<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 24
Dividend Reinvestment Plan....................... 29
</TABLE>
VOT SAR 6/99
<PAGE> 2
LETTER TO SHAREHOLDERS
May 20, 1999
Dear Shareholder,
With the volatility that we've experienced in many financial markets in
recent months, some investors have sold securities because of uncertainty about
where the markets were going, only to be left rethinking whether they made the
right decision. We've witnessed this kind of market activity numerous times over
the past several years, sparked by concerns such as the impact of the Asian
economic crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the latest rally. That's partly because most of the recent big gains happened
in relatively short periods of time. This kind of volatility--and the danger of
making short-term decisions--highlights the importance of investing for the long
term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather whatever the markets have in store.
Sincerely,
[SIG.]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
A surge in consumer confidence led to strong economic growth over the past
six months, as fears about the impact of the Asian financial crisis subsided. In
the fourth quarter, the nation's gross domestic product (GDP) rose at an
astounding 6.0 percent annual rate and remained strong at 4.5 percent through
the first quarter of 1999. This powerful level of growth is attributed to a
continued increase in consumer spending, a strong housing market, and high
retail sales--all the result of a more confident consumer given the positive
employment environment. The economy began to show signs of slowing down early in
1999, however, as corporate profits and wage growth declined.
Despite continued improvements in Asia and Latin America and the record
economic growth in the United States, inflation remained at bay in late 1998 as
commodity prices tumbled. Although rising oil prices pushed inflation up 3.3
percent on an annualized basis in the first four months of 1999, price increases
remained moderate enough overall to keep inflation-adjusted interest rates
attractive.
Our outlook for the domestic economy remains positive, although we
anticipate slower growth in the second half of the year. We look for a gradual
but steady rise in inflation throughout 1999 to more normal but certainly not
alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic progress we've witnessed
overseas.
INTEREST RATES AND INFLATION
April 30, 1997, through April 30, 1999
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Apr 1997 6.0000 2.5000
5.6250 2.2000
6.5000 2.3000
Jul 1997 6.0000 2.2000
5.5000 2.2000
6.2500 2.2000
Oct 1997 5.7500 2.1000
5.6875 1.8000
6.5000 1.7000
Jan 1998 5.5625 1.6000
5.6250 1.4000
6.1250 1.4000
Apr 1998 5.6250 1.4000
5.6875 1.7000
6.0000 1.7000
Jul 1998 5.5625 1.7000
5.9375 1.6000
5.7500 1.5000
Oct 1998 5.2500 1.5000
4.8750 1.5000
4.0000 1.6000
Jan 1999 4.8125 1.7000
4.8750 1.6000
5.1250 1.7000
Apr 1999 4.9375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1999
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
(NYSE TICKER SYMBOL--VOT)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
Six-month total return based on market price(1)........... (.86%)
Six-month total return based on NAV(2).................... 1.07%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 5.75%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 8.98%
SHARE VALUATIONS
Net asset value........................................... $ 14.85
Closing common stock price................................ $13.5625
Six-month high common stock price (11/30/98).............. $14.7500
Six-month low common stock price (04/30/99)............... $13.5625
Preferred share (Series A) rate(5)........................ 3.50%
Preferred share (Series B) rate(5)........................ 3.50%
Preferred share (Series C) rate(5)........................ 3.05%
</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.
3
<PAGE> 5
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
REFUNDING: Retiring an outstanding bond issue at maturity using money from the
sale of a new offering.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
We recently spoke with the management team of the Van Kampen Municipal
Opportunity Trust II about the key events and economic forces that shaped the
markets during the reporting period. The team includes Timothy D. Haney,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following comments reflect their views on the Trust's
performance during the six months ended April 30, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced volatility during the
period, the municipal market remained relatively stable. For the majority
of the six months, long-term municipal bond yields remained within a range
of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest rates.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. Although the amount
of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers using municipal bonds
to finance special growth and expansion projects, as opposed to financing their
regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Trust because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 85 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors recognized the tremendous
opportunities available in the municipal market, and demand for municipals began
to increase. In conjunction with a recent slowdown in supply, this boost in
municipal demand pushed the municipal-to-Treasury yield ratio back to more
traditional but still attractive levels.
5
<PAGE> 7
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE TRUST?
A Our focus was on supporting the Trust's income stream while monitoring its
risk level and price volatility. To do so, we sought to limit the Trust's
exposure to bond calls, which can lower its income stream because we must
invest the proceeds of called bonds into bonds paying current lower interest
rates. During the reporting period, we purchased noncallable bonds, which cannot
be paid off early by their issuers, even if interest rates decline. In addition,
we began to replace some of our housing bonds. These bonds carry a risk that the
mortgage holder will refinance the mortgage or pay it off early, especially
during a low interest-rate environment like we are currently experiencing. As a
result, housing bonds are more likely than many other issues to be called from
the portfolio.
By working closely with our experienced research analysts, we continued to
look for securities that may be temporarily out of favor but that we feel have
the potential to appreciate in price if market circumstances change. For
example, we purchased 30-year bonds with 5 percent coupon rates--which tend to
attract strong demand from individual investors--during a period where heavy
supply kept prices attractive. A few months later, we sold them at a profit when
the supply of municipal securities declined and demand for these issues
increased. For additional portfolio highlights, please refer to page 8.
In addition, our research team helped us find value in the health-care
sector, which is under pressure as a result of the challenges imposed by managed
care and changing Medicare reimbursement policies. The team sifted through the
range of health-care offerings to help us find lower-rated bonds with attractive
yields and strong underlying quality. For example, they recently uncovered a
hospital issue that was out of favor because its credit rating had been
downgraded. We felt that the market had overreacted to the lower (but still
investment-grade) rating, and we bought the bonds at an attractive price.
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A During the past six months, the Trust generated a total return of -0.86
percent(1) based on market price. This reflects a decrease in market price
from $14.0625 per share on October 31, 1998, to $13.5625 on April 30,
1999. In addition, the Trust provided a distribution rate of 5.75 percent(3)
based on its closing common stock price on April 30, 1999. Because the Trust is
exempt from federal income taxes, this distribution rate is equivalent to a
yield of 8.98 percent(4) on a taxable investment for shareholders in the 36
percent federal income tax bracket. The Trust's monthly dividend of $.0650 per
share was unchanged during the reporting period. Past performance does not
guarantee future results. Please refer to the footnotes and chart on page 3 for
additional Trust performance results.
6
<PAGE> 8
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance should continue to bolster the credit
conditions of municipal issuers. In addition, we expect that this economic
strength will continue to make municipalities more likely to issue debt
for special projects rather than for general operating financing.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend in the last few months, as municipal bond
insurers have become more cautious. If this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG.]
Timothy D. Haney
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
Health Care................. 19.1%
Retail Electric/Gas/
Telephone................. 12.3%
Industrial Revenue.......... 11.0%
Single-Family Housing....... 10.5%
General Purpose............. 10.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1998
<S> <C>
Health Care................. 19.7%
Retail Electric/Gas
Telephone................. 12.4%
Single-Family Housing....... 10.9%
General Purpose............. 10.3%
Industrial Revenue.......... 9.9%
</TABLE>
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
AAA/Aaa...... 61.1%
AA/Aa........ 13.7%
A/A.......... 12.2%
BBB/Baa...... 12.1%
B/B.......... 0.9%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1998
<S> <C>
AAA/Aaa...... 60.0%
AA/Aa........ 14.6%
A/A.......... 11.9%
BBB/Baa...... 12.6%
B/B.......... 0.9%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED APRIL 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION PER
COMMON SHARE
----------------
<S> <C>
Nov 1998 0.065
Dec 1998 0.065
Jan 1999 0.065
Feb 1999 0.065
Mar 1999 0.065
Apr 1999 0.065
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distributions.
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 100.9%
ALABAMA 1.2%
$ 2,500 Montgomery, AL BMC Spl Care Fac Fin
Auth Rev Baptist Hlth Ser B (MBIA
Insd)............................... 5.000% 11/15/29 $ 2,407,175
1,000 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A............... 5.600 11/01/16 991,200
------------
3,398,375
------------
ALASKA 0.7%
2,000 North Slope Borough, AK Ser B (FSA
Insd)............................... 6.100 06/30/99 2,009,180
------------
ARIZONA 1.1%
2,860 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson
Ser A Rfdg (FSA Insd)............... 7.250 07/15/10 3,162,359
------------
CALIFORNIA 13.0%
1,300 Anaheim, CA Pub Fin Auth Lease Rev
Pub Impt Proj Ser C (FSA Insd)...... 6.000 09/01/16 1,491,230
4,600 California St Pub Wks Brd Lease Rev
Var Univ CA Proj A Rfdg............. 5.500 06/01/10 5,042,106
5,905 California St Pub Wks Brd Lease Rev
Var Univ CA Proj A Rfdg............. 5.500 06/01/14 6,461,428
2,000 Foothill/Eastern Tran Corridor Agy
CA Toll Rd Rev Ser A................ 6.500 01/01/32 2,226,460
2,000 Imperial Irrig Dist CA Ctfs Partn
Elec Sys Proj (Prerefunded @
11/01/04) (MBIA Insd)............... 6.750 11/01/11 2,332,260
2,860 Los Angeles Cnty, CA Metro Tran Auth
Sales Tax Rev Ppty Ser A Rfdg (FGIC
Insd)............................... 5.000 07/01/21 2,816,471
11,500 Los Angeles, CA Dept Wtr & Pwr Elec
Plant Rev Crossover Rfdg (FGIC Insd)
(b)................................. 5.375 09/01/23 11,771,630
2,000 Orange Cnty, CA Recovery Ctfs Ser A
(MBIA Insd)......................... 6.000 07/01/08 2,260,920
3,000 Southern CA Pub Pwr Auth Pwr Proj
Rev San Juan Unit 3 Ser A (MBIA
Insd)............................... 5.000 01/01/20 2,963,610
------------
37,366,115
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO 4.2%
$ 1,000 Arapahoe Cnty, CO Cap Impt Trust
Fund Hwy Rev E-470 Proj Ser B
(Prerefunded @ 08/31/05)............ 7.000% 08/31/26 $ 1,190,590
7,500 Arapahoe Cnty, CO Cap Impt Trust
Fund Hwy Rev E-470 Proj Ser C
(Prerefunded @ 08/31/05)............ * 08/31/26 1,204,050
1,250 Denver, CO City & Cnty Arpt Rev Ser
A................................... 7.000 11/15/99 1,272,113
2,650 Denver, CO City & Cnty Arpt Rev Ser
B................................... 7.250 11/15/05 2,925,361
895 Denver, CO City & Cnty Arpt Rev Ser
B................................... 7.250 11/15/07 987,382
105 Denver, CO City & Cnty Arpt Rev Ser
B (Prerefunded @ 11/15/02).......... 7.250 11/15/07 118,940
1,500 Denver, CO City & Cnty Arpt Rev Ser
D................................... 7.750 11/15/13 1,887,720
2,500 E-470 Pub Hwy Auth CO Rev Cap Apprec
Sr Ser B (MBIA Insd)................ * 09/01/11 1,394,250
4,000 E-470 Pub Hwy Auth CO Rev Cap Apprec
Sr Ser B Rfdg (MBIA Insd)........... * 09/01/22 1,191,680
------------
12,172,086
------------
CONNECTICUT 1.4%
3,835 Connecticut St Dev Auth Pkg Fac
Hartford Hosp Rev (MBIA Insd)....... 6.875 10/01/06 3,978,889
------------
FLORIDA 3.6%
2,000 Dade Cnty, FL Genl Oblig Seaport
Bonds (Prerefunded @ 10/01/01)
(AMBAC Insd)........................ 6.500 10/01/26 2,154,660
1,050 Florida Hsg Fin Agy Single Family
Mtg Ser A Rfdg (GNMA
Collateralized)..................... 6.550 07/01/14 1,124,256
2,000 Hillsborough Cnty, FL Indl Dev Auth
Pollutn Ctl Rev Tampa Elec Co Proj
Ser 92 Rfdg......................... 8.000 05/01/22 2,271,080
1,000 Jacksonville, FL Hosp Rev Univ Med
Cent Inc Proj (Connie Lee Insd)..... 6.500 02/01/11 1,080,580
3,590 Pinellas Cnty, FL Hsg Fin Auth
Single Family Mtg Rev Multi Cnty Ser
A (GNMA Collateralized)............. 6.650 08/01/21 3,859,609
------------
10,490,185
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEORGIA 1.8%
$ 2,000 Burke Cnty, GA Dev Auth Pollutn Ctl
Rev GA Pwr Co Plant Vogtle Proj
(MBIA Insd)......................... 6.350% 05/01/19 $ 2,046,100
3,000 Muni Elec Auth GA Proj One Sub Ser A
(AMBAC Insd)........................ 6.000 01/01/04 3,253,740
------------
5,299,840
------------
ILLINOIS 7.7%
3,750 Bolingbrook, IL Cap Apprec Ser B
(a)................................. * 01/01/31 651,637
2,000 Chicago, IL Brd Ed Chicago Sch
Reform Brd Ser A (FGIC Insd)........ 5.500 12/01/26 2,131,540
3,365 Chicago, IL Cap Apprec (Prerefunded
@ 07/01/05) (AMBAC Insd)............ * 01/01/17 1,253,900
4,860 Chicago, IL Single Family Mtg Rev
Ser A (GNMA Collateralized)......... 7.000 09/01/27 5,420,358
1,120 Chicago, IL Single Family Mtg Rev
Ser B (GNMA Collateralized)......... 7.625 09/01/27 1,278,995
3,000 Illinois Dev Fin Auth Solid Waste
Disposal Rev........................ 5.950 12/01/24 3,318,450
4,305 Illinois Hlth Fac Auth Rev OSF
Hlthcare Sys Rfdg................... 6.000 11/15/10 4,613,927
1,000 Illinois Hlth Fac Auth Rev
Ravenswood Hosp Med Cent A Rfdg..... 8.800 06/01/06 1,003,160
2,230 Peoria, Moline & Freeport, IL Coll
Mtg Ser A (GNMA Collateralized)..... 7.600 04/01/27 2,510,891
------------
22,182,858
------------
INDIANA 3.3%
1,165 Concord, IN Cmnty Schs Bldg Corp
First Mtg (Prerefunded @ 07/01/05)
(FSA Insd).......................... 7.000 07/01/11 1,366,265
4,000 East Chicago, IN Elementary Sch Bldg
Corp First Mtg Ser A................ 6.250 07/05/08 4,481,440
3,000 Indiana Hlth Fac Fin Auth Hosp Rev
Columbus Regl Hosp Rfdg (FSA Insd)
(b)................................. 7.000 08/15/15 3,671,310
------------
9,519,015
------------
IOWA 0.4%
1,200 Ottumwa, IA Hosp Fac Rev Rfdg....... 6.000 10/01/18 1,239,024
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY 0.7%
$ 2,000 Jefferson Cnty, KY Hlth Fac Rev
(MBIA Insd)......................... 5.125% 10/01/27 $ 1,976,300
------------
LOUISIANA 1.4%
1,000 Jefferson Parish, LA Hosp Svc Dist
No 2 Hosp Rev (FSA Insd)............ 5.000 07/01/28 962,090
2,800 Saint Charles Parish, LA Solid Waste
Disp Rev LA Pwr & Lt Co Proj (FSA
Insd) (b)........................... 7.050 04/01/22 3,005,352
------------
3,967,442
------------
MAINE 0.8%
2,215 Maine St Hsg Auth Mtg Purp Ser C2... 6.875 11/15/23 2,398,912
------------
MARYLAND 0.4%
1,000 Maryland St Cmnty Dev Admin Dept Hsg
& Cmnty Dev Ser C................... 5.550 07/01/27 1,025,700
------------
MASSACHUSETTS 2.1%
2,500 Massachusetts St Hlth & Edl Fac Auth
Rev Saint Mem Med Cent Ser A........ 6.000 10/01/23 2,487,175
3,335 Massachusetts St Hsg Fin Agy Hsg Rev
Insd Rental Ser A Rfdg (AMBAC
Insd)............................... 6.600 07/01/14 3,593,529
------------
6,080,704
------------
MICHIGAN 4.4%
1,000 Battle Creek, MI Downtown Dev Auth
Tax Increment Rev (Prerefunded @
05/01/04)........................... 7.600 05/01/16 1,174,930
3,300 Michigan St Bldg Auth Rev (MBIA
Insd)............................... 6.250 10/01/20 3,532,452
1,000 Michigan St Hosp Fin Auth Rev
Detroit Med Cent Oblig Ser A........ 5.250 08/15/28 907,220
1,000 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd).... 5.500 10/01/18 1,005,860
1,000 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd).... 5.500 10/01/27 1,002,700
1,500 Michigan St Hsg Dev Auth
Multi-Family Rev Ltd Oblig Ser A
Rfdg (GNMA Collateralized).......... 6.600 04/01/30 1,621,485
3,500 Michigan St Strat Fd Ltd Oblig Rev
Detroit Edison Co Ser A Rfdg (MBIA
Insd) (a)........................... 5.550 09/01/29 3,551,870
------------
12,796,517
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSISSIPPI 0.5%
$ 1,500 Claiborne Cnty, MS Pollutn Ctl Rev
Sys Energy Res Inc Rfdg............. 7.300% 05/01/25 $ 1,566,705
------------
MISSOURI 2.1%
4,500 Kansas City, MO Muni Assistance Corp
Rev Rfdg (MBIA Insd) (b)............ 5.000 04/15/20 4,422,465
1,500 Saint Louis Cnty, MO Mtg Rev Ctfs
Receipt Ser H (GNMA
Collateralized)..................... 5.400 07/01/18 1,574,280
------------
5,996,745
------------
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 3,311,015
------------
NEW JERSEY 4.0%
1,000 New Jersey Hlthcare Fac Fin Auth Rev
Genl Hosp Cent at Passaic (FSA
Insd)............................... 6.000 07/01/06 1,118,570
1,750 New Jersey Hlthcare Fac Fin Auth Rev
Hackensack Med Cent (Prerefunded @
07/01/01) (FGIC Insd)............... 6.625 07/01/17 1,891,610
5,630 Salem Cnty, NJ Indl Pollutn Ctl Fin
Auth Rev Pollutn Ctl Pub Svc Elec &
Gas Ser A (MBIA Insd) (b)........... 5.450 02/01/32 5,742,487
2,500 Secaucus, NJ Muni Util Auth Swr Rev
Ser A Rfdg.......................... 6.000 12/01/08 2,778,750
------------
11,531,417
------------
NEW YORK 12.6%
2,000 Long Island Pwr Auth NY Elec Sys Rev
Genl (MBIA Insd).................... 5.000 04/01/08 2,100,480
1,485 New York City Muni Wtr Fin Auth Wtr
& Swr Sys Rev Ser A................. 7.000 06/15/09 1,598,870
750 New York City Muni Wtr Fin Auth Wtr
& Swr Sys Rev Ser A (Prerefunded @
06/15/01)........................... 7.000 06/15/09 808,230
2,500 New York City Ser A................. 7.000 08/01/04 2,836,125
1,800 New York City Ser E Rfdg............ 6.600 08/01/03 1,983,060
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,000 New York St Dorm Auth Rev City Univ
Third Genl Res Ser 2 (Prerefunded @
07/01/04) (MBIA Insd)............... 6.250% 07/01/19 $ 1,111,710
3,000 New York St Dorm Auth Rev Cons City
Univ Sys Ser A Rfdg................. 6.000 07/01/06 3,297,030
1,520 New York St Dorm Auth Rev Insd John
T Mather Mem Hosp (Connie Lee
Insd)............................... 6.500 07/01/09 1,762,410
2,000 New York St Dorm Auth Rev NY Univ
Ser A (AMBAC Insd) (a).............. 5.250 07/01/07 2,086,640
2,545 New York St Dorm Auth Rev Secured
Hosp New York Downtown Rfdg......... 5.200 02/15/14 2,574,776
970 New York St Energy Research & Dev
Auth St Service Contract Rev........ 5.750 04/01/03 1,027,550
835 New York St Energy Research & Dev
Auth St Service Contract Rev........ 5.400 04/01/04 878,061
500 New York St Energy Research & Dev
Auth St Service Contract Rev........ 5.500 04/01/05 530,105
500 New York St Energy Research & Dev
Auth St Service Contract Rev........ 5.500 04/01/06 531,410
1,500 New York St Loc Govt Assistance Corp
Ser A (Prerefunded @ 4/01/02)....... 6.875 04/01/19 1,661,745
1,375 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Impt Ser D
(Prerefunded @ 08/15/04) (MBIA
Insd)............................... 5.900 02/15/10 1,528,711
2,000 New York St Urban Dev Corp Rev
Correctional Fac Ser A Rfdg......... 5.500 01/01/16 2,056,540
3,950 New York, NY Ser A1................. 6.375 08/01/10 4,394,177
1,050 New York, NY Ser A1 (Prerefunded @
08/01/05)........................... 6.375 08/01/10 1,192,685
2,000 New York, NY Ser B1 (Prerefunded @
08/15/04) (MBIA Insd)............... 6.950 08/15/12 2,307,860
------------
36,268,175
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORTH CAROLINA 1.1%
$ 3,000 Martin Cnty, NC Indl Fac & Pollutn
Ctl Fin Auth Rev Solid Waste
Weyerhaeuser Co..................... 5.650% 12/01/23 $ 3,035,970
------------
OHIO 3.6%
2,000 Franklin Cnty, OH Hosp Rev Holy
Cross Hlth Sys Ser B Rfdg (MBIA
Insd)............................... 5.250 06/01/08 2,086,380
1,040 Lorain Cnty, OH Hosp Rev EMH Regl
Med Cent Rfdg (AMBAC Insd).......... 7.750 11/01/13 1,245,286
2,395 Lucas Cnty, OH Hosp Rev Impt Saint
Vincent Med Cent (MBIA Insd)........ 6.625 08/15/22 2,631,698
2,000 Ohio St Wtr Dev Auth Solid Waste
Disp Rev............................ 6.300 09/01/20 2,176,200
1,000 Rocky River, OH City Sch Dist....... 5.375 12/01/17 1,049,340
1,065 Strongsville, OH.................... 6.700 12/01/11 1,238,307
------------
10,427,211
------------
OKLAHOMA 2.7%
2,250 Shawnee, OK Hosp Auth Hosp Rev
Midamerica Hlthcare Inc Rfdg........ 6.125 10/01/14 2,331,225
2,960 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Cent Proj Rfdg (Connie
Lee Insd)........................... 6.250 06/01/07 3,364,662
1,975 Tulsa, OK Muni Arpt Tran Rev
American Airls Inc.................. 7.375 12/01/20 2,103,493
------------
7,799,380
------------
OREGON 0.9%
2,500 Oregon St Vets Welfare Ser 76A...... 6.050 10/01/28 2,656,175
------------
PENNSYLVANIA 8.7%
2,000 Cumberland Cnty, PA Muni Auth Rev
First Mtg Carlisle Hosp & Hlth...... 6.800 11/15/23 2,158,780
5,780 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd).......................... * 09/01/20 1,917,053
1,500 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D...... 7.050 12/01/10 1,671,720
1,000 Pennsylvania Hsg Fin Agy Single
Family Mtg Ser 43................... 7.500 10/01/25 1,004,810
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,000 Pennsylvania Hsg Fin Agy Single
Family Ser 56A...................... 6.150% 10/01/27 $ 4,224,720
1,600 Pennsylvania St Higher Edl Fac Auth
Rev Med College PA Ser A
(Prerefunded @ 03/01/01)............ 7.250 03/01/11 1,732,064
2,635 Philadelphia, PA (MBIA Insd)........ 5.000 05/15/25 2,569,388
7,500 Philadelphia, PA Gas Wks Rev Ser 14
Rfdg (FSA Insd) (b)................. 6.250 07/01/08 8,277,975
1,315 State Pub Sch Bldg Auth PA Sch Rev
Burgettstown Sch Dist Ser D
(Prerefunded @ 02/01/05) (MBIA
Insd)............................... 6.450 02/01/10 1,477,929
------------
25,034,439
------------
TENNESSEE 1.6%
2,500 Harpeth Vly Utils Dist TN Davidson &
Williamson Cntys Rev (MBIA Insd).... 5.250 09/01/17 2,609,525
1,835 Tennessee Hsg Dev Agy Mtg Fin Ser
A................................... 7.125 07/01/26 1,966,331
------------
4,575,856
------------
TEXAS 2.5%
2,000 Harris Cnty, TX Hlth Fac Dev Corp
Hosp Rev Hermann Hosp Proj
(Prerefunded @ 10/01/04) (MBIA
Insd)............................... 6.375 10/01/24 2,252,200
2,840 Harris Cnty, TX Toll Rd Sub Lien Rev
Rfdg................................ 6.750 08/01/14 3,070,949
2,000 Lower CO River Auth TX Rev Jr Lien
(FSA Insd).......................... 4.750 01/01/28 1,870,740
------------
7,193,889
------------
UTAH 0.8%
1,050 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B........................... 7.000 07/01/21 1,077,300
1,225 Utah St Hsg Fin Agy Single Family
Mtg Sr Issue Ser B-2 (FHA Gtd)...... 6.500 07/01/15 1,308,680
------------
2,385,980
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIRGINIA 3.5%
$ 1,250 Fredericksburg, VA Indl Dev Auth
Hosp Fac Rev (Prerefunded @
08/15/01) (FGIC Insd) (b)........... 6.600% 08/15/23 $ 1,349,388
1,500 Henrico Cnty, VA Indl Dev Auth Pub
Fac Lease Rev Henrico Cnty Regl Jail
Proj................................ 6.500 08/01/10 1,702,125
2,000 Loudoun Cnty, VA Ctfs Partn (FSA
Insd) (b)........................... 6.900 03/01/19 2,253,080
3,680 Virginia St Hsg Dev Auth Comwlth Mtg
Ser C............................... 6.250 07/01/11 3,836,510
1,000 Virginia St Hsg Dev Auth
Multi-Family Ser E Rfdg............. 5.900 11/01/17 1,053,750
------------
10,194,853
------------
WEST VIRGINIA 2.3%
735 Harrison Cnty, WV Cnty Cmnty Solid
Waste Disp Rev West PA Pwr Co Ser C
(AMBAC Insd)........................ 6.750 08/01/24 825,192
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH
Pwr Co Proj Ser C Rfdg (MBIA
Insd)............................... 6.850 06/01/22 3,288,300
2,215 West Virginia St Wtr Dev Auth Wtr
Dev Rev Ln Pgm II Ser A (Prerefunded
@ 11/01/04) (FSA Insd).............. 6.750 11/01/33 2,561,337
------------
6,674,829
------------
WISCONSIN 1.3%
2,490 Wisconsin St Hlth & Edl Fac Auth Rev
Bellin Mem Hosp (AMBAC Insd)........ 6.625 02/15/08 2,883,221
1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Marquette Univ (MBIA Insd).......... 4.750 06/01/23 939,200
------------
3,822,421
------------
PUERTO RICO 3.3%
8,000 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Ser Y Rfdg (Embedded Cap)
(FSA Insd).......................... 5.730 07/01/21 9,373,440
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
- ------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS 100.9%
(Cost $268,425,808)............................................... $290,912,001
LIABILITIES IN EXCESS OF OTHER ASSETS (0.9%)....................... (2,468,730)
------------
NET ASSETS 100.0%.................................................. $288,443,271
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open option transactions.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $268,425,808)....................... $290,912,001
Receivables:
Interest.................................................. 4,459,183
Investments Sold.......................................... 55,540
Other....................................................... 370
------------
Total Assets.......................................... 295,427,094
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 6,256,850
Custodian Bank............................................ 169,795
Investment Advisory Fee................................... 154,389
Income Distributions--Common and Preferred Shares......... 75,725
Administrative Fee........................................ 47,504
Affiliates................................................ 26,675
Options at Market Value (Net premiums received of
$49,190)................................................ 9,375
Accrued Expenses............................................ 144,616
Trustees' Deferred Compensation and Retirement Plans........ 98,894
------------
Total Liabilities..................................... 6,983,823
------------
NET ASSETS.................................................. $288,443,271
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 4,600 issued with liquidation preference of
$25,000 per share)........................................ $115,000,000
------------
Common Shares ($.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................................. 22,526,008
Accumulated Undistributed Net Investment Income............. 1,267,315
Accumulated Net Realized Loss............................... (22,854,002)
------------
Net Assets Applicable to Common Shares................ 173,443,271
------------
NET ASSETS.................................................. $288,443,271
============
NET ASSET VALUE PER COMMON SHARE ($173,443,271 divided by
11,681,272 shares outstanding)............................ $ 14.85
============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 7,995,778
-----------
EXPENSES:
Investment Advisory Fee..................................... 934,919
Administrative Fee.......................................... 287,667
Preferred Share Maintenance................................. 165,092
Trustees' Fees and Related Expenses......................... 14,622
Custody..................................................... 9,904
Legal....................................................... 6,740
Other....................................................... 109,277
-----------
Total Expenses.......................................... 1,528,221
-----------
NET INVESTMENT INCOME....................................... $ 6,467,557
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 114,653
Options................................................... 61,690
-----------
Net Realized Gain........................................... 176,343
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 25,521,866
End of the Period:
Investments............................................. 22,486,193
Options................................................. 39,815
-----------
22,526,008
-----------
Net Unrealized Depreciation During the Period............... (2,995,858)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,819,515)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 3,648,042
===========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1999 and the
Year Ended October 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 6,467,557 $ 13,066,075
Net Realized Gain................................. 176,343 334,216
Net Unrealized Appreciation/Depreciation During
the Period...................................... (2,995,858) 6,349,185
------------ ------------
Change in Net Assets from Operations.............. 3,648,042 19,749,476
------------ ------------
Distributions from Net Investment Income:
Common Shares................................... (4,555,543) (9,081,893)
Preferred Shares................................ (1,757,099) (4,055,598)
------------ ------------
Total Distributions............................... (6,312,642) (13,137,491)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (2,664,600) 6,611,985
------------ ------------
NET ASSETS:
Beginning of the Period........................... 291,107,871 284,495,886
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$1,267,315 and $1,112,400, respectively)........ $288,443,271 $291,107,871
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended -------------------
April 30, 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)................................ $ 15.076 $ 14.510 $ 13.877
-------- -------- --------
Net Investment Income....................... .554 1.119 1.130
Net Realized and Unrealized Gain/Loss....... (.242) .572 .601
-------- -------- --------
Total from Investment Operations............ .312 1.691 1.731
-------- -------- --------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders............. .390 .778 .750
Common Share Equivalent of Distributions
Paid to Preferred Shareholders........ .150 .347 .348
Distributions from Net Realized Gain:
Paid to Common Shareholders............. -0- -0- -0-
Common Share Equivalent of Distributions
Paid to Preferred Shareholders........ -0- -0- -0-
-------- -------- --------
Total Distributions......................... .540 1.125 1.098
-------- -------- --------
Net Asset Value, End of the Period.......... $ 14.848 $ 15.076 $ 14.510
======== ======== ========
Market Price Per Share at End of the
Period.................................... $13.5625 $14.0625 $12.6875
Total Investment Return at Market
Price (b)................................. (.86%)* 17.23% 16.02%
Total Return at Net Asset Value (c)......... 1.07%* 9.50% 10.24%
Net Assets at End of the Period (In
millions)................................. $ 288.4 $ 291.1 $ 284.5
Ratio of Expenses to Average Net Assets
Applicable to Common Shares**............. 1.76% 1.79% 1.83%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common
Shares (d)................................ 5.43% 5.20% 5.56%
Portfolio Turnover.......................... 7%* 13% 23%
* Non-Annualized
** Ratio of Expenses to Average Net Assets
Including Preferred Shares............... 1.06% 1.08% 1.08%
</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.
22
<PAGE> 24
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 25, 1993
(Commencement
Year Ended October 31 of Investment
- ------------------------- Operations) to
1996 1995 1994 October 31, 1993
- -------------------------------------------------------
<S> <C> <C> <C> <C>
$ 13.717 $ 12.201 $ 15.584 $14.766
-------- -------- -------- -------
1.140 1.149 1.108 .312
.119 1.548 (3.276) .710
-------- -------- -------- -------
1.259 2.697 (2.168) 1.022
-------- -------- -------- -------
.750 .795 .900 .150
.349 .386 .256 .054
-0- -0- .049 -0-
-0- -0- .010 -0-
-------- -------- -------- -------
1.099 1.181 1.215 .204
-------- -------- -------- -------
$ 13.877 $ 13.717 $ 12.201 $15.584
======== ======== ======== =======
$ 11.625 $ 11.375 $ 10.500 $15.000
8.98% 16.07% (24.59%) 1.01%*
6.82% 19.54% (16.14%) 4.87%*
$ 277.1 $ 275.2 $ 257.5 $ 297.0
1.90% 1.94% 1.82% 1.59%
5.77% 5.88% 6.11% 4.76%
37% 58% 115% 55%*
1.10% 1.10% 1.06% 1.11%
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using 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.
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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
D. 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, 1998, the Trust had an accumulated capital loss
carryforward for tax purposes of $23,007,718 which will expire between October
31, 2002 and October 31, 2005. Net realized gains or losses differ for financial
reporting and tax purposes as a result of gains and losses recognized for tax
purposes on open option positions at October 31, 1998.
At April 30, 1999, for federal income tax purposes, cost of long-term
investments is $268,425,808; the aggregate gross unrealized appreciation is
$22,590,086 and the aggregate gross unrealized depreciation is $103,893,
resulting in net unrealized appreciation on long-term investments of
$22,486,193.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. 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, Van Kampen
Investment Advisory Corp. (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 Van Kampen Funds Inc. or its affiliates (collectively "Van
Kampen"), the Trust's Administrator, at an annual rate of .20% of the average
daily 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.
For the six months ended April 30, 1999, the Trust recognized expenses of
approximately $2,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1999, the Trust recognized expenses of
approximately $43,300 representing Van Kampen's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. 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 per trustee under the plan is $2,500.
At April 30, 1999, Van Kampen 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 $24,459,395 and $20,601,148,
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. 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 specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended April 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1998.................. 100 $ 61,690
Options Written and Purchased (Net).............. 100 49,190
Options Expired (Net)............................ (100) (61,690)
---- --------
Outstanding at April 30, 1999.................... 100 $ 49,190
==== ========
</TABLE>
The related futures contracts of the outstanding option transactions as of
April 30, 1999, and the description and market value is as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Index Futures
Jun 1999--Written Calls
(Current Notional Value of
$123,188 per contract)..... 100 June/128 $(9,375)
=== =======
</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 Trust 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).
There were no transactions in futures contracts during the six months ended
April 30, 1999.
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
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 the
preferred shares.
5. PREFERRED SHARES
Effective with the close of business on April 23, 1999, the liquidation
preference on the Trust's preferred shares decreased from $50,000 to $25,000 per
share. This decrease was effected by means of a 2 for 1 stock split that doubled
the Trust's number of outstanding preferred shares. The total liquidation value
for the Trust was unchanged.
As of April 30, 1999, the Trust has outstanding 4,600 Auction Preferred
Shares ("APS") in three series. Series A and B each contain 1,600 shares while
Series C contains 1,400 shares. Dividends are cumulative and the dividend rates
are currently reset every seven days through an auction process. The average
rate in effect on April 30, 1999 was 3.363%. During the six months ended April
30, 1999, the rates ranged from 2.000% to 4.500%.
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 $25,000 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.
28
<PAGE> 30
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 Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
29
<PAGE> 31
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
30
<PAGE> 32
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
A. THOMAS SMITH, III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
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 LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM)denotes a service mark of
Van Kampen Funds Inc.
31
<PAGE> 33
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
32
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MUNI OPP TRUST II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<INVESTMENTS-AT-COST> 268,425,808
<INVESTMENTS-AT-VALUE> 290,912,001
<RECEIVABLES> 4,514,723
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 370
<TOTAL-ASSETS> 295,427,094
<PAYABLE-FOR-SECURITIES> 6,256,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 726,973
<TOTAL-LIABILITIES> 6,983,823
<SENIOR-EQUITY> 115,000,000
<PAID-IN-CAPITAL-COMMON> 172,503,950
<SHARES-COMMON-STOCK> 11,681,272
<SHARES-COMMON-PRIOR> 11,681,272
<ACCUMULATED-NII-CURRENT> 1,267,315
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22,854,002)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,526,008
<NET-ASSETS> 288,443,271
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,995,778
<OTHER-INCOME> 0
<EXPENSES-NET> (1,528,221)
<NET-INVESTMENT-INCOME> 6,467,557
<REALIZED-GAINS-CURRENT> 176,343
<APPREC-INCREASE-CURRENT> (2,995,858)
<NET-CHANGE-FROM-OPS> 3,648,042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,312,642)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,664,600)
<ACCUMULATED-NII-PRIOR> 1,112,400
<ACCUMULATED-GAINS-PRIOR> (23,030,345)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 934,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,528,221
<AVERAGE-NET-ASSETS> 290,041,177
<PER-SHARE-NAV-BEGIN> 15.076
<PER-SHARE-NII> 0.554
<PER-SHARE-GAIN-APPREC> (0.242)
<PER-SHARE-DIVIDEND> (0.540)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.848
<EXPENSE-RATIO> 1.76
</TABLE>
