL AND DON G. POWELL
was completed on May 31, 1997, creating
the combined company of Morgan Stanley, Dean Witter, Discover & Co. This
preeminent global financial services firm boasts a market capitalization of $21
billion and leading market positions in securities, asset management, and credit
services. As the financial industry continues to witness unprecedented
consolidations and new partnerships, we believe that those firms that are
leaders in all facets of their business will be able to offer investors the
greatest opportunities and services as we move into the next century. We are
confident that this merger will provide investors with those benefits.
ECONOMIC REVIEW
Bond prices were volatile during the six months ended April 30, 1997. Prices
initially rose as the economy slowed, erasing fears of an interest rate hike by
the Federal Reserve Board. The November election of a Democratic president and
Republican Congress was positive for bonds because the split government was
viewed as a restraint on spending increases that could potentially swell the
budget deficit. In addition, support diminished for radical tax reform that
could threaten the tax-free status of municipal bonds.
By the beginning of 1997, the situation changed. Bond prices began to fall
as the economy picked up speed, culminating in a 5.60 percent annualized growth
rate in the first quarter. This strength, coupled with warnings by Fed Chairman
Alan Greenspan that tighter monetary policy might be appropriate, reignited
fears of a rate hike. On March 25, the Fed raised short-term rates by a modest
0.25 percent, which sent the 30-year Treasury bond yield above 7.00 percent for
the first time in six months. By the end of April, the 30-year Treasury bond
yield slipped back below 7.00 percent as the market turned its attention to
positive news about inflation, and bonds recovered some of their earlier losses.
Throughout most of the six months ended April 30, municipal bonds generally
outperformed Treasuries. Between October 31 and April 30, yields on long-term
municipal revenue bonds rose 21 basis points, while yields on 30-year Treasury
bonds jumped
Continued on page two
1
<PAGE> 3
31 basis points. Because bond yields move in the opposite direction of prices,
the smaller increase in municipal yields meant that municipal bond prices did
not fall as sharply as Treasury bond prices did. A relatively stable supply of
new issues, combined with an increase in retail demand, contributed to the
improved performance of municipal bonds.
FUND STRATEGY
In managing the Trust, we maintained a concentration in high-quality bonds
during the period. As of April 30, approximately 59 percent of the Trust's
long-term investments were rated AAA, the highest credit rating assigned to
bonds by the Standard & Poor's Ratings Group. In addition, approximately 22
percent of long-term investments were AA- or A-rated, and approximately 19
percent were rated BBB or below. BBB is the lowest rating Standard & Poor's
assigns to bonds in the investment-grade category. AAA-rated securities
typically have tended to perform better when interest rates are declining and
provide the potential for safety of principal. They are extremely liquid because
most are insured bonds. BBB-rated securities have tended to perform better when
rates are rising, and they have the potential to provide additional income.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality as a Percentage
of Long-Term Investments as of April 30, 1997
<TABLE>
<S> <C>
AAA............. 58.9%
AA.............. 9.8%
A............... 12.8%
BBB............. 16.4%
BB.............. 0.8%
B............... 1.3%
</TABLE>
Portfolio turnover was moderate during the period because market conditions
offered few opportunities to add value over existing holdings. The average
yields of bonds in the portfolio were higher than current market yields.
Activity was also limited by the tight spreads between yields of AAA-rated bonds
and lower-rated bonds. These spreads remained narrow due to the increasing
number of insured bonds in the municipal market. As a result, there was often
not enough yield reward to justify the additional credit risk of purchasing
lower-rated securities.
Acquisitions focused on finding long-term discount bonds that could enhance
the Trust's call protection. In other words, we hope to lessen the concentration
of bonds that can be called at any time. When buying new securities for the
portfolio, we attempt to identify those bonds that we believe will outperform
within a particular sector and that can be purchased at an attractive price. We
believe this "bottom-up" approach, supported by our research, provides
significant added value to the portfolio.
Continued on page three
2
<PAGE> 4
We maintained a relatively short duration during this period of rising
interest rates in order to potentially reduce the Trust's volatility to rate
increases. Duration, which is expressed in years, is a measure of a portfolio's
sensitivity to interest rate movements. Portfolios with long durations have
tended to perform better when rates are falling, and portfolios with short
durations have tended to perform better when rates are rising. At the end of the
period, the Trust's portfolio duration stood at 7.43 years compared to 8.10
years for the Lehman Brothers Municipal Bond Index benchmark.
[SIX-MONTH DIVIDEND HISTORY FOR THE PERIOD ENDED APRIL 30, 1997 GRAPH]
<TABLE>
Distribution
per Share
------------
<S> <C>
Nov 1996............... $.0625
Dec 1996............... $.0625
Jan 1997............... $.0625
Feb 1997............... $.0625
Mar 1997............... $.0625
Apr 1997............... $.0625
</TABLE>
PERFORMANCE SUMMARY
We are pleased to report that the Van Kampen American Capital Municipal
Opportunity Trust II continued its positive performance over the first half of
its fiscal year. For the six-month period ended April 30, 1997, the Trust
generated a total return at market price of 3.21 percent(1). The Trust offered a
tax-exempt distribution rate of 6.45 percent(3), based on the closing common
stock price of $11.625 per share on April 30, 1997. Because income from the
Trust is exempt from federal income tax, this distribution rate represents a
yield equivalent to a taxable investment earning 10.08 percent(4) (for investors
in the 36 percent federal income tax bracket). At the end of the reporting
period, the closing share price of the Trust traded at a 15.1 percent discount
to its net asset value of $13.70.
Continued on page four
3
<PAGE> 5
Top Five Portfolio Industry Holdings by Sector as of April 30, 1997*
Health Care ............................20.0%
Single-Family Housing ..................12.0%
Retail Electric/Gas/Telephone ..........11.0%
Industrial Revenue .....................10.0%
General Purpose ........................ 9.1%
*As a Percentage of Long-Term Investments
MUNICIPAL MARKET OUTLOOK
We continue to see signs of a strong economy, although we do not expect the
unusually brisk growth rate of the first quarter to be sustained throughout the
year. As a result, we believe the Fed will monitor the economy closely and take
aggressive action to control growth if inflation picks up or the high growth
rate is sustained. However, if growth slows, we believe the Fed will leave rates
unchanged. Given this outlook, we expect that yields on the 30-year Treasury
bond will range between 6.75 and 7.40 percent for the remainder of the year,
with higher levels occurring early and lower yields dominating the second half
of 1997. Although short-term interest rates have risen, this has not had a
significant impact on the leveraged structure of the Trust.
We believe the Trust is positioned to perform well in the coming months, and
we do not anticipate major structural changes in the portfolio. In light of our
expectations for interest rates, we will continue to maintain a slightly
defensive posture by keeping a relatively short duration for the portfolio and
adjusting the duration when prudent. We will also continue to seek a balance
between the Trust's total return and its dividend income, as well as to add
value through security selection. Thank you for your continued confidence in Van
Kampen American Capital and your Trust's team of managers.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1997
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
(NYSE TICKER SYMBOL--VOT)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)............ 3.21%
Six-month total return based on NAV(2)..................... 1.40%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.45%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 10.08%
SHARE VALUATIONS
Net asset value............................................ $13.70
Closing common stock price................................. $11.625
Six-month high common stock price (03/14/97)............... $12.000
Six-month low common stock price (04/22/97)................ $11.375
Preferred share (Series A) rate(5)......................... 4.020%
Preferred share (Series B) rate(5)......................... 4.000%
Preferred share (Series C) rate(5)......................... 4.000%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 0.8%
$ 2,250 Huntsville-Madison Cnty, AL Arpt Auth Arpt
Terminal Rev (MBIA Insd)......................... 5.400% 07/01/19 $ 2,112,975
------------
ALASKA 1.1%
3,000 North Slope Borough, AK Ser B (FSA Insd)......... 6.100 06/30/99 3,099,390
------------
ARIZONA 1.3%
3,325 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 3,667,442
------------
CALIFORNIA 13.4%
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt Proj
Ser C (FSA Insd)................................. 6.000 09/01/16 1,363,180
4,600 California St Pub Wks Brd Lease Rev Var Univ CA
Proj A Rfdg...................................... 5.500 06/01/10 4,627,508
5,905 California St Pub Wks Brd Lease Rev Var Univ CA
Proj A Rfdg...................................... 5.500 06/01/14 5,770,484
2,000 Foothill/Eastern Tran Corridor Agy CA Toll Road
Rev Ser A........................................ 6.500 01/01/32 2,059,780
2,000 Imperial Irrig Dist CA Ctfs Partn Elec Sys Proj
(MBIA Insd)...................................... 6.750 11/01/11 2,217,120
2,860 Los Angeles Cnty, CA Metro Tran Auth Sales Tax
Rev Ppty Ser A Rfdg (FGIC Insd).................. 5.000 07/01/21 2,545,657
11,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
Crossover Rfdg (FGIC Insd) (b)................... 5.375 09/01/23 10,762,505
2,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/08 2,125,380
3,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj (MBIA Insd)................................. 5.000 08/01/28 2,673,000
3,000 Southern CA Pub Pwr Auth Pwr Proj Rev San Juan
Unit 3 Ser A (MBIA Insd)......................... 5.000 01/01/20 2,680,080
------------
36,824,694
------------
COLORADO 3.9%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B................................. 7.000 08/31/26 1,070,640
7,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................. * 08/31/26 921,900
1,600 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,656,000
1,250 Denver, CO City & Cnty Arpt Rev Ser A............ 7.000 11/15/99 1,313,812
2,650 Denver, CO City & Cnty Arpt Rev Ser B............ 7.250 11/15/05 2,894,118
1,000 Denver, CO City & Cnty Arpt Rev Ser B............ 7.250 11/15/07 1,080,690
1,500 Denver, CO City & Cnty Arpt Rev Ser D............ 7.750 11/15/13 1,784,325
------------
10,721,485
------------
CONNECTICUT 1.8%
4,635 Connecticut St Dev Auth Pkg Fac Hartford Hosp Rev
(MBIA Insd)...................................... 6.875 10/01/06 4,862,300
------------
FLORIDA 4.5%
2,000 Dade Cnty, FL Genl Oblig Seaport Bonds
(Prerefunded @ 10/01/01) (AMBAC Insd)............ 6.500 10/01/26 2,157,100
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,070 Florida Hsg Fin Agy Single Family Mtg Ser A Rfdg
(GNMA Collateralized)............................ 6.550% 07/01/14 $ 1,104,668
2,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 2,313,220
1,000 Jacksonville, FL Hosp Rev Univ Med Cent Inc Proj
(Connie Lee Insd)................................ 6.500 02/01/11 1,060,770
4,500 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi-Cnty Ser A (GNMA Collateralized)....... 6.650 08/01/21 4,655,970
4,000 Tampa, FL Util Tax Cap Apprec (AMBAC Insd)....... * 10/01/20 1,017,880
------------
12,309,608
------------
GEORGIA 1.9%
2,000 Burke Cnty, GA Dev Auth Pollutn Ctl Rev GA Pwr Co
Plant Vogtle Proj (MBIA Insd).................... 6.350 05/01/19 2,055,480
3,000 Municipal Elec Auth GA Proj One Sub Ser A (AMBAC
Insd)............................................ 6.000 01/01/04 3,155,970
------------
5,211,450
------------
ILLINOIS 7.7%
2,000 Chicago, IL (FGIC Insd).......................... 5.250 01/01/27 1,840,980
3,365 Chicago, IL Cap Apprec (AMBAC Insd).............. * 01/01/17 988,873
5,000 Chicago, IL Single Family Mtg Rev Coll Ser A
(GNMA Collateralized)............................ 7.000 09/01/27 5,477,850
1,500 Chicago, IL Single Family Mtg Rev Coll Ser B
(GNMA Collateralized)............................ 7.625 09/01/27 1,656,165
3,000 Illinois Dev Fin Auth Solid Waste Disposal
Revenue.......................................... 5.950 12/01/24 2,946,780
4,305 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg............................................. 6.000 11/15/10 4,323,382
1,000 Illinois Hlth Fac Auth Rev Ravenswood Hosp Med
Cent Ser A Rfdg.................................. 8.800 06/01/06 1,022,590
2,615 Peoria, Moline & Freeport, IL Coll Mtg Ser A
(GNMA Collateralized)............................ 7.600 04/01/27 2,867,295
------------
21,123,915
------------
INDIANA 3.3%
1,165 Concord, IN Cmnty Sch Bldg Corp 1st Mtg (FSA
Insd)............................................ 7.000 07/01/11 1,331,688
4,000 East Chicago, IN Elementary Sch Bldg Corp 1st Mtg
Ser A............................................ 6.250 07/05/08 4,210,120
3,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus Regl
Hosp Rfdg (FSA Insd) (b)......................... 7.000 08/15/15 3,437,250
------------
8,979,058
------------
IOWA 0.4%
1,200 Ottumwa, IA Hosp Fac Rev Rfdg.................... 6.000 10/01/18 1,157,916
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA 1.1%
$ 2,800 Saint Charles Parish, LA Solid Waste Disp Rev LA
Pwr & Lt Co Proj (FSA Insd) (b).................. 7.050% 04/01/22 $ 3,003,952
------------
MAINE 0.9%
2,500 Maine St Hsg Auth Mtg Purp Ser C2................ 6.875 11/15/23 2,602,675
------------
MASSACHUSETTS 3.2%
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Cape Cod
Hlth Ser A3 (Embedded Swap) (Connie Lee Insd).... 5.000 11/15/11 1,591,387
4,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 3,521,080
3,500 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A Rfdg (AMBAC Insd).......................... 6.600 07/01/14 3,623,620
------------
8,736,087
------------
MICHIGAN 2.2%
1,000 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev.............................................. 7.600 05/01/16 1,139,700
3,300 Michigan St Bldg Auth Rev (MBIA Insd)............ 6.250 10/01/20 3,409,659
1,500 Michigan St Hsg Dev Auth Multi-Family Rev Ltd
Oblig Ser A Rfdg (GNMA Collateralized)........... 6.600 04/01/20 1,561,905
------------
6,111,264
------------
MISSISSIPPI 0.6%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,572,120
------------
MISSOURI 2.0%
4,500 Kansas City, MO Muni Assistance Corp Rev Rfdg
(MBIA Insd) (b).................................. 5.000 04/15/20 4,112,730
1,500 Saint Louis Cnty, MO Mtg Rev Ctfs Receipt Ser H
(GNMA Collateralized)............................ 5.400 07/01/18 1,451,205
------------
5,563,935
------------
NEVADA 1.2%
2,970 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser C
Rfdg (AMBAC Insd)................................ 7.200 10/01/22 3,275,168
------------
NEW JERSEY 4.2%
1,000 New Jersey Econ Dev Auth Rev Clara Maass Hlth Sys
Proj (FSA Insd).................................. 5.000 07/01/25 902,970
1,000 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000 07/01/06 1,065,560
1,750 New Jersey Hlthcare Fac Fin Auth Rev Hackensack
Med Cent Rfdg (FGIC Insd)........................ 6.625 07/01/17 1,870,155
5,630 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev
Pollutn Ctl Pub Svc Elec & Gas Ser A (MBIA Insd). 5.450 02/01/32 5,190,973
2,500 Secaucus, NJ Muni Util Auth Swr Rev Ser A Rfdg... 6.000 12/01/08 2,650,325
------------
11,679,983
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 10.5%
$ 1,485 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A............................................ 7.000% 06/15/09 $ 1,621,828
1,515 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/01)................... 7.000 06/15/09 1,653,410
2,500 New York City Ser A Rfdg......................... 7.000 08/01/04 2,709,075
5,000 New York City Ser A1............................. 6.375 08/01/10 5,141,450
2,000 New York City Ser B (MBIA Insd).................. 6.950 08/15/12 2,201,340
1,800 New York City Ser E Rfdg......................... 6.600 08/01/03 1,911,960
1,000 New York St Dorm Auth Rev City Univ 3rd Genl Res
Ser 2 (MBIA Insd)................................ 6.250 07/01/19 1,036,360
3,000 New York St Dorm Auth Rev Cons City Univ Sys Ser
A Rfdg........................................... 6.000 07/01/06 3,097,890
1,520 New York St Dorm Auth Rev Insd John T Mather Mem
Hosp (Connie Lee Insd)........................... 6.500 07/01/09 1,653,410
970 New York St Energy Research & Dev Auth St Service
Contract Rev..................................... 5.750 04/01/03 985,976
835 New York St Energy Research & Dev Auth St Service
Contract Rev..................................... 5.400 04/01/04 828,788
500 New York St Energy Research & Dev Auth St Service
Contract Rev..................................... 5.500 04/01/05 497,125
500 New York St Energy Research & Dev Auth St Service
Contract Rev..................................... 5.500 04/01/06 494,430
1,500 New York St Loc Govt Assistance Corp Ser A....... 6.875 04/01/19 1,659,675
1,375 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser D (MBIA Insd)....................... 5.900 02/15/10 1,415,164
2,000 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 1,870,340
------------
28,778,221
------------
NORTH CAROLINA 1.0%
3,000 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth
Rev Solid Waste Weyerhaeuser Co.................. 5.650 12/01/23 2,869,980
------------
OHIO 4.2%
1,000 Cleveland Rock Glen Hsg Assistance Corp OH Mtg
Rev Ser A Rfdg (FHA Gtd)......................... 6.625 01/15/18 1,040,110
2,000 Franklin Cnty, OH Hosp Rev Holy Cross Hlth Sys
Ser B Rfdg (MBIA Insd)........................... 5.250 06/01/08 2,002,060
1,040 Lorain Cnty, OH Hosp Rev EMH Regl Med Cent Rfdg
(AMBAC Insd)..................................... 7.750 11/01/13 1,205,329
1,400 Lucas Cnty, OH Hosp Rev.......................... 7.625 06/01/15 1,430,450
2,395 Lucas Cnty, OH Hosp Rev Impt Saint Vincent Med
Cent (MBIA Insd)................................. 6.625 08/15/22 2,592,013
2,000 Ohio St Wtr Dev Auth Solid Waste Disposal Rev.... 6.300 09/01/20 2,071,220
1,065 Strongsville, OH................................. 6.700 12/01/11 1,180,680
------------
11,521,862
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA 2.7%
$ 2,250 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg................................ 6.125% 10/01/14 $ 2,208,105
2,960 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd)...................... 6.250 06/01/07 3,144,083
1,975 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc.............................................. 7.375 12/01/20 2,095,771
------------
7,447,959
------------
OREGON 0.9%
2,500 Oregon St Vets Welfare Ser 76A................... 6.050 10/01/28 2,519,775
------------
PENNSYLVANIA 9.4%
2,000 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth............................. 6.800 11/15/23 2,079,980
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D................................ 7.050 12/01/10 1,595,235
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
43............................................... 7.500 10/01/25 1,078,470
4,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
56A.............................................. 6.150 10/01/27 3,999,760
1,975 Pennsylvania St Higher Edl Fac Auth Hlth Svcs Rev
Alleghany, DE Vly Oblig Ser C (MBIA Insd)........ 5.300 11/15/06 1,988,173
1,600 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/01)........ 7.250 03/01/11 1,766,848
7,500 Philadelphia, PA Gas Wks Rev Ser 14 (FSA Insd)... 6.250 07/01/08 7,979,625
2,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp................................. 6.200 05/01/11 2,007,860
2,000 South Fork Muni Auth PA Hosp Good Samaritan Med
Cent Ser B Rfdg (MBIA Insd)...................... 5.250 07/01/26 1,842,020
1,315 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd)....................... 6.450 02/01/10 1,405,249
------------
25,743,220
------------
TENNESSEE 1.0%
2,500 Tennessee Hsg Dev Agy Mtg Fin Ser A A............ 7.125 07/01/26 2,625,200
------------
TEXAS 1.9%
2,000 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Hermann Hosp Proj (MBIA Insd).................... 6.375 10/01/24 2,089,500
2,840 Harris Cnty, TX Toll Road Sub Lien Rev Rfdg...... 6.750 08/01/14 3,074,612
------------
5,164,112
------------
UTAH 1.1%
1,050 Intermountain Pwr Agy UT Pwr Supply Rev Ser B2... 7.000 07/01/21 1,113,116
2,000 Utah St Hsg Fin Agy Single Family Mtg Sr Issue
Ser B2 (FHA Gtd)................................. 6.500 07/01/15 1,973,856
------------
3,086,972
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA 3.6%
$ 1,250 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)............. 6.600% 08/15/23 $ 1,360,625
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease Rev
Henrico Cnty Regl Jail Proj Aa................... 6.500 08/01/10 1,628,400
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) (b)....... 6.900 03/01/19 2,200,200
3,680 Virginia St Hsg Dev Auth Comwlth Mtg Ser C....... 6.250 07/01/11 3,786,536
1,000 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg............................................. 5.900 11/01/17 1,004,640
------------
9,980,401
------------
WASHINGTON 0.4%
2,500 Washington St Pub Pwr Supply Sys Nuclear Proj No
3 Rev (MBIA Insd)................................ * 07/01/10 1,186,500
------------
WEST VIRGINIA 2.4%
735 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp Rev
West PA Pwr Co Ser C (AMBAC Insd)................ 6.750 08/01/24 797,107
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 3,240,270
2,215 West Virginia St Wtr Dev Auth Wtr Dev Rev Ln Prog
II Ser A (Prerefunded @ 11/01/04) (FSA Insd)..... 6.750 11/01/33 2,493,780
------------
6,531,157
------------
WISCONSIN 1.0%
2,490 Wisconsin St Hlth & Edl Fac Auth Rev Bellin Mem
Hosp Inc (AMBAC Insd)............................ 6.625 02/15/08 2,775,628
------------
PUERTO RICO 3.1%
8,000 Puerto Rico Comwlth Hwy & Tran Ser Y (Embedded
Cap) (FSA Insd).................................. 5.730 07/01/21 8,610,080
------------
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $261,737,146) (a)....................................................... 271,456,484
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%..................................... 3,533,030
------------
NET ASSETS 100.0%.............................................................. $274,989,514
============
</TABLE>
*Zero coupon bond
(a) At April 30, 1997, for federal income tax purposes, cost is $261,737,146;
the aggregate gross unrealized appreciation is $10,511,286 and the aggregate
gross unrealized depreciation is $766,456, resulting in net unrealized
appreciation including open option and futures transactions of $9,744,830.
(b) Assets segregated as collateral for open option and open futures
transactions.
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $261,737,146)
(Note 1).................................................. $271,456,484
Interest Receivable......................................... 4,631,924
Unamortized Organizational Costs (Note 1)................... 9,180
Other....................................................... 4,354
------------
Total Assets.......................................... 276,101,942
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 578,136
Investment Advisory Fee (Note 2).......................... 146,184
Income Distributions--Common and Preferred Shares......... 67,959
Variation Margin on Futures (Note 4)...................... 48,125
Administrative Fee (Note 2)............................... 44,980
Affiliates (Note 2)....................................... 7,129
Accrued Expenses............................................ 157,561
Deferred Compensation and Retirement Plans (Note 2)......... 59,166
Options at Market Value (Net premiums received of $27,077)
(Note 4).................................................. 3,188
------------
Total Liabilities..................................... 1,112,428
------------
NET ASSETS.................................................. $274,989,514
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 2,300 issued with liquidation preference of
$50,000 per share) (Note 5)............................... $115,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 11,681,272 shares issued and
outstanding).............................................. 116,813
Paid in Surplus............................................. 172,387,137
Net Unrealized Appreciation on Securities................... 9,744,830
Accumulated Undistributed Net Investment Income............. 1,008,534
Accumulated Net Realized Loss on Securities................. (23,267,800)
------------
Net Assets Applicable to Common Shares................ 159,989,514
------------
NET ASSETS.................................................. $274,989,514
============
NET ASSET VALUE PER COMMON SHARE ($159,989,514 divided
by 11,681,272 shares outstanding)......................... $ 13.70
============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 8,081,234
-----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 893,025
Administrative Fee (Note 2)................................. 274,777
Preferred Share Maintenance (Note 5)........................ 179,630
Custody..................................................... 23,382
Legal (Note 2).............................................. 13,575
Trustees Fees and Expenses (Note 2)......................... 12,719
Amortization of Organizational Costs (Note 1)............... 3,968
Other....................................................... 109,048
-----------
Total Expenses.......................................... 1,510,124
-----------
NET INVESTMENT INCOME....................................... $ 6,571,110
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments............................................. $ 335,370
Options................................................. (258,861)
Futures................................................. (453,918)
-----------
Net Realized Loss on Securities......................... (377,409)
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................... 11,681,076
-----------
End of the Period:
Investments............................................. 9,719,338
Options................................................. 23,889
Futures................................................. 1,603
-----------
9,744,830
-----------
Net Unrealized Depreciation on Securities During the
Period.................................................... (1,936,246)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.............. $(2,313,655)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,257,455
===========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1997 and
the Year Ended October 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 6,571,110 $ 13,322,526
Net Realized Gain/Loss on Securities................... (377,409) 78,272
Net Unrealized Appreciation/Depreciation on Securities
During the Period.................................... (1,936,246) 1,309,991
------------ ------------
Change in Net Assets from Operations................... 4,257,455 14,710,789
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (4,380,362) (8,760,817)
Preferred Shares..................................... (1,993,921) (4,075,814)
------------ ------------
Total Distributions.................................... (6,374,283) (12,836,631)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... (2,116,828) 1,874,158
NET ASSETS:
Beginning of the Period................................ 277,106,342 275,232,184
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,008,534 and $811,707,
respectively)........................................ $274,989,514 $277,106,342
============ ============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 25, 1993
Six Months (Commencement
Ended Year Ended October 31, of Investment
April 30, --------------------------- Operations) to
1997 1996 1995 1994 October 31, 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a).......................... $13.877 $13.717 $12.201 $15.584 $14.766
------- ------- ------- ------- -------
Net Investment Income............... .563 1.140 1.149 1.108 .312
Net Realized and Unrealized
Gain/Loss on Securities........... (.198) .119 1.548 (3.276) .710
------- ------- ------- ------- -------
Total from Investment Operations...... .365 1.259 2.697 (2.168) 1.022
======= ======= ======= ======= =======
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders....... .375 .750 .795 .900 .150
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders.................... .171 .349 .386 .256 .054
Distributions from Net Realized Gain
on Securities (Note 1):
Paid to Common Shareholders....... -0- -0- -0- .049 -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders.................... -0- -0- -0- .010 -0-
------- ------- ------- ------- -------
Total Distributions................... .546 1.099 1.181 1.215 .204
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $13.696 $13.877 $13.717 $12.201 $15.584
======= ======= ======= ======= =======
Market Price Per Share at End of the
Period.............................. $11.625 $11.625 $11.375 $10.500 $15.000
Total Investment Return at Market
Price (b)........................... 3.21%* 8.98% 16.07% (24.59%) 1.01%*
Total Return at Net Asset Value (c)... 1.40%* 6.82% 19.54% (16.14%) 4.87%*
Net Assets at End of the Period (In
millions)........................... $275.0 $277.1 $275.2 $257.5 $297.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares.............................. 1.88% 1.90% 1.94% 1.82% 1.59%
Ratio of Expenses to Average Net
Assets.............................. 1.10% 1.10% 1.10% 1.06% 1.11%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)................... 5.70% 5.77% 5.88% 6.11% 4.76%
Portfolio Turnover.................... 10%* 37% 58% 115% 55%*
</TABLE>
(a) Net Asset Value at June 25, 1993, is adjusted for common and preferred share
offering costs of $.234 per common share.
(b) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Municipal Opportunity Trust II (the "Trust") is
registered as a diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Trust's investment objective is
to provide a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Trust intends to invest
substantially all of its assets in municipal securities rated investment grade
at the time of investment. The Trust commenced investment operations on June 25,
1993.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At April 30, 1997, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
June 24, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1996, the Trust had an accumulated capital loss
carryforward for tax purposes of $23,312,392 which will expire between October
31, 2002 and October 31, 2004.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Trust, of which a trustee of the Trust is an
affiliated person.
For the six months ended April 30, 1997, the Trust recognized expenses of
approximately $28,800 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustee's annual retainer fee, which is
currently $2,500.
At April 30, 1997, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $27,987,434 and $27,308,651,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except when exercising an option contract or
taking delivery of a security underlying a futures contract. In these instances
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
specified period. These contracts are generally used by the Trust to manage the
portfolio's effective maturity and duration.
Transactions in options for the six months ended April 30, 1997 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1996.................. 64 $(117,517)
Options Written and Purchased (Net).............. 740 (111,340)
Options Terminated in Closing Transactions
(Net).......................................... (224) (47,194)
Options Expired (Net)............................ (512) 303,128
---- ---------
Outstanding at April 30, 1997.................... 68 $ 27,077
==== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
April 30, 1997, and the description and market value are as follows:
<TABLE>
<CAPTION>
EXPIRATION
MONTH/
EXERCISE MARKET VALUE
CONTRACTS PRICE OF OPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Muni Bond Future
June 1997--Written Puts (Current
Notional Value of $114,375 per
contract)....................... 68 June/108 $(3,188)
== =======
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended April 30, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................ 60
Futures Opened............................................. 170
Futures Closed............................................. (115)
----
Outstanding at April 30, 1997.............................. 115
====
</TABLE>
The futures contracts outstanding as of April 30, 1997, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
10 Year U.S. Treasury Note
June 1997 -- Sells to Open (Current Notional
Value of $106,969 per contract).............. 35 $(42,938)
Muni Bond Future
June 1997 -- Sells to Open (Current Notional
Value of $114,375 per contract).............. 80 44,541
--- --------
115 $ 1,603
=== ========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. The Trust invests in
these instruments as a hedge against a rise in the short-term interest rates
which it pays on its preferred shares.
5. PREFERRED SHARES
The Trust has outstanding 2,300 Auction Preferred Shares ("APS") in three
series. Series A and B each contain 800 shares while Series C contains 700
shares. Dividends
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
are cumulative and the dividend rates are currently reset every seven days
through an auction process. The average rate in effect on April 30, 1997 was
4.007%. During the six months ended April 30, 1997, the rates ranged from 2.500%
to 5.255%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
21
<PAGE> 23
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
22
<PAGE> 24
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds,
or 1-800-282-4404 for Morgan Stanley retail funds.
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VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1997
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
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