<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 8
Statement of Operations ............... 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 12
</TABLE>
Page: 1
Letter to Shareholders
June 16, 1995
Dear Shareholder:
During the six-month period covered by this report, November 1, 1994 through
April 30, 1995, we saw the close of a challenging and difficult year in the
financial markets -- and the beginning of a new year, with renewed optimism and
strength on many fronts.
Market Overview
Most of 1994 was a difficult period for fixed-income investors as the Federal
Reserve Board's crusade against inflation drove interest rates markedly higher.
The yield on 30-year Treasury securities, for example, climbed from 6.35
percent as the year began to a high of 8.16 percent by early November. As
interest rates rose, fixed-income investments declined in value.
The fixed-income markets have rebounded considerably since late 1994, however,
with growing confidence that the Fed's inflation fighting initiatives have taken
hold. The yield on 30-year Treasury securities fell to 7.34 percent by the end
of April 1995 and to approximately 6.50 percent at the time of this writing.
This rate reversal has pushed bond prices back to February 1994 levels.
Closed-end municipal bond funds, in particular, have been among the greatest
beneficiaries in this rally, earning back virtually all of last year's losses
and posting attractive returns.
Performance Summary
The Trust achieved a six-month total return of 16.90 percent <F1>, based on
market price, for the period ended April 30, 1995. This robust performance can
be partially attributed to the Trust's leveraged capital structure, which has
helped it to more fully benefit from a fall in long-term interest rates over
the last six months. While leveraging adds certain financing risks and
volatility, it is designed, over time, to provide shareholders with enhanced
returns by taking advantage of the yield differential between long-term and
short-term interest rates.
Clearly, the Trust recovered from the difficult previous six-month period and
made significant price gains. The Trust's closing stock price, for example,
gained more than 12.5 percent from its $9.875 level on October 31, 1994, to
$11.125 on April 30, 1995. As the graph on the following page shows, we've also
seen the Trust's net asset value rebound during the last six months.
Although intermediate- and long-term interest rates eased during this
reporting period, short-term interest rates have remained persistently high,
placing continued pressure on the Trust's preferred rates and common dividend.
The Trust was able, however, to sustain its annualized dividend level in this
environment at $0.834 per common share, which represents a tax-exempt
distribution rate of 7.50 percent <F3>, based on the closing stock price of
$11.125 per share on April 30, 1995. For shareholders in the 36 percent federal
income tax bracket, this distribution rate represents a yield equivalent to a
taxable investment earning 11.72 percent <F4>.
[PHOTO]
Dennis J. McDonnell and Don G. Powell
(Continued on page two)
Page: 2
Outlook
The outlook for fixed-income securities appears favorable. To date, inflation
remains under control, and recent economic data continues to suggest a slowdown
in the economy. First-quarter gross domestic product, for example, grew at an
annual rate of 2.8 percent, substantially lower than its fourth-quarter rate of
5.1 percent last year. Many analysts now expect GDP to grow at an annual rate
between 1 and 2 percent in the second half of this year. Should this scenario
play out, we suspect that the Fed is more likely to lower than raise short-term
rates, which would be a positive development for all fixed-income investors.
Regarding the municipal market, we remain optimistic about the current supply-
and-demand dynamics. With much of the refinancing by municipal issuers behind
us, we expect new-issue supply to remain low in 1995 and demand for municipals
to be steady, if not strong. A decline in supply combined with steady demand
should lend price stability and price support to this market. We believe the
Trust will continue to provide shareholders with long-term value as we seek to
maintain a high level of current income over time.
[GRAPH]
Trust Rebounds in 1995
<TABLE>
COMPARISON OF NAV AND MARKET PRICE OF THE TRUST
<CAPTION>
Measurement Market
Period NAV Price
<S> <C> <C>
30-Apr-94 $12.89 11.750
31-May-94 $12.94 11.750
30-Jun-94 $12.81 11.750
31-Jul-94 $13.10 11.750
31-Aug-94 $13.01 11.375
30-Sep-94 $12.56 10.625
31-Oct-94 $11.93 9.875
30-Nov-94 $11.33 10.250
31-Dec-94 $11.87 10.000
31-Jan-95 $12.43 11.000
28-Feb-95 $13.10 11.625
31-Mar-95 $13.13 11.500
30-Apr-95 $12.95 11.125
</TABLE>
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that reflects our new identity as Van Kampen American
Capital. Going forward, we will continue to look for new ways to improve upon
the presentation of information in your Trust's report. In addition, we have
developed a new corporate advertising campaign introducing Van Kampen American
Capital. Full page ads appeared in The Wall Street Journal in the first quarter
of 1995 -- watch for more advertising throughout the year.
We look forward to communicating with you on a regular basis, providing
information about your Trust's performance, new investment opportunities, and
our newly created company. We appreciate your continued confidence in your
investment with Van Kampen American Capital.
Sincerely,
Don G. Powell
Chief Executive Officer
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Page: 3
<TABLE>
Performance Results for the Period Ended April 30, 1995
<CAPTION>
Van Kampen Merritt Advantage Municipal Income Trust II
(AMEX Ticker Symbol VKI)
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 16.90%
Six-month total return based on NAV<F2> ........................................... 12.24%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 5.56%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 8.69%
Distribution rate as a % of 04/30/95 closing stock price<F3> ...................... 7.50%
Taxable-equivalent distribution rate as a % of 04/30/95 closing stock price<F4> ... 11.72%
Share Valuations
Net asset value as of 04/30/95 .................................................... $ 12.95
Preferred share (Series A) rate as of 04/30/95<F5> ................................ 4.40%
Preferred share (Series B) rate as of 04/30/95<F5> ................................ 4.15%
Closing common stock price as of 04/30/95 ........................................ $ 11.125
Six-month high common stock price (04/06/95) ..................................... $ 11.875
Six-month low common stock price (11/15/94) ...................................... $ 9.250
<FN>
<F1> 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 stock price at the
end of the period indicated.
<F2> 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 net asset value.
<F3> Distribution rate represents the monthly annualized distributions of the
Trust at the end of April 1995, and not the earnings of the Trust.
<F4> The taxable-equivalent distribution rate is calculated assuming a 36%
federal tax bracket.
<F5> 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.
</TABLE>
Page: 4
<TABLE>
Portfolio of Investments
<CAPTION>
April 30,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alaska 1.3%
$ 3,000 Alaska St Hsg Fin Corp Ser A Rfdg ..................... 5.000% 12/01/18 $ 2,482,530
------------
Arizona 1.2%
2,000 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd) ........... 7.250 07/15/10 2,192,940
------------
California 5.4%
2,000 California Hlth Fac Fin Auth Rev Hosp
Downey Cmnty Hosp ...................................... 5.625 05/15/08 1,892,920
3,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev
Prop C Second Sr Ser A (MBIA Insd) .................... 6.250 07/01/13 3,041,430
2,160 Los Angeles, CA Cmnty Redev Agy Cmnty Redev
Fin Auth Rev Grand Cent Sq Multi-Family Ser A ......... 5.750 12/01/13 1,969,142
900 Los Angeles, CA Cmnty Redev Agy Cmnty Redev
Fin Auth Rev Grand Cent Sq Ser A <F2> ................. 5.900 12/01/26 830,124
500 Montebello, CA Unified Sch Dist Ctfs
Partn Cap Impts Proj ................................... 5.900 06/01/04 472,080
1,000 Montebello, CA Unified Sch Dist Ctfs
Partn Cap Impts Proj ................................... 6.300 06/01/11 945,860
1,000 San Diego, CA Swr Rev Ser A (AMBAC Insd) ............... 5.000 05/15/13 873,670
------------
10,025,226
------------
Colorado 4.2%
995 Colorado Hsg Fin Auth Access Pgm Single
Family Pgm Ser E ....................................... 8.125 12/01/24 1,100,062
5,000 Colorado Hsg Fin Auth Single Family Pgm Sr Ser A ...... 8.000 06/01/25 5,540,150
1,100 Denver, CO City & Cnty Arpt Rev Ser A ................. 8.500 11/15/23 1,189,210
------------
7,829,422
------------
District of Columbia 1.9%
4,000 District of Columbia Hosp Rev Medlantic
Hlthcare Ser A Rfdg (MBIA Insd) ........................ 5.250 08/15/12 3,522,560
------------
Florida 1.2%
2,000 Florida St Brd Edl Cap Outlay Pub Ed Ser A ............. 6.750 06/01/12 2,148,600
------------
Georgia 2.0%
3,500 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA Collateralized) ....... 6.625 01/01/25 3,729,810
------------
Illinois 9.2%
5,000 Chicago, IL O'Hare Intl Arpt Rev Sr Lien Ser A Rfdg ... 5.000 01/01/12 4,405,100
1,000 Illinois Hlth Fac Auth Rev Morris Hosp ................ 6.125 12/01/23 866,060
7,375 Illinois Hlth Fac Auth Rev Swedish American
Hosp Rfdg (AMBAC Insd) ................................. 5.375 11/15/13 6,641,999
5,000 Illinois Hsg Dev Auth Rev Homeowner
Mtg Subser A2 .......................................... 7.125 08/01/26 5,190,900
------------
17,104,059
------------
</TABLE>
See Notes to Financial Statements
Page: 5
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Iowa 1.5%
$ 3,000 Iowa Fin Auth Hosp Fac Rev Allen Mem Hosp
Ser B Rfdg (AMBAC Insd) ............................. 5.875% 02/15/13 $ 2,753,310
------------
Kentucky 1.5%
3,000 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd) ....................... 5.300 05/15/19 2,723,730
------------
Louisiana 2.5%
3,000 Louisiana Pub Fac Auth Hosp Rev Touro
Infirmary Proj Ser A Rfdg .......................... 6.000 08/15/09 2,728,770
1,750 Saint Charles Parish, LA Pollutn Ctl Rev
LA Pwr & Lt Co Proj (FSA Insd) <F3> ................. 7.500 06/01/21 1,904,700
------------
4,633,470
------------
Maryland 3.5%
3,000 Maryland St Cmnty Dev Admin Dept Hsg &
Cmnty Dev Single Family Pgm ........................ 6.800 04/01/24 3,040,770
4,000 Maryland St Hlth & Higher Edl Fac Auth Rev
Subn Hosp Rfdg (AMBAC Insd) ......................... 5.000 07/01/13 3,532,360
------------
6,573,130
------------
Massachusetts 7.7%
1,200 Massachusetts Bay Tran Auth MA Genl Tran
Sys Ser A Rfdg ...................................... 6.250 03/01/12 1,225,008
2,000 Massachusetts Muni Whsl Elec Co Pwr Supply
Sys Rev Ser A Rfdg (AMBAC Insd) .................... 6.000 07/01/18 1,967,840
2,665 Massachusetts Muni Whsl Elec Co Pwr Supply
Sys Rev Ser B Rfdg (MBIA Insd) ..................... 5.000 07/01/12 2,365,800
2,550 Massachusetts St Hlth & Edl Fac Auth Rev
Saint Mem Med Cent Ser A ............................ 6.000 10/01/23 1,754,094
2,150 Massachusetts St Hsg Fin Agy Hsg Rev
Insd Rental Ser A Rfdg (AMBAC Insd) ................ 6.650 07/01/19 2,195,623
2,485 Massachusetts St Hsg Fin Agy Residential
Dev Ser F (FNMA Collateralized) ..................... 6.250 11/15/12 2,497,301
2,150 Massachusetts St Ser D ............................. 7.000 07/01/07 2,319,248
------------
14,324,914
------------
Michigan 3.4%
2,500 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC Insd) ..... 6.250 07/01/12 2,532,775
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (AMBAC Insd) ... 5.200 10/01/09 3,734,040
------------
6,266,815
------------
New Mexico 0.9%
1,590 New Mexico Mtg Fin Auth Single Family
Mtg Pgm Ser H (GNMA Collateralized) ................ 6.600 07/01/15 1,606,123
------------
New York 22.4%
4,500 New York City Ser A Rfdg ........................... 6.250 08/01/09 4,375,530
5,000 New York City Ser H ................................. 7.200 02/01/13 5,169,550
6,250 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd) ........ 6.750 01/15/27 6,415,125
</TABLE>
See Notes to Financial Statements
Page: 6
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 2,500 New York St Environmental Fac Corp
Pollutn Ctl Rev St Wtr Revolving Fd Ser E ........ 6.500% 06/15/14 $ 2,611,950
1,865 New York St Med Care Fac Fin Agy Rev
Long Term Hlthcare Ser C (Cap Guar Insd) ......... 6.400 11/01/14 1,902,020
3,000 New York St Med Care Fac Fin Agy Rev NY
Hosp FHA Insd Mtg Ser A (AMBAC Insd) ............. 6.200 08/15/05 3,192,240
3,000 New York St Med Care Fac Fin Agy Rev NY
Hosp FHA Insd Mtg Ser A (AMBAC Insd) ............. 6.800 08/15/24 3,205,710
3,430 New York St Mtg Agy Rev Homeowner
Mtg Ser 37A (MBIA Insd) .......................... 6.375 10/01/14 3,485,635
1,450 New York St Pwr Auth Rev & Genl
Purp Ser CC Rfdg (AMBAC Insd) .................... 5.125 01/01/10 1,341,888
1,000 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg (MBIA Insd) .................... 5.125 04/01/07 949,850
3,740 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg ................................ 5.125 04/01/08 3,330,807
2,500 Port Auth NY & NJ Cons 67th Ser ................... 6.875 01/01/25 2,619,175
3,505 Port Auth NY & NJ Cons 92nd Ser .................. 5.000 07/15/15 3,074,971
------------
41,674,451
------------
Oklahoma 3.3%
3,500 Shawnee, OK Hosp Auth Hosp Rev
Midamerica Hlthcare Inc Rfdg ...................... 6.125 10/01/14 3,122,805
2,780 Tulsa, OK Arpts Impt Trust Genl Rev (MBIA Insd) ... 7.700 06/01/13 2,982,301
------------
6,105,106
------------
Pennsylvania 2.4%
3,200 Philadelphia, PA Wtr & Wastewtr Rev
Rfdg (Cap Guar Insd) ............................... 5.000 06/15/16 2,784,800
1,700 Sharon, PA Regl Hlth Sys Auth Hosp Rev
Sharon Regl Hlth Sys Proj A Rfdg .................. 6.875 12/01/09 1,727,863
------------
4,512,663
------------
Rhode Island 2.3%
4,000 Rhode Island Hsg & Mtg Fin Corp Amt
Homeownership Oppty Ser E1 (FHA Insd) ............ 7.500 10/01/11 4,240,640
------------
South Dakota 2.3%
4,000 South Dakota Student Ln Assistance Corp
Student Ln Rev Ser B (MBIA Insd) .................. 7.625 08/01/06 4,330,960
------------
Texas 14.1%
6,000 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj .................................... 7.500 12/01/29 6,129,540
2,220 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj Rfdg (MBIA Insd) ........ 6.625 02/15/12 2,337,993
3,065 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj Rfdg (MBIA Insd) ........ 6.625 02/15/13 3,209,913
</TABLE>
See Notes to Financial Statements
Page: 7
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (Continued)
$ 2,070 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj Rfdg (MBIA Insd) ......... 6.500% 08/15/15 $ 2,132,369
1,500 Brazoria Cnty, TX Hlth Fac Dev Corp Hosp Rev
Brazosport Mem Hosp Rfdg (FSA Insd) ............... 5.500 07/01/13 1,403,370
2,200 Brazos River Auth TX Pollutn Ctl Rev
Coll TX Utils Elec Co Proj Ser A .................. 8.250 01/01/19 2,390,124
1,705 Brownsville, TX Util Sys Rev ....................... 7.375 01/01/10 1,965,882
2,000 Coppell, TX Indpt Sch Dist Cap Appreciation Rfdg ... 6.500 08/15/26 2,062,080
3,480 Houston, TX Arpt Sys Rev ........................... 9.500 07/01/10 4,639,745
--------------
26,271,016
--------------
Virginia 1.7%
3,000 Fairfax Cnty, VA Econ Dev Auth Res Recovery
Rev Ogden Martin Sys Proj Ser A ................... 7.750 02/01/11 3,248,070
--------------
Wisconsin 1.1%
2,250 Wisconsin St Hlth & Edl Fac Auth Rev Howard
Young Med Cent Inc Proj ........................... 5.750 08/15/13 2,046,060
--------------
Wyoming 0.9%
1,500 Laramie Cnty, WY Hosp Rev Mem Hosp Proj
(AMBAC Insd) ...................................... 6.700 05/01/12 1,595,340
--------------
Total Long-Term Investments 97.9%
(Cost $180,677,117) <F1> ......................................................... 181,940,945
Short-Term Investments at Amortized Cost 0.1% .................................. 100,000
Other Assets in Excess of Liabilities 2.0% ...................................... 3,764,643
--------------
Net Assets 100% ................................................................. $ 185,805,588
--------------
<FN>
<F1> At April 30, 1995, cost for federal income tax purposes is $180,677,117;
the aggregate gross unrealized appreciation is $5,770,961 and the aggregate
gross unrealized depreciation is $6,387,693, resulting in net unrealized
depreciation including futures transactions of $616,732.
<F2> Assets segregated as collateral for open futures transactions.
</TABLE>
The following table summarizes the portfolio composition at April 30, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
<TABLE>
Portfolio Composition by Credit Quality
<CAPTION>
<S> <C>
AAA ... 52.2%
AA .... 14.8
A ..... 19.4
BBB ... 8.6
BB .... 4.0
B ..... 1.0
-------
100.0%
-------
</TABLE>
See Notes to Financial Statements
Page: 8
Statement of Assets and Liabilities
<TABLE>
April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $180,677,117) (Note 1) .................................... $ 181,940,945
Short-Term Investments (Note 1) .............................................................. 100,000
Cash ........................................................................................ 28,637
Receivables:
Interest ..................................................................................... 3,649,159
Investments Sold ............................................................................. 2,525,233
Unamortized Organizational Expenses (Note 1) ................................................ 24,091
---------------
Total Assets ................................................................................. 188,268,065
---------------
Liabilities:
Payables:
Investments Purchased ........................................................................ 2,101,441
Income Distributions - Common and Preferred Shares .......................................... 104,047
Investment Advisory Fee (Note 2) ............................................................. 100,435
Administrative Fee (Note 2) ................................................................. 30,903
Margin on Futures (Note 4) .................................................................. 21,875
Accrued Expenses ............................................................................. 103,776
---------------
Total Liabilities ............................................................................ 2,462,477
---------------
Net Assets ................................................................................... $ 185,805,588
---------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,600 issued with liquidation
preference of $50,000 per share) (Note 5) .................................................... $ 80,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
8,168,211 shares issued and outstanding) .................................................... 81,682
Paid in Surplus ............................................................................. 120,809,877
Accumulated Undistributed Net Investment Income ............................................. 700,635
Net Unrealized Depreciation on Investments .................................................. (616,732)
Accumulated Net Realized Loss on Investments ................................................. (15,169,874)
---------------
Net Assets Applicable to Common Shares ....................................................... 105,805,588
---------------
Net Assets ................................................................................... $ 185,805,588
---------------
Net Asset Value Per Common Share ($105,805,588 divided
by 8,168,211 shares outstanding) ............................................................. $ 12.95
---------------
</TABLE>
See Notes to Financial Statements
Page: 9
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended April 30,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest ...................................................................................... $ 5,764,461
----------------
Expenses:
Investment Advisory Fee (Note 2) ............................................................. 582,340
Administrative Fee (Note 2) ................................................................... 179,181
Preferred Share Maintenance (Note 5) .......................................................... 122,642
Trustees Fees and Expenses (Note 2) ........................................................... 11,765
Legal (Note 2) ............................................................................... 9,050
Amortization of Organizational Expenses (Note 1) ............................................. 3,966
Other ......................................................................................... 89,104
----------------
Total Expenses ................................................................................ 998,048
----------------
Net Investment Income ......................................................................... $ 4,766,413
----------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ........................................................................... $ 104,861,535
Cost of Securities Sold ....................................................................... (108,358,767)
----------------
Net Realized Loss on Investments (Including realized gain on closed and expired option
transactions of $15,142 and realized loss on futures transactions of $954,600) ............... (3,497,232)
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ...................................................................... (12,715,565)
End of the Period (Including unrealized depreciation on futures transactions of $1,880,560) ... (616,732)
----------------
Net Unrealized Appreciation on Investments During the Period .................................. 12,098,833
----------------
Net Realized and Unrealized Gain on Investments ............................................... $ 8,601,601
----------------
Net Increase in Net Assets from Operations .................................................... $ 13,368,014
----------------
</TABLE>
See Notes to Financial Statements
Page: 10
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six Months Ended April 30,1995 and the Year Ended October 31,1994
(Unaudited)
- -----------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
April 30,199 October 31,1994
---------------- ---------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 4,766,413 $ 9,148,644
Net Realized Loss on Investments .................................. (3,497,232) (11,658,847)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 12,098,833 (13,432,774)
---------------- ---------------
Change in Net Assets from Operations ............................. 13,368,014 (15,942,977)
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (3,406,118) (6,812,277)
Preferred Shares ................................................. (1,583,784) (2,107,949)
---------------- ---------------
Total Distributions .............................................. (4,989,902) (8,920,226)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... 8,378,112 (24,863,203)
---------------- ---------------
From Capital Transactions (Note 5):
Proceeds from Preferred Shares Sold ............................... -0- 78,700,899
---------------- ---------------
Total Increase in Net Assets ..................................... 8,378,112 53,837,696
Net Assets:
Beginning of the Period .......................................... 177,427,476 123,589,780
---------------- ---------------
End of the Period (Including undistributed net investment income of
$700,635 and $924,124, respectively) ............................. $ 185,805,588 $ 177,427,476
---------------- ---------------
</TABLE>
See Notes to Financial Statements
Page: 11
Financial Highlights
<TABLE>
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated. (Unaudited)
- ---------------------------------------------------------------------------------------------------
<CAPTION>
August 27,1993
Six Months Year (Commencement
Ended Ended of Investment
April 30, October 31, Operations) to
1995 1994 October 31,1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period <F1> ............... $ 11.928 $ 14.972 $ 14.921
---------- ------------ ---------------
Net Investment Income .................................. .584 1.120 .085
Net Realized and Unrealized Gain/Loss
on Investments ........................................ 1.052 (3.072) .125
---------- ------------ ---------------
Total from Investment Operations ........................ 1.636 (1.952) .210
---------- ------------ ---------------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders ............................. .417 .834 .000
Common Share Equivalent of Distributions Paid
to Preferred Shareholders ............................... .194 .258 .000
---------- ------------ ---------------
Total Distributions ..................................... .611 1.092 .000
---------- ------------ ---------------
Net Asset Value, End of Period ......................... $ 12.953 $ 11.928 $ 15.131
---------- ------------ ---------------
Market Price Per Share at End of Period ................. $ 11.125 $ 9.875 $ 14.625
Total Investment Return at
Market Price (Non-Annualized) <F2> ..................... 16.90% (27.65%) (2.50%)
Total Return at Net Asset Value
(Non-Annualized) <F3> ................................... 12.24% (16.10%) .87%
Net Assets at End of Period (In millions) .............. $ 185.8 $ 177.4 $ 123.6
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (Annualized) .............................. 1.97% 1.82% 1.30%
Ratio of Expenses to Average Net Assets (Annualized) ... 1.10% 1.09% 1.30%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (Annualized) <F4> ........... 6.29% 6.34% 3.40%
Portfolio Turnover ...................................... 61.12% 213.93% 24.25%
<FN>
<F1> Net asset value at August 27, 1993 of $15.000 is adjusted for common share
offering costs of $.079 per common share. Net asset value at October 31, 1993
of $15.131 is adjusted for preferred share offering costs of $.159 per common
share.
<F2> Total investment return at market value of the common shares for the period
indicated with reinvestment of dividends in accordance with the Trust's dividend
reinvestment plan.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
</TABLE>
See Notes to Financial Statements
Page: 12
Notes to Financial Statements
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Advantage Municipal Income 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 commenced investment
operations on August 27, 1993.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
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 less than 60 days 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, 1995, 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.
D. Organizational Expenses-The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates ("VKAC") for costs incurred in connection
with the Trust's organization and initial registration in the amount of $40,000.
These costs are being amortized on a straight line basis over the 60 month
period ending August 26, 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 expenses
in the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
Page: 13
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
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, 1994 the Trust had an accumulated capital loss
carryforward for tax purposes of $11,672,642, of which $13,795 and $11,658,847
will expire on October 31, 2001 and 2002, respectively.
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.
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.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the six months ended April 30, 1995, the Trust recognized expenses of
approximately $7,800 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 has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC. The Trust's liability under the
deferred compensation and retirement plans at April 30, 1995, was $13,100.
At April 30, 1995, VKAC owned 6,700 common shares of the Trust.
Page: 14
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1995 were $108,583,452 and
$108,358,767, 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 investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option 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.
Transactions in options for the six months ended April 30, 1995, were as
follows:
<TABLE>
<CAPTION>
Contracts Premium
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1994 .................... -0- $ -0-
Options Written and Purchased (Net) ................ 1,400 (894,118)
Options Terminated in Closing Transactions (Net) ... (600) 439,221
Options Expired .................................... (800) 454,897
--------- ------------
Outstanding at April 30, 1995 ...................... -0- $ -0-
--------- ------------
</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.
Page: 15
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts for the six months ended April 30, 1995,
were as follows:
<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at October 31, 1994 ... 3,139
Futures Opened .................... 4,948
Futures Closed .................... (6,128)
--------
Outstanding at April 30, 1995 ..... 1,959
--------
</TABLE>
The futures contracts outstanding at April 30, 1995, and the descriptions and
unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- ---------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
June 1995-Buys to Open ........... 400 $ 1,012,397
June 1995-Sells to Open .......... 859 (2,760,746)
Sept. 1995-Buys to Open ........... 300 213,204
Sept. 1995-Sells to Open .......... 250 (247,330)
Ten-year U.S. Treasury Note Futures
June 1995-Sells to Open .......... 50 (34,778)
Municipal Bond Index Futures
June 1995-Buys to Open ........... 100 (63,307)
--------- ---------------
1,959 $ (1,880,560)
--------- ---------------
</TABLE>
5. Preferred Shares
The Trust has outstanding 1,600 Auction Preferred Shares ("APS") in two series
of 800 shares each. Dividends are cumulative and the dividend rate is currently
reset every seven days for both series through an auction process. The average
rate in effect on April 30, 1995 was 4.275%. During the six months ended April
30, 1995, the rates ranged from 3.26% to 6.10%.
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.
Page: 16
Funds Distributed by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
-- High Yield Municipal Portfolio
-- Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
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 direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
Page: 17
Van Kampen Merritt Advantage Municipal Income Trust II
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
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
333 West Wacker Drive Chicago, Illinois 60606
Independent Auditors
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., 1995 All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
