<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 13
</TABLE>
VKI SAR 6/96
<PAGE> 2
LETTER TO SHAREHOLDERS
May 15, 1996
Dear Shareholder,
While interest rates drifted
downward during the fourth quarter of
last year, such was not the case in the
first quarter of 1996. Early in the
quarter, municipal bond prices [Dennis J. McDonnell and
demonstrated increased volatility in Don G. Powell Photo]
conjunction with February's economic
announcements, which revealed a revival
in economic growth, impressive
employment levels, and moderate
inflation. This positive economic
environment, however, did not translate
into positive movement for the bond
markets. Instead, the markets became wary, because inflation often accompanies
economic growth.
Other factors influencing the municipal bond market early in the year
included:
- Intense weather conditions, which hindered distribution and manufacturing,
were experienced by much of the United States and affected certain
municipal bond sectors.
- The expectation that a federal budget agreement was forthcoming helped
bolster municipal bonds, especially at the longer end of the spectrum.
- The proposal of tax reform--and the threat of municipal bonds having
diminished tax-exempt status--continued to dampen demand for municipals,
resulting in lower bond prices.
We believe the beginning of 1996 reflected the market's reaction to the
possibility of a return to long-term economic growth. This, coupled with
continued low inflationary conditions, has served to put the Federal Reserve
Board in a neutral policy mode, bringing relative calm to the market--although
currently at higher interest rate levels.
PERFORMANCE SUMMARY
The Van Kampen American Capital Advantage Municipal Income Trust II (ticker
symbol VKI) finished the period with a closing common stock price of $10.875,
representing a decline of 5 percent over the past six months. However, this dip
in market price was consistent with the general decline of the municipal bond
market, which was down 4 percent for the same period, according to the Bond
Buyer's 40 Municipal Bond Index.
For the six months ended April 30, 1996, the Trust posted a total return of
- -2.24 percent(1), based on market price. Longer term, the Trust's one-year total
return was 4.72 percent(1), based on market price for the period ended April 30,
1996, including reinvestment of dividends.
Continued on page two
1
<PAGE> 3
The Trust sustained two reductions in its monthly dividend over the past six
months. The first adjustment from $0.0695 to $0.0650 per common share was
effective December 1, 1995 and first payable December 31, 1995. The second
adjustment from $0.0650 to $0.0620 per common share was effective March 1, 1996
and first payable March 31, 1996. Although short-term municipal rates have
recently notched lower, due to a series of Fed easings beginning in 1995,
short-term rates in general are significantly higher than two years ago. This
short-term rate pressure, combined with efforts to manage the Trust's callable
bonds, has impacted the Trust's earning potential and necessitated the two
dividend adjustments.
Despite the decline in income, many closed-end municipal bond funds are
currently offering higher after-tax yields than taxable income alternatives, and
your Trust is no exception. Based on the closing common stock price on April 30,
1996, the Advantage Municipal Income Trust II had a tax-exempt distribution rate
of 6.84 percent(3). In other words, investors in the 36 percent federal income
tax bracket would have to earn a yield of 10.69 percent(4) on a taxable
investment to equal your Trust's tax-exempt distribution rate.
MARKET OUTLOOK
The economy rebounded in the first quarter of 1996, despite poor weather in
the East and the remnants of a slow fourth quarter of 1995, which was hindered
by weak construction activity, two government shutdowns, and a strike at Boeing.
We believe the momentum of the first quarter can carry into the second, due in
part to renewed auto production in the aftermath of the General Motors strike
and an end to the budget stalemate between the White House and Congress. We
expect a modest slowdown in the summer months, as higher interest rates could
slow activity in interest-sensitive sectors of the economy, such as housing.
Top 5 Portfolio Holdings by Industry as of April 30, 1996
Health Care....................... 28.9%
Single-Family Housing............. 16.3%
Transportation.................... 10.4%
General Purpose.................... 8.9%
Airport............................ 7.2%
The Fed's protracted period of easing, and relatively neutral stance, favors
the growth we are currently experiencing. Given the strong employment situation
and commodity price increases, we think the Fed will await further economic
evidence before adjusting interest rates again--probably summertime at the
earliest. So far, guides such as the Consumer Price Index continue to indicate
modest levels of inflation. More importantly, we continue to see few signs of
emerging inflation in either unit labor costs, hourly earnings or the employment
cost index.
- --------------------------------------------------------------------------------
INVESTMENT TERM: REVENUE BONDS
Revenue bonds are one of the three most common types of municipal bonds--the
other two are general obligation bonds and municipal notes. Revenue bonds
are issued to finance income-generating projects such as turnpikes, toll
bridges and airports. The revenues these projects bring in are used to pay
interest and principal to bondholders.
- --------------------------------------------------------------------------------
Continued on page three
2
<PAGE> 4
Finally, as the November elections approach, the debate on tax reform may
grow. We believe the outcome in the long run will be positive, or at worst
neutral, for municipal bonds. That's good news for the market, which was
concerned that flat tax proposals could threaten the tax-exempt status of
municipal bonds. While the debate may not be over and legislation may be
forthcoming, the market should be more confident.
Indeed, we expect investor demand for municipal securities to exceed supply,
which should add price stability to the general market. And with municipal bond
yields currently at attractive levels relative to Treasuries, investor demand
for tax-exempt securities should increase.
In summary, our view of the general municipal market is positive. From the
decreasing likelihood of tax reform in the near term to specific market
conditions, we believe the market is on solid ground. With our dedication to
comprehensive research and long-term investment perspective, we believe your
Trust is in a position to benefit in the coming months.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1996
<TABLE>
<S> <C>
AAA................ 57.5%
AA................. 13.4%
A.................. 11.8%
BBB................ 16.2%
B.................. 1.1%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
Sincerely,
[SIG] [SIG]
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1996
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL
INCOME TRUST II
(AMEX TICKER SYMBOL--VKI)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)........... (2.24%)
Six-month total return based on NAV(2).................... .04%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 6.84%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 10.69%
SHARE VALUATIONS
Net asset value........................................... $ 12.94
Closing common stock price................................ $10.875
Six-month high common stock price (03/06/96).............. $12.125
Six-month low common stock price (04/08/96)............... $10.750
Preferred share (Series A) rate(5)........................ 3.900%
Preferred share (Series B) rate(5)........................ 3.500%
</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.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALASKA 1.4%
$3,000 Alaska St Hsg Fin Corp Ser A Rfdg............... 5.000% 12/01/18 $ 2,594,790
------------
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 2,193,060
------------
CALIFORNIA 7.2%
3,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev
Prop C 2nd Sr Ser A (MBIA Insd)................. 6.250 07/01/13 3,103,320
900 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin
Auth Rev Grand Cent Sq Ser A.................... 5.900 12/01/26 822,510
1,000 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj...................................... 6.300 06/01/11 1,002,330
4,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)........................................... 6.000 06/01/08 4,163,880
5,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj (MBIA Insd)................................ 5.000 08/01/28 4,286,850
------------
13,378,890
------------
COLORADO 5.0%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B................................ 7.000 08/31/26 1,045,740
5,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................ * 08/31/26 539,400
4,890 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A............................................... 8.000 06/01/25 5,473,622
880 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
E............................................... 8.125 12/01/24 977,134
1,100 Denver, CO City & Cnty Arpt Rev Ser A........... 8.500 11/15/23 1,268,113
------------
9,304,009
------------
FLORIDA 1.6%
2,000 Dade Cnty, FL Professional Sports Franchise Fac
Tax Rev (MBIA Insd)............................. * 10/01/28 290,180
3,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist
Hlth Sys (AMBAC Insd)........................... 5.250 11/15/20 2,725,290
------------
3,015,470
------------
GEORGIA 2.0%
3,475 De Kalb Cnty, GA Hsg Auth Multi Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA
Collateralized)................................. 6.625 01/01/05 3,793,936
------------
ILLINOIS 10.0%
2,090 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent
Rfdg............................................ 5.500 09/01/06 1,980,902
5,000 Chicago, IL O'Hare Intl Arpt Rev Sr Lien Ser A
Rfdg............................................ 5.000 01/01/12 4,541,150
7,375 Illinois Hlth Fac Auth Rev Swedish American Hosp
Rfdg (AMBAC Insd)............................... 5.375 11/15/13 6,939,801
4,980 Illinois Hsg Dev Auth Rev Homeowner Mtg Subser
A2.............................................. 7.125 08/01/26 5,193,941
------------
18,655,794
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
IOWA 2.2%
$3,000 Iowa Fin Auth Hosp Fac Rev Allen Mem Hosp Ser B
Rfdg............................................ 5.875% 02/15/13 $ 2,900,340
1,300 Ottumwa, IA Hosp Fac Rev Ottumwa Regl Hlth Rfdg
& Impt.......................................... 6.000 10/01/18 1,184,599
------------
4,084,939
------------
KENTUCKY 1.5%
3,000 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd)................... 5.300 05/15/19 2,751,780
------------
LOUISIANA 1.8%
1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen
Retirement Ser A................................ 6.700 12/01/25 1,343,006
1,750 Saint Charles Parish, LA Pollutn Ctl Rev LA Pwr
& Lt Co Proj (FSA Insd)......................... 7.500 06/01/21 1,927,030
------------
3,270,036
------------
MARYLAND 3.6%
2,995 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Single Family Pgm............................... 6.800 04/01/24 3,058,943
4,000 Maryland St Hlth & Higher Edl Fac Auth Rev Subn
Hosp Rfdg (AMBAC Insd).......................... 5.000 07/01/13 3,624,360
------------
6,683,303
------------
MASSACHUSETTS 6.4%
1,200 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
A Rfdg.......................................... 6.250 03/01/12 1,266,192
2,665 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser B Rfdg (MBIA Insd)...................... 5.000 07/01/12 2,457,503
2,150 Massachusetts St Cons Ln Ser D.................. 7.000 07/01/07 2,361,882
1,500 Massachusetts St Hlth & Edl Fac Auth Rev (MBIA
Insd)........................................... 6.750 07/01/24 1,592,835
2,550 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A.............................. 6.000 10/01/23 2,070,014
2,150 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A (AMBAC Insd)(b)........................... 6.650 07/01/19 2,208,889
------------
11,957,315
------------
MICHIGAN 2.4%
2,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Proj Ser C1....................... 6.250 07/01/25 1,948,780
2,500 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC
Insd)........................................... 6.250 07/01/12 2,596,000
------------
4,544,780
------------
MISSISSIPPI 1.8%
3,000 Mississippi Home Corp Single Family Rev Mtg Ser
C............................................... * 06/01/29 3,266,640
------------
MISSOURI 1.0%
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd).......... 5.000 06/01/22 1,762,960
------------
NEW MEXICO 0.9%
1,590 New Mexico Mtg Fin Auth Single Family Mtg Pgm
Ser H (GNMA Collateralized)..................... 6.600 07/01/15 1,619,606
------------
NEW YORK 21.9%
4,500 New York City Ser A Rfdg........................ 6.250 08/01/09 4,457,565
5,000 New York City Ser H............................. 7.200 02/01/13 5,279,800
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$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 $ 6,537,312
2,000 New York St Energy Resh & Dev Auth Fac Rev (MBIA
Insd)........................................... 6.375 12/01/27 2,031,060
1,865 New York St Med Care Fac Fin Agy Rev Long Term
Hlthcare Ser C (FSA Insd)....................... 6.400 11/01/14 1,928,000
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.200 08/15/05 3,247,290
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.800 08/15/24 3,221,610
2,175 New York St Med Care Fac Fin Agy Rev Ser A...... 6.800 02/15/20 2,236,661
3,430 New York St Mtg Agy Rev Homeowner Mtg Ser 37A
(MBIA Insd)..................................... 6.375 10/01/14 3,523,502
1,450 New York St Pwr Auth Rev & Genl Purp Ser CC Rfdg
(AMBAC Insd).................................... 5.125 01/01/10 1,376,209
1,000 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg (MBIA Insd).......................... 5.125 04/01/07 985,180
2,500 Port Auth NY & NJ Cons 67th Ser A............... 6.875 01/01/25 2,654,000
3,505 Port Auth NY & NJ Cons 92nd Ser A............... 5.000 07/15/15 3,139,464
------------
40,617,653
------------
NORTH CAROLINA 1.0%
2,000 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth
Rev Solid Waste Weyerhaeuser Co................. 5.650 12/01/23 1,842,540
------------
OHIO 0.4%
700 Muskingum Cnty, OH Hosp Fac Rev Franciscan
Sisters Rfdg (Connie Lee Insd).................. 5.375 02/15/12 664,580
------------
OKLAHOMA 3.3%
3,500 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg............................... 6.125 10/01/14 3,285,100
2,780 Tulsa, OK Arpts Impt Trust Genl Rev (MBIA
Insd)........................................... 7.700 06/01/13 2,931,232
------------
6,216,332
------------
OREGON 2.5%
3,000 Oregon Hlth Sciences Univ Rev Ser B (MBIA
Insd)........................................... 5.250 07/01/28 2,742,210
2,000 Oregon St Econ Dev Rev Var Georgia Pacific
Corp............................................ 6.350 08/01/25 1,956,340
------------
4,698,550
------------
PENNSYLVANIA 2.5%
3,200 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (Cap
Guar Insd)...................................... 5.000 06/15/16 2,844,128
1,700 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg....................... 6.875 12/01/09 1,760,520
------------
4,604,648
------------
RHODE ISLAND 2.2%
3,960 Rhode Island Hsg & Mtg Fin Corp Amt
Homeownership Oppty Ser E1 (FHA Gtd)............ 7.500 10/01/11 4,133,448
------------
TEXAS 8.9%
2,220 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)........... 6.625 02/15/12 2,366,409
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$3,065 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)........... 6.625% 02/15/13 $ 3,254,907
2,070 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)........... 6.500 08/15/15 2,154,021
2,200 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Utils Elec Co Proj Ser A........................ 8.250 01/01/19 2,377,716
1,705 Brownsville, TX Util Sys Rev.................... 7.375 01/01/10 1,899,370
3,480 Houston, TX Arpt Sys Rev........................ 9.500 07/01/10 4,542,166
-----------
16,594,589
-----------
VIRGINIA 1.8%
3,000 Fairfax Cnty, VA Econ Dev Auth Res Recovery Rev
Ogden Martin Sys Proj Ser A..................... 7.750 02/01/11 3,248,850
-----------
WYOMING 0.9%
1,500 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd)........................................... 6.700 05/01/12 1,589,100
-----------
PUERTO RICO 3.4%
6,000 Puerto Rico Comwlth Hwy & Tran Ser Y (Embedded
Cap) (FSA Insd)................................. 5.730 07/01/21 6,343,560
-----------
TOTAL LONG-TERM INVESTMENTS 98.8%
(Cost $178,372,950) (a)................................................... 183,431,158
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%................................. 2,263,349
-----------
NET ASSETS 100%............................................................ $185,694,507
============
*Zero coupon bond
</TABLE>
(a) At April 30, 1996, cost for federal income tax purposes is $178,372,950; the
aggregate gross unrealized appreciation is $6,510,414 and the aggregate
gross unrealized depreciation is $1,361,861, resulting in net unrealized
appreciation including options transactions of $5,148,553.
(b) Assets segregated as collateral for open option transactions.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $178,372,950) (Note 1).............. $183,431,158
Receivables:
Interest............................................................. 3,329,227
Investments Sold..................................................... 62,023
Options at Market Value (Net premiums paid of $233,186) (Note 4)....... 323,531
Unamortized Organizational Expenses (Note 1)........................... 18,572
Other.................................................................. 5,381
------------
Total Assets..................................................... 187,169,892
------------
LIABILITIES:
Payables:
Custodian Bank....................................................... 1,129,268
Investment Advisory Fee (Note 2)..................................... 99,108
Income Distributions -- Common and Preferred Shares.................. 70,865
Administrative Fee (Note 2).......................................... 30,495
Accrued Expenses....................................................... 107,582
Deferred Compensation and Retirement Plans (Note 2).................... 38,067
------------
Total Liabilities................................................ 1,475,385
------------
NET ASSETS............................................................. $185,694,507
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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
Net Unrealized Appreciation on Investments............................. 5,148,553
Accumulated Undistributed Net Investment Income........................ 307,170
Accumulated Net Realized Loss on Investments........................... (20,652,775)
------------
Net Assets Applicable to Common Shares........................... 105,694,507
------------
NET ASSETS............................................................. $185,694,507
============
NET ASSET VALUE PER COMMON SHARE ($105,694,507 divided by
8,168,211 shares outstanding)........................................ $ 12.94
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 5,671,104
-----------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 615,444
Administrative Fee (Note 2)............................................. 189,367
Preferred Share Maintenance (Note 5).................................... 123,320
Trustees Fees and Expenses (Note 2)..................................... 16,044
Legal (Note 2).......................................................... 9,090
Amortization of Organizational Expenses (Note 1)........................ 3,988
Other................................................................... 100,921
-----------
Total Expenses...................................................... 1,058,174
-----------
NET INVESTMENT INCOME................................................... $ 4,612,930
===========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Realized Gain/Loss on Investments:
Proceeds from Sales................................................... $45,749,853
Cost of Securities Sold............................................... (45,077,311)
-----------
Net Realized Gain on Investments (Including realized gain on closed
option transactions of $119,170)...................................... 672,542
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................... 8,822,016
End of the Period (Including unrealized appreciation on option
transactions of $90,345)............................................ 5,148,553
-----------
Net Unrealized Depreciation on Investments During the Period............ (3,673,463)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS......................... $(3,000,921)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 1,612,009
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1996
and the Year Ended October 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 4,612,930 $ 9,403,681
Net Realized Gain/Loss on Investments................ 672,542 (9,652,675)
Net Unrealized Appreciation/Depreciation on
Investments During the Period...................... (3,673,463) 21,537,581
---------- ----------
Change in Net Assets from Operations................. 1,612,009 21,288,587
---------- ----------
Distributions from Net Investment Income:
Common Shares...................................... (3,173,294) (6,812,226)
Preferred Shares................................... (1,484,259) (3,163,786)
---------- ----------
Total Distributions.................................. (4,657,553) (9,976,012)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (3,045,544) 11,312,575
NET ASSETS:
Beginning of the Period.............................. 188,740,051 177,427,476
----------- -----------
End of the Period (Including undistributed net
investment income of $307,170 and $351,793,
respectively)...................................... $185,694,507 $188,740,051
============ ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 27, 1993
Six Months Year Year (Commencement
Ended Ended Ended of Investment
April 30, October 31, October 31, Operations) to
1996 1995 1994 October 31, 1993
- -------------------------------------------------------------------------------------------
Net Asset Value, <S> <C> <C> <C>
Beginning of the Period (a)..... $13.313 $11.928 $14.972 $14.921
------ ------ ------ ------
Net Investment Income........... .565 1.151 1.120 .085
Net Realized and Unrealized
Gain/Loss
on Investments................ (.367) 1.455 (3.072) .125
------ ------ ------ ------
Total from Investment
Operations...................... .198 2.606 (1.952) .210
------ ------ ------ ------
Less Distributions from Net
Investment Income:
Paid to Common Shareholders... .389 .834 .834 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .182 .387 .258 -0-
------ ------ ------ ------
Total Distributions............... .571 1.221 1.092 -0-
------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $12.940 $13.313 $11.928 $15.131
======= ======= ======= =======
Market Price Per Share at End of
the Period...................... $10.875 $11.500 $9.875 $14.625
Total Investment Return at
Market Price (b)................ (2.24%)* 25.22% (27.65%) (2.50%)*
Total Return at Net Asset Value
(c)............................. .04%* 19.09% (16.10%) .87%*
Net Assets at End of the Period
(In millions)................... $185.7 $188.7 $177.4 $123.6
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares.......................... 1.92% 1.98% 1.82% 1.30%
Ratio of Expenses to Average Net
Assets.......................... 1.11% 1.12% 1.09% 1.30%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)............... 5.67% 6.01% 6.34% 3.40%
Portfolio Turnover................ 23.73%* 79.06% 213.93% 24.25%*
</TABLE>
(a) 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.
(b) 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.
(c) Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital 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's investment objective is
to provide a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Trust will invest substantially all
of its assets in municipal securities rated investment grade at the time of
investment. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 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, 1996, 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.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
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.
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, 1995, the Trust had an accumulated capital loss
carryforward for tax purposes of $21,325,317, of which $13,795, $11,658,847 and
$9,652,675 will expire on October 31, 2001, 2002 and 2003, 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.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1996, the Trust recognized expenses of
approximately $8,900 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.
At April 30, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1996, were $45,102,383 and
$45,077,311, 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.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended April 30, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1995.................. -0- $ -0-
Options Written and Purchased (Net).............. 903 (606,805)
Options Terminated in Closing Transactions
(Net).......................................... (700) 373,619
---- ---------
Outstanding at April 30, 1996.................... 203 $(233,186)
==== ==========
</TABLE>
The related futures contracts of the outstanding option transaction as of
April 30, 1996, and the description and market value is as follows:
<TABLE>
<CAPTION>
EXPIRATION MONTH/ MARKET VALUE
CONTRACTS EXERCISE PRICE OF OPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Index Futures
Written Put................. 203 June/110 $323,531
=== =========
</TABLE>
B. EMBEDDED CAPS--These securities, which are identified in the portfolio of
investments, include a cap strike level such that the coupon payment may be
supplemented by cap payments if the floating rate index upon which the cap is
based rises above the strike level. The price of these securities may be more
volatile than the price of a comparable fixed rate security. The Trust invests
in these instruments as a hedge against a rise in the short-term interest rates
which it pays on its preferred shares.
5. PREFERRED SHARES
The Trust has outstanding 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, 1996, was 3.700%. During the six months ended April
30, 1996, the rates ranged from 3.300% to 4.875%.
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.
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL 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., 1996
All rights reserved.
SM denotes a service mark of Van Kampen American
Capital Distributors, Inc.
17
