<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 10
Statement of Operations.......................... 11
Statement of Changes in Net Assets............... 12
Financial Highlights............................. 13
Notes to Financial Statements.................... 14
Report of Independent Accountants................ 20
Dividend Reinvestment Plan....................... 21
</TABLE>
VKI ANR 12/97
<PAGE> 2
LETTER TO SHAREHOLDERS
December 4, 1997
Dear Shareholder,
In the past year, we have been
participants in and witnesses to two
mergers that we believe have positioned
our company at the forefront of the
financial industry's evolution. Our
latest announcement continues our
forward progress. I am pleased to [PHOTO]
announce that Philip N. Duff, formerly
the chief financial officer of Morgan
Stanley, has joined Van Kampen American
Capital as president and chief DENNIS J. MCDONNELL AND DON G. POWELL
executive officer. I will continue as
chairman of the firm. Together, we will continue to work to the benefit of our
fund shareholders as Van Kampen American Capital advances toward the next
century.
ECONOMIC REVIEW
The last quarter of 1996 brought renewed strength and rumblings of
inflation, which continued to feed investors' uncertainties about the direction
of interest rates. This was reflected in the volatility of taxable yields, with
the 30-year Treasury ranging from a high of 6.70 percent to a low of 6.35
percent, and ending the period at 6.64 percent.
The economy grew at a brisk 3.9 percent annual rate during the first three
quarters of 1997. At the same time, the federal budget deficit fell to its
lowest level in 23 years, while consumer prices rose less than 2.0 percent on an
annual basis and producer prices declined 1.4 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term municipal revenue bond index fell 36 basis points as the yield
on the 30-year Treasury
Continued on page two
1
<PAGE> 3
bond fell 48 basis points. Because yields move in the opposite direction of
prices, the smaller yield decline of municipal bonds indicates that their prices
did not rise as much as Treasuries.
[PIE CHART]
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
AS OF OCTOBER 31, 1997
<TABLE>
<S> <C>
AAA................. 57.1%
AA.................. 15.4%
A................... 8.4%
BBB................. 18.6%
B................... 0.5%
</TABLE>
* As a percentage of Long-Term Investments
Based upon highest credit quality ratings as issued by Standard & Poor's
or Moody's.
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We continued to maintain a heavy weighting in high-quality bonds. The
dominant weighting in AAA-rated securities in the portfolio reflects the
proliferation of insured bonds, which currently comprise well over half of new
issues in the municipal bond market. AAA-rated bonds are extremely liquid and
carry minimal credit risk. When interest rates fall, as they did for most of the
second half of the fiscal year, AAA-rated bonds tend to outperform lower-rated
securities. BBB-rated bonds tend to perform better when rates are rising and
have the potential to provide additional income.
Portfolio turnover during the fiscal year was moderate due to market
conditions that afforded few opportunities to add value to existing holdings.
The average yield of bonds in the Trust's portfolio was higher than average
market yields. As a result, there was little incentive to replace bonds in the
portfolio, because such trades would have reduced the Trust's dividend-paying
ability.
Trading was also restrained by tight spreads between yields of AAA-rated
bonds and lower-rated securities. These spreads have compressed to historically
narrow levels due to the increasing number of insured bonds in the municipal
market. For example, when a new long-term California transportation issue was
sold in September, its BBB-rated portion provided a yield of only 20 basis
points more than the AAA-rated insured component in the same maturity. As a
result of the narrow yield spreads, there was often not enough incentive to
purchase lower-rated securities and assume the additional credit risk.
We bought bonds that were relatively inexpensive and that we believed had
the potential to appreciate in price, and sold bonds that we felt were overly
expensive. Purchases included bonds from different states and industry sectors.
For long-term acquisitions, we favored 20- to 30-year discount bonds in order to
enhance the call protection of the Trust. During this period, the Trust's $2.8
million position in a Tulsa,
Continued on page three
2
<PAGE> 4
Oklahoma airport bond was called by the issuer due to the decline in interest
rates. Proceeds from the call were used to finance other acquisitions.
When searching for new securities for the Trust's portfolio, we try to
identify bonds that we believe will outperform within a particular sector and
that can be purchased at an attractive price. We believe this "bottom-up"
approach, supported by our research, provides significant added value to the
portfolio.
Throughout the fiscal year, we maintained a relatively short duration for
the Trust in order to attempt to limit its price volatility in response to
changing interest rates. We believe the leveraged structure of the portfolio,
which involves borrowing short-term funds in order to purchase long-term
municipal securities, exposes the portfolio to a sufficient amount of price
volatility. Duration, which is expressed in years, is a measure of a portfolio's
sensitivity to interest rate movements. Portfolios with long durations tend to
perform better when interest rates are falling. Portfolios with short durations
tend to do better when rates are rising. During the second half of the fiscal
year, when rates were declining, the duration of the portfolio's core holdings
declined moderately as the bonds moved closer to their maturity dates. Although
the relatively short duration of the Trust slightly hindered its performance
during the second half, the Trust's leveraged structure enhanced its gains. As
of October 31, the duration of the Trust stood at 7.17 years, compared to 7.34
years for the Lehman Brothers Municipal Bond Index.
Top Five Portfolio Industry Holdings by Sector as of October 31, 1997*
Health Care....................... 25.1%
Single-Family Housing............. 16.0%
General Purpose................... 11.0%
Transportation.................... 10.7%
Water & Sewer...................... 8.2%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Advantage Municipal Income Trust II generated a total return at market
price of 15.58 percent(1). The Trust offered a tax-exempt distribution rate of
5.95 percent(3), based on the closing common stock price on October 31, 1997. At
the end of the reporting period, the closing share price of the Trust traded at
$12.50, an 11.79 percent discount to its net asset value of $14.17. Because
income from the Trust is exempt from federal income taxes, this distribution
rate represents a yield equivalent to a taxable investment earning 9.30
percent(4) (for investors in the federal income tax bracket of 36 percent).
Continued on page four
3
<PAGE> 5
TWELVE-MONTH DIVIDEND HISTORY FOR THE PERIOD ENDED OCTOBER 31, 1997
[BAR CHART]
<TABLE>
<CAPTION>
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62 $0.62
Per Common
Share
</TABLE>
The dividend history represents past performace of the Trust and does not
predict the Trust's future distributions.
OUTLOOK
We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
leveraged costs would increase; this would negatively impact the income and
performance of common shares.
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
(AMEX TICKER SYMBOL--VKI)
COMMON SHARE TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on market price(1)............. 15.58%
One-year total return based on NAV(2)...................... 10.71%
</TABLE>
DISTRIBUTION RATES
<TABLE>
<S> <C>
Distribution rate as a % of closing common stock
price(3)................................................... 5.95%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 9.30%
</TABLE>
SHARE VALUATIONS
<TABLE>
<S> <C>
Net asset value............................................ $ 14.17
Closing common stock price................................. $12.500
One-year high common stock price (10/06/97)................ $12.875
One-year low common stock price (12/18/96)................. $11.000
Preferred share (Series A) rate(5)......................... 3.60%
Preferred share (Series B) rate(5)......................... 3.51%
</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.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.5%
Alabama 0.6%
$1,250 Lee Cnty, AL (AMBAC Insd)..................... 5.500% 02/01/21 $ 1,264,525
------------
ALASKA 1.4%
3,000 Alaska St Hsg Fin Corp Ser A Rfdg............. 5.000 12/01/18 2,810,460
------------
ARIZONA 1.0%
1,665 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg (FSA
Insd)......................................... 7.250 07/15/10 1,862,835
------------
CALIFORNIA 5.6%
3,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev
Prop C Second Sr Ser A (MBIA Insd)............ 6.250 07/01/13 3,265,980
1,000 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj.................................... 6.300 06/01/11 1,054,710
2,000 Orange Cnty, CA Recovery Ctfs Partn Ser A
(MBIA Insd)................................... 6.000 07/01/08 2,230,240
4,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)......................................... 6.000 06/01/08 4,457,800
------------
11,008,730
------------
COLORADO 6.2%
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 1,185,700
5,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)..... * 08/31/26 734,150
4,250 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A............................................. 8.000 06/01/25 4,753,582
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A2............................................ 7.250 05/01/27 1,678,350
1,605 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................ 7.650 11/01/26 1,822,526
663 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
E............................................. 8.125 12/01/24 733,994
1,100 Denver, CO City & Cnty Arpt Rev Ser A......... 8.500 11/15/23 1,240,173
------------
12,148,475
------------
CONNECTICUT 1.1%
2,000 Mashantucket Western Pequot Tribe Conn Spl Rev
Ser A (a)..................................... 6.400 09/01/11 2,213,200
------------
GEORGIA 1.9%
3,430 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg..................... 6.625 01/01/25 3,755,473
------------
ILLINOIS 9.8%
2,090 Alton, IL Hosp Fac Rev Saint Anthony's Hlth
Cent Rfdg..................................... 5.500 09/01/06 2,127,285
5,000 Chicago, IL O'Hare Intl Arpt Rev Sr Lien Ser A
Rfdg.......................................... 5.000 01/01/12 4,939,700
7,375 Illinois Hlth Fac Auth Rev Swedish American
Hosp Rfdg (AMBAC Insd)........................ 5.375 11/15/13 7,420,209
4,405 Illinois Hsg Dev Auth Rev Homeowner Mtg Subser
A-2........................................... 7.125 08/01/26 4,716,786
------------
19,203,980
------------
IOWA 0.7%
1,300 Ottumwa, IA Hosp Fac Rev Ottumwa Regl Hlth
Rfdg & Impt................................... 6.000 10/01/18 1,331,148
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KENTUCKY 2.5%
$2,000 Jefferson Cnty, KY Hlth Fac Rev (MBIA Insd)... 5.125% 10/01/27 $ 1,915,880
3,000 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd)................. 5.300 05/15/19 2,954,490
------------
4,870,370
------------
LOUISIANA 1.8%
1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen
Retirement Ser A.............................. 6.700 12/01/25 1,503,936
1,750 Saint Charles Parish, LA Pollutn Ctl Rev LA
Pwr & Lt Co Proj (FSA Insd)................... 7.500 06/01/21 1,935,115
------------
3,439,051
------------
MARYLAND 3.6%
2,955 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Single Family Pgm......................... 6.800 04/01/24 3,148,050
4,000 Maryland St Hlth & Higher Edl Fac Auth Rev
Subn Hosp Rfdg (AMBAC Insd)................... 5.000 07/01/13 3,961,160
------------
7,109,210
------------
MASSACHUSETTS 4.9%
1,200 Massachusetts Bay Tran Auth MA Genl Tran Sys
Ser A Rfdg.................................... 6.250 03/01/12 1,349,460
2,665 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser B Rfdg (MBIA Insd).................... 5.000 07/01/12 2,634,806
1,550 Massachusetts St Consolidated Loan Ser D
(Prerefunded @ 07/01/01) (a).................. 7.000 07/01/07 1,719,477
600 Massachusetts St Consolidated Loan Ser D...... 7.000 07/01/07 666,474
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................ 6.000 10/01/23 965,570
2,150 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A (AMBAC Insd) (a)................. 6.650 07/01/19 2,300,070
------------
9,635,857
------------
MICHIGAN 2.5%
2,000 Detroit, MI Downtown Dev Auth Tax Increment
Rev Dev Area No 1 Proj Ser C1 (a)............. 6.250 07/01/25 2,118,000
2,500 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC
Insd) (a)..................................... 6.250 07/01/12 2,712,825
------------
4,830,825
------------
MISSISSIPPI 2.8%
3,000 Mississippi Home Corp Single Family Rev Mtg
Ser C (GNMA Collateralized)................... 7.600 06/01/29 3,396,180
2,060 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................... 6.250 12/01/16 2,155,481
------------
5,551,661
------------
MISSOURI 1.0%
2,000 Kansas City, MO Muni Assistance Corp Rev Rfdg
(MBIA Insd)................................... 5.000 04/15/20 1,931,900
------------
NEW HAMPSHIRE 0.5%
1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd)............ 6.300 05/01/22 1,071,040
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW MEXICO 0.9%
$1,570 New Mexico Mtg Fin Auth Single Family Mtg Pgm
Ser H (GNMA Collateralized)................... 6.600% 07/01/15 $ 1,664,059
------------
NEW YORK 19.6%
4,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev........................................... 5.250 06/15/29 3,891,520
3,000 New York City Ser G........................... 6.000 02/01/11 3,154,440
2,020 New York Ser H (Prerefunded @ 02/01/02)....... 7.200 02/01/13 2,279,267
2,980 New York Ser H................................ 7.200 02/01/13 3,283,424
6,250 New York St Energy Resh & Dev Auth Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA
Insd)......................................... 6.750 01/15/27 6,692,000
1,250 New York St Energy Resh & Dev Auth Fac Rev
Cons Edison Co NY Inc Proj Ser B (MBIA
Insd)......................................... 6.375 12/01/27 1,328,637
2,175 New York St Med Care Fac Fin Agy Rev NY
Downtown Hosp Ser A........................... 6.800 02/15/20 2,367,857
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (AMBAC Insd)........................ 6.200 08/15/05 3,323,430
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (AMBAC Insd)........................ 6.800 08/15/24 3,383,760
1,450 New York St Pwr Auth Rev & Genl Purp Ser CC
Rfdg (AMBAC Insd)............................. 5.125 01/01/10 1,460,701
1,000 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg (MBIA Insd)........................ 5.125 04/01/07 1,025,060
2,500 Port Auth NY & NJ Cons 67th Ser............... 6.875 01/01/25 2,655,500
3,505 Port Auth NY & NJ Cons 92nd Ser (a)........... 5.000 07/15/15 3,436,162
------------
38,281,758
------------
OHIO 0.6%
1,165 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp
Rfdg.......................................... 6.100 05/15/06 1,245,222
------------
OKLAHOMA 3.4%
3,500 Shawnee, OK Hosp Auth Hosp Rev Mid-america
Hlthcare Inc Rfdg............................. 6.125 10/01/14 3,593,520
2,785 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med
Cent Proj Rfdg (Connie Lee Insd).............. 6.250 06/01/06 3,065,199
------------
6,658,719
------------
OREGON 3.9%
2,010 Emerald Peoples Util Dist or Elec Sys Rev
(FGIC Insd)................................... 7.350 11/01/09 2,488,038
3,000 Oregon Hlth Sciences Univ Rev Ser B (MBIA
Insd)......................................... 5.250 07/01/28 2,981,670
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp... 6.350 08/01/25 2,108,340
------------
7,578,048
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA 3.7%
$2,000 Pennsylvania Econ Dev Fin Auth Res Recov Rev
Colver Proj Ser D............................. 7.150% 12/01/18 $ 2,209,860
3,200 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (Cap
Guar Insd).................................... 5.000 06/15/16 3,105,472
1,700 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg..................... 6.875 12/01/09 1,829,710
------------
7,145,042
------------
RHODE ISLAND 2.1%
3,810 Rhode Island Hsg & Mtg Fin Corp Homeownership
Oppty Ser E1 (FHA Gtd)........................ 7.500 10/01/11 4,024,312
------------
TEXAS 10.5%
2,220 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)......... 6.625 02/15/12 2,532,288
3,065 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)......... 6.625 02/15/13 3,496,154
2,070 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Baptist Mem Hosp Sys Proj (MBIA Insd)......... 6.500 08/15/15 2,346,179
2,200 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Util Elec Co Proj Ser A....................... 8.250 01/01/19 2,330,746
1,705 Brownsville, TX Util Sys Rev.................. 7.375 01/01/10 1,990,144
3,480 Houston, TX Arpt Sys Rev (a).................. 9.500 07/01/10 4,714,774
2,000 Tarrant Cnty, TX Hlth Fac Dev TX Hlth Res Sys
Ser A (MBIA Insd)............................. 5.000 02/15/26 1,887,260
1,170 Temple, TX Jr College Dist Hsg Rfdg (MBIA
Insd)......................................... 5.250 07/01/18 1,169,906
------------
20,467,451
------------
VIRGINIA 1.6%
3,000 Fairfax Cnty, VA Econ Dev Auth Res Recov Rev
Ogden Martin Sys Proj Ser A................... 7.750 02/01/11 3,202,050
------------
WYOMING 0.8%
1,500 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd)......................................... 6.700 05/01/12 1,652,550
------------
PUERTO RICO 3.5%
6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser Y Rfdg (Embedded Cap) (FSA Insd).......... 6.250 07/01/21 6,892,200
------------
TOTAL INVESTMENTS 98.5%
(Cost $177,296,779)........................................................... 192,850,151
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%..................................... 2,873,777
------------
NET ASSETS 100.0%.............................................................. $195,723,928
-----------
*Zero coupon bond
</TABLE>
(a) Assets segregated as collateral for open futures transactions.
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $177,296,779)....................... $192,850,151
Receivables:
Interest.................................................. 3,523,123
Investments Sold.......................................... 68,546
Unamortized Organizational Costs............................ 6,543
Other....................................................... 662
------------
Total Assets.......................................... 196,449,025
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 279,523
Investment Advisory Fee................................... 107,547
Income Distributions -- Common and Preferred Shares....... 59,229
Administrative Fee........................................ 33,091
Affiliates................................................ 7,655
Variation Margin on Futures............................... 3,750
Accrued Expenses............................................ 164,092
Trustees' Deferred Compensation and Retirement Plans........ 70,210
------------
Total Liabilities..................................... 725,097
------------
NET ASSETS.................................................. $195,723,928
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 1,600 issued with liquidation preference of
$50,000 per share)........................................ $ 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................................. 15,477,425
Accumulated Undistributed Net Investment Income............. 611,956
Accumulated Net Realized Loss............................... (21,257,012)
------------
Net Assets Applicable to Common Shares................ 115,723,928
------------
NET ASSETS.................................................. $195,723,928
============
NET ASSET VALUE PER COMMON SHARE ($115,723,928 divided by
8,168,211 shares outstanding)............................. $ 14.17
============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 11,222,100
------------
EXPENSES:
Investment Advisory Fee..................................... 1,246,604
Administrative Fee.......................................... 383,570
Preferred Share Maintenance................................. 247,306
Trustees' Fees and Expenses................................. 29,260
Custody..................................................... 16,111
Legal....................................................... 8,621
Amortization of Organizational Costs........................ 7,998
Other....................................................... 157,742
------------
Total Expenses.......................................... 2,097,212
------------
NET INVESTMENT INCOME....................................... $ 9,124,888
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 115,490
Options................................................... (134,795)
Futures................................................... (647,248)
------------
Net Realized Loss........................................... (666,553)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 9,608,098
------------
End of the Period:
Investments............................................. 15,553,372
Futures................................................. (75,947)
------------
15,477,425
------------
Net Unrealized Appreciation During the Period............... 5,869,327
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 5,202,774
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 14,327,662
============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 9,124,888 $ 9,162,619
Net Realized Gain/Loss.................................. (666,553) 734,858
Net Unrealized Appreciation During the Period........... 5,869,327 786,082
------------ ------------
Change in Net Assets from Operations.................... 14,327,662 10,683,559
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (6,076,946) (6,211,780)
Preferred Shares...................................... (2,851,786) (2,886,832)
------------ ------------
Total Distributions..................................... (8,928,732) (9,098,612)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 5,398,930 1,584,947
NET ASSETS:
Beginning of the Period................................. 190,324,998 188,740,051
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $611,956 and $415,800,
respectively)......................................... $195,723,928 $190,324,998
============ ============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 27, 1993
(Commencement
Year Ended October 31, of Investment
------------------------------------- Operations) to
1997 1996 1995 1994 October 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period (a)......... $13.507 $13.313 $11.928 $14.972 $14.921
------- ------- ------- ------- -------
Net Investment Income..... 1.117 1.122 1.151 1.120 .085
Net Realized and
Unrealized Gain/Loss.... .637 .186 1.455 (3.072) .125
------- ------- ------- ------- -------
Total from Investment
Operations................ 1.754 1.308 2.606 (1.952) .210
------- ------- ------- ------- -------
Less Distributions from Net
Investment Income:
Paid to Common
Shareholders.......... .744 .761 .834 .834 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... .349 .353 .387 .258 -0-
------- ------- ------- ------- -------
Total Distributions......... 1.093 1.114 1.221 1.092 -0-
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $14.168 $13.507 $13.313 $11.928 $15.131
======= ======= ======= ======= =======
Market Price Per Share at
End of the Period......... $12.500 $11.500 $11.500 $9.875 $14.625
Total Investment Return at
Market Price (b).......... 15.58% 6.82% 25.22% (27.65%) (2.50%)*
Total Return at Net Asset
Value (c)................. 10.71% 7.44% 19.09% (16.10%) .87%*
Net Assets at End of the
Period (In millions)...... $195.7 $190.3 $188.7 $177.4 $123.6
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares............. 1.88% 1.94% 1.98% 1.82% 1.30%
Ratio of Expenses to Average
Net Assets................ 1.09% 1.12% 1.12% 1.09% 1.30%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares (d)......... 5.61% 5.77% 6.01% 6.34% 3.40%
Portfolio Turnover.......... 16% 37% 79% 214% 24%*
</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
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At October 31, 1997, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
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 costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1997, the Trust had an accumulated capital loss
carryforward for tax purposes of $21,332,959 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 or losses recognized for tax
purposes on open futures contracts at October 31, 1997.
At October 31, 1997, for federal income tax purposes, cost of long-term
investments is $177,296,779; the aggregate gross unrealized appreciation is
$15,553,372 and the aggregate gross unrealized depreciation is $ -0- ,
resulting in net unrealized appreciation of $15,553,372.
F. 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.
For the year ended October 31, 1997, 99.5% of the income distributions made
by the Trust were exempt from federal income taxes. In January 1998, the Trust
will provide tax information to the shareholders for the 1997 calendar year.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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.
For the year ended October 31, 1997, 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.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $60,100 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustees' annual retainer fee, which is
currently $2,500.
At October 31, 1997, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $30,611,640 and $30,524,789,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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.
Transactions in options for the year ended October 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1996.................. 40 $ (75,323)
Options Written and Purchased (Net).............. 800 (57,420)
Options Terminated in Closing Transactions
(Net).......................................... (157) (33,078)
Options Expired (Net)............................ (683) 165,821
------ ---------
Outstanding at October 31, 1997.................. -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.
Upon entering into future contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended October 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................. 0
Futures Opened.............................................. 277
Futures Closed.............................................. (237)
---
Outstanding at October 31, 1997............................. 40
===
</TABLE>
The futures contracts outstanding as of October 31, 1997, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
Short Contracts:
Ten-year U.S. Treasury Note Futures
December 1997 -- (Current Notional Value
of $111,750 per contract).............. 20 $(25,161)
Municipal Bond Index Futures
December 1997 -- (Current Notional Value
of $121,844 per contract).............. 20 (50,786)
-- -------
40 $(75,947)
== =======
</TABLE>
C. EMBEDDED CAP SECURITIES--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 October 31, 1997, was 3.555%. During the year ended October
31, 1997, the rates ranged from 2.75% to 5.100%.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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.
19
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Advantage Municipal Income Trust II:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Advantage Municipal Income Trust II (the "Trust"),
including the portfolio of investments, as of October 31, 1997, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Advantage Municipal Income Trust II as of October 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 4, 1997
20
<PAGE> 22
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn.: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
21
<PAGE> 23
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley funds.
22
<PAGE> 24
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
23
<PAGE> 25
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on May 28, 1997,
where shareholders voted on a new investment advisory agreement, the election of
Trustees whose terms expired in 1997 and independent public accountants.
1) With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
7,022,691 shares voted for the proposal, 77,951 shares voted against, 115,868
shares abstained and 0 shares represented broker non-votes.
2) With regard to the election of the following Trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------------
IN FAVOR WITHHELD
- -----------------------------------------------------------------------
<S> <C> <C>
David C. Arch 7,138,150 91,241
Howard J Kerr 7,137,995 91,396
Dennis J. McDonnell 7,133,150 96,241
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year, 7,152,601 shares voted for the
proposal, 19,752 shares voted against, 58,168 shares abstained and 0 shares
represented broker non-votes.
24
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 177,296,779
<INVESTMENTS-AT-VALUE> 192,850,151
<RECEIVABLES> 3,591,669
<ASSETS-OTHER> 7,205
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 196,449,025
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 725,097
<TOTAL-LIABILITIES> 725,097
<SENIOR-EQUITY> 80,000,000
<PAID-IN-CAPITAL-COMMON> 120,891,559
<SHARES-COMMON-STOCK> 8,168,211
<SHARES-COMMON-PRIOR> 8,168,211
<ACCUMULATED-NII-CURRENT> 611,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,257,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,477,425
<NET-ASSETS> 195,723,928
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,222,100
<OTHER-INCOME> 0
<EXPENSES-NET> (2,097,212)
<NET-INVESTMENT-INCOME> 9,124,888
<REALIZED-GAINS-CURRENT> (666,553)
<APPREC-INCREASE-CURRENT> 5,869,327
<NET-CHANGE-FROM-OPS> 14,327,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,928,732)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,398,930
<ACCUMULATED-NII-PRIOR> 415,800
<ACCUMULATED-GAINS-PRIOR> (20,590,459)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,246,604
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,097,212
<AVERAGE-NET-ASSETS> 191,796,872
<PER-SHARE-NAV-BEGIN> 13.507
<PER-SHARE-NII> 1.117
<PER-SHARE-GAIN-APPREC> 0.637
<PER-SHARE-DIVIDEND> (1.093)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.168
<EXPENSE-RATIO> 1.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
