<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 17
Dividend Reinvestment Plan....................... 22
</TABLE>
VKI SAR 6/98
<PAGE> 2
LETTER TO SHAREHOLDERS
May 22, 1998
Dear Shareholder,
The Taxpayer Relief Act of 1997,
signed into law by President Clinton
last year, was created to fill the need
for a broad variety of tax-advantaged
investments to promote asset growth. We
are pleased that you selected our Trust [PHOTO]
as a vehicle to provide the potential
for tax-free income within your
investment portfolio. As you are aware,
dividends distributed by the Trust are
generally free from federal income DENNIS J. MCDONNELL AND DON G. POWELL
taxes, and often from state and local
taxes as well. At Van Kampen American Capital, we strive not only for a high
level of current income, but total return performance as well.
ECONOMIC REVIEW
After nearly seven years of continuous growth, the economy remained buoyant
with few signs of accelerating inflation. Wholesale prices in the first quarter
plummeted at an annual rate of 4.2 percent, while consumer prices inched up 0.2
percent and employment costs rose just 0.7 percent. However, inflationary
pressures were eased by factors such as lower oil prices, increasing
productivity, and a pending budget surplus. The Asian financial crisis led to a
stronger dollar and a decline in the prices of Asian imports, which in turn has
discouraged price increases on competing U.S. goods.
To date, Asia's slowdown has had a modest impact on U.S. economic growth. In
the first quarter, the U.S. economy grew at a 4.2 percent annual rate, its
fastest pace in the past year. Strong consumer spending and inventory buildup by
manufacturers offset a decrease in exports to Asia. Despite the economy's
strength, the Federal Reserve Board refrained from raising interest rates, given
the lack of domestic inflationary pressure and concerns about Asia's economic
future.
MARKET OVERVIEW
Against the backdrop of benign inflation and no action by the Fed, U.S. bond
prices rose during the past six months, although they ended the reporting period
below the highs reached in early January.
The yield of the 30-year Treasury bond, which moves in the opposite
direction of its price, fell from 6.15 percent on October 31 to 5.95 percent on
April 30. Bond prices hit a record high as yields reached 5.69 percent in early
January amidst expectations that the Fed would cut interest rates, but the yield
went back to 6.00 percent in early March after the Fed chose not to act. Yields
were volatile for the rest of the reporting period, as
Continued on page two
1
<PAGE> 3
foreign investors sold U.S. Treasury holdings and investors began to fear that
the Fed was leaning toward a rate hike.
Municipal bond yields generally moved in unison with Treasuries but did not
gain nearly as much in price. By the end of the reporting period, the average
yield of AAA-rated, 30-year generic general obligation bonds was 5.14 percent,
two basis points above the yield posted on October 31 of last year. The
underperformance of municipal bonds can be attributed in part to heavy supply
that outpaced demand. Supply increased as state and local governments took
advantage of low interest rates by issuing bonds to refinance outstanding issues
with higher interest rates, as well as to fund new projects. In the first
quarter, long-term municipal issuance totaled $71 billion, up from $40 billion a
year earlier.
More than half of the new issue volume was AAA-rated and insured, which
significantly diminished the amount of uninsured, higher-yielding securities
available in the marketplace. The dominance of insured volume and the high
demand for uninsured paper created an imbalance that compressed the yields
between higher-quality and lower-quality bonds.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1998*
<TABLE>
<S> <C>
AAA........................... 60.1%
AA............................ 17.0%
A............................. 10.8%
BBB........................... 11.6%
B............................. 0.5%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
We maintained a portfolio consisting primarily of high-quality bonds with a
heavy emphasis on AAA-rated securities. Under current market conditions, we
believe the yield spread between higher-rated and lower-rated securities does
not adequately compensate the investor for the additional credit risk of the
lower-rated security. Also, high-quality bonds generally have performed better
than lower-quality holdings when interest rates are falling, which was the case
for most of the reporting period. Finding quality issues was simplified by the
introduction of A-rated bond insurance for noninvestment grade issues. The
majority of insured bonds, however, are AAA-rated.
Overall, we limited the number of new acquisitions because current market
yields were below the average yield of bonds in the Trust. Whenever market rates
rose, we tried
Continued on page three
2
<PAGE> 4
to replace some of the Trust's older bonds with new long-term issues. These
purchases helped to preserve the Trust's dividend and extend its call
protection. Also, we sold bonds which had outperformed the market in order to
capture the price appreciation, and replace them with securities we felt were
undervalued and had strong potential for an increase in price. These trades
involved swaps between different states and different coupons. We had little
trouble finding replacement bonds because there was a substantial supply of new
securities from which to choose.
Most of our purchases were discount securities, which tend to have a longer
duration and therefore greater sensitivity to changing interest rates. Discount
bonds helped offset the declining duration of the portfolio that occurred as the
low interest rate environment caused more securities to be priced to call dates
rather than maturities. As of April 30, the duration of the Trust was 6.94 years
compared with 7.76 years for the Lehman Brothers Insured Municipal Index.
Because of the longer-term nature of the Trust, the calculation of this index's
duration has been adjusted to eliminate bonds with maturities of five years or
less.
In addition to our long-term purchases, we bought some new issues as quick
turnarounds, selling them for a profit even before the bonds were delivered.
TOP FIVE PORTFOLIO SECTORS AS OF APRIL 30, 1998*
Health Care....................... 26.4%
Single-Family Housing............. 15.5%
Transportation.................... 12.2%
General Purpose................... 11.0%
Industrial Revenue..................6.6%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the six-month period ended April 30, 1998, the Trust generated a total
return at market price of 2.90 percent(1). The Trust maintained a market price
per common share of $12.5000 on October 31, 1997, and on April 30, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.95 percent(3), based on the closing price of its common shares. Because income
from the Trust is exempt from federal income taxes, this distribution rate is
equivalent to a yield of 9.30 percent(4) on a taxable investment for investors
in the 36 percent federal income tax bracket. Please refer to the chart on page
seven for additional performance numbers.
Continued on page four
3
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
Sixth-month Dividend History
For the Period Ended April 30, 1998
<TABLE>
<CAPTION>
Distribution per Share
<S> <C>
Nov 1997........................ $.062
Dec 1997........................ $.062
Jan 1998........................ $.062
Feb 1998........................ $.062
Mar 1998........................ $.062
Apr 1998........................ $.062
</TABLE>
The dividend history represents past performance of the Trust and does
not predict the Trust's future distributions.
ECONOMIC OUTLOOK
We expect the economy to slow from its brisk first-quarter pace, although
the extent of the slowdown depends on the continued effects of Asia's crisis and
on Fed policy. We believe the Fed is biased toward raising rates, given concerns
about the economy's increasing strength. If economic strength ignites
inflationary pressures, then we believe the Fed would raise interest rates later
this year. As a result, the yield of the 30-year Treasury bond could top 6.25
percent.
We will continue to track market developments and their effects on the
Trust. When appropriate, we will make adjustments to the portfolio. As we
mentioned earlier, our goal remains a high level of current income and gains in
total return for investors. Thank you for your continued support and confidence
in Van Kampen American Capital and the management of your Trust.
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 seven
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bond holder for loss of income and ownership, the call price is usually
higher than the face value of the bond. Bonds are usually called when interest
rates drop so significantly that the issuer can save money by issuing new bonds
at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because it
is assumed that the issuer will redeem the bond at its call date, rather than at
maturity.
COUPON RATE: The stated rate of interest a bond pays until maturity, expressed
as a percentage of its face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investor Services are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D; Moody's ratings range from a high of Aaa to a low of D.
CREDIT SPREAD: The difference in yield between higher-quality issues and
lower-quality issues. Normally, lower-quality issues provide higher yields than
higher-quality issues in order to compensate investors for the additional credit
risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected
one-percent change in the price of the bond for every one-percent change in
interest rates. The longer a fund's duration, the greater the effect of interest
rate movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): A group that meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: An economic situation in which money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most municipal bonds are AAA-rated. Insurance on the bonds does not
relate to mutual fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's NAV, the fund is trading at a
discount. When the price is more than the NAV, the fund is trading at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
governmental entity to finance capital expenditures such as the construction of
highways or public works.
NET ASSET VALUE (NAV): The value of a fund share, calculated by deducting a
fund's liabilities from its total assets and dividing this amount by the number
of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond.
YIELD SPREAD: The difference between the yields of distinct bonds, due to
variant credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
ZERO COUPON BONDS: A corporate or municipal debt security that trades at a deep
discount to face value and pays no interest. It may be redeemed at maturity for
full face value.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1998
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)........... 2.90%
Six-month total return based on NAV(2).................... 2.84%
DISTRIBUTION RATES
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%
SHARE VALUATIONS
Net asset value........................................... $ 14.20
Closing common stock price................................ $12.5000
Six-month high common stock price (02/10/98).............. $13.7500
Six-month low common stock price (04/29/98)............... $12.1250
Preferred share (Series A) rate(5)........................ 4.40%
Preferred share (Series B) rate(5)........................ 3.79%
</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.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.3%
ALABAMA 0.7%
$ 1,250 Lee Cnty, AL (AMBAC Insd)........................ 5.500% 02/01/21 $ 1,270,175
------------
ALASKA 1.5%
3,000 Alaska St Hsg Fin Corp Ser A Rfdg................ 5.000 12/01/18 2,909,820
------------
ARIZONA 0.9%
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 1,725,646
------------
CALIFORNIA 5.6%
3,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Prop
C Second Sr Ser A (Prerefunded @ 07/01/02) (MBIA
Insd)............................................ 6.250 07/01/13 3,277,800
1,000 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj....................................... 6.300 06/01/11 1,057,780
2,000 Orange Cnty, CA Recovery Ctfs Partn Ser A (MBIA
Insd)............................................ 6.000 07/01/08 2,215,800
4,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/08 4,400,200
------------
10,951,580
------------
COLORADO 7.5%
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 1,177,980
5,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)........ * 08/31/26 743,850
3,800 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A................................................ 8.000 06/01/25 4,202,344
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A2............................................... 7.250 05/01/27 1,687,605
1,605 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.650 11/01/26 1,825,591
604 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
E................................................ 8.125 12/01/24 663,569
1,005 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 1,110,766
95 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)......................... 8.500 11/15/23 106,587
3,250 E-470 Pub Hwy Auth CO Rev Sr Ser A Rfdg (MBIA
Insd)............................................ 5.000 09/01/26 3,103,003
------------
14,621,295
------------
CONNECTICUT 1.1%
1,010 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A - Private Placement (b).................. 6.400 09/01/11 1,114,717
990 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A - Private Placement (Prerefunded @
09/01/07 (b)..................................... 6.400 09/01/11 1,123,551
------------
2,238,268
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEORGIA 1.9%
$ 3,410 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA Insd)............ 6.625% 01/01/25 $ 3,718,673
------------
ILLINOIS 9.6%
2,090 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent
Rfdg............................................. 5.500 09/01/06 2,152,470
5,000 Chicago, IL O'Hare Intl Arpt Rev Sr Lien Ser A
Rfdg............................................. 5.000 01/01/12 4,941,150
7,375 Illinois Hlth Fac Auth Rev Swedish American Hosp
Rfdg (AMBAC Insd)................................ 5.375 11/15/13 7,436,213
4,030 Illinois Hsg Dev Auth Rev Homeowner Mtg Subser
A-2.............................................. 7.125 08/01/26 4,325,278
------------
18,855,111
------------
IOWA 0.7%
1,300 Ottumwa, IA Hosp Fac Rev Ottumwa Regl Hlth Rfdg &
Impt............................................. 6.000 10/01/18 1,356,368
------------
KENTUCKY 2.5%
2,000 Jefferson Cnty, KY Hlth Fac Rev (MBIA Insd)...... 5.125 10/01/27 1,919,300
3,000 Louisville & Jefferson Cnty, KY Metropolitan Swr
Dist Drainage Rev Rfdg (MBIA Insd)............... 5.300 05/15/19 2,988,630
------------
4,907,930
------------
LOUISIANA 2.7%
2,000 Louisiana Pub Fac Auth Rev Dillard Univ Proj Rfdg
(AMBAC Insd)..................................... 5.000 02/01/28 1,899,040
1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen
Retirement Ser A................................. 6.700 12/01/25 1,524,712
1,750 Saint Charles Parish, LA Pollutn Ctl Rev LA Pwr &
Lt Co Proj (FSA Insd)............................ 7.500 06/01/21 1,915,235
------------
5,338,987
------------
MARYLAND 3.6%
2,955 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Single Family Pgm................................ 6.800 04/01/24 3,154,462
4,000 Maryland St Hlth & Higher Edl Fac Auth Rev Subn
Hosp Rfdg (AMBAC Insd)........................... 5.000 07/01/13 3,957,840
------------
7,112,302
------------
MASSACHUSETTS 4.9%
1,200 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
A Rfdg........................................... 6.250 03/01/12 1,348,416
2,665 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser B Rfdg (MBIA Insd)....................... 5.000 07/01/12 2,627,583
600 Massachusetts St Cons Ln Ser D (Prerefunded @
07/01/01)........................................ 7.000 07/01/07 658,620
1,550 Massachusetts St Cons Ln Ser D (Prerefunded @
07/01/01)........................................ 7.000 07/01/07 1,702,892
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 1,001,120
2,051 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A (AMBAC Insd)............................... 6.650 07/01/19 2,208,915
------------
9,547,546
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN 3.0%
$ 2,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Proj Ser C1........................ 6.250% 07/01/25 $ 2,133,120
2,500 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC Insd)
(a).............................................. 6.250 07/01/12 2,750,375
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Rfdg
(ACA Insd)....................................... 5.500 10/01/27 997,060
------------
5,880,555
------------
MISSISSIPPI 2.8%
2,985 Mississippi Home Corp Single Family Rev Mtg Ser C
(GNMA Collateralized)............................ 7.600 06/01/29 3,374,364
2,060 Mississippi Home Corp Single Family Rev Mtg Ser F
(GNMA Collateralized)............................ 6.250 12/01/16 2,165,719
------------
5,540,083
------------
MISSOURI 1.5%
2,000 Kansas City, MO Muni Assistance Corp Rev Rfdg
(MBIA Insd)...................................... 5.000 04/15/20 1,930,180
1,135 New Liberty, MO Hosp Dist Rev (MBIA Insd)........ 5.000 12/01/18 1,095,343
------------
3,025,523
------------
NEW HAMPSHIRE 0.6%
1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd)............... 6.300 05/01/22 1,086,910
------------
NEW MEXICO 0.9%
1,570 New Mexico Mtg Fin Auth Single Family Mtg Pgm Ser
H (GNMA Collateralized).......................... 6.600 07/01/15 1,665,378
------------
NEW YORK 17.6%
3,000 New York City Ser G.............................. 6.000 02/01/11 3,191,370
600 New York Ser H................................... 7.200 02/01/13 657,036
4,400 New York Ser H (Prerefunded @ 02/01/02).......... 7.200 02/01/13 4,885,320
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 6,618,625
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 1,328,450
2,175 New York St Med Care Fac Fin Agy Rev NY Downtown
Hosp Ser A (Prerefunded @ 02/15/05).............. 6.800 02/15/20 2,486,047
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC Insd)...... 6.200 08/15/05 3,329,460
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC Insd)...... 6.800 08/15/24 3,442,320
300 New York St Pwr Auth Rev & Genl Purp Ser CC
(Prerefunded @ 01/01/03) (AMBAC Insd)............ 5.125 01/01/10 315,468
1,150 New York St Pwr Auth Rev & Genl Purp Ser CC
(Prerefunded @ 01/01/03) (AMBAC Insd)............ 5.125 01/01/10 1,209,294
1,000 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg (MBIA Insd)............................... 5.125 04/01/07 1,021,260
2,500 Port Auth NY & NJ Cons 67th Ser.................. 6.875 01/01/25 2,620,350
3,505 Port Auth NY & NJ Cons 92nd Ser.................. 5.000 07/15/15 3,421,756
------------
34,526,756
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 0.6%
$ 1,165 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg.... 6.100% 05/15/06 $ 1,244,604
------------
OKLAHOMA 3.4%
3,500 Shawnee, OK Hosp Auth Hosp Rev Mid-America
Hlthcare Inc Rfdg................................ 6.125 10/01/14 3,641,330
2,785 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd)...................... 6.250 06/01/06 3,059,712
------------
6,701,042
------------
OREGON 2.3%
2,010 Emerald Peoples Util Dist OR Elec Sys Rev (FGIC
Insd)............................................ 7.350 11/01/09 2,476,119
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp...... 6.350 08/01/25 2,121,200
------------
4,597,319
------------
PENNSYLVANIA 3.7%
2,000 Pennsylvania Econ Dev Fin Auth Res Recov Rev
Colver Proj Ser D................................ 7.150 12/01/18 2,224,580
3,200 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (Cap
Guar Insd)....................................... 5.000 06/15/16 3,092,480
1,700 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg (Prerefunded @
12/01/02)........................................ 6.875 12/01/09 1,895,296
------------
7,212,356
------------
RHODE ISLAND 2.0%
3,740 Rhode Island Hsg & Mtg Fin Corp Homeownership
Oppty Ser E1 (FHA Gtd)........................... 7.500 10/01/11 3,951,647
------------
TEXAS 10.3%
2,220 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Baptist
Mem Hosp Sys Proj (Prerefunded @ 08/15/04) (MBIA
Insd)............................................ 6.625 02/15/12 2,512,641
3,065 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Baptist
Mem Hosp Sys Proj (Prerefunded @ 08/15/04) (MBIA
Insd)............................................ 6.625 02/15/13 3,469,028
2,070 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Baptist
Mem Hosp Sys Proj (Prerefunded @ 08/15/04) (MBIA
Insd)............................................ 6.500 08/15/15 2,328,812
2,200 Brazos River Auth TX Pollutn Ctl Rev Coll TX Util
Elec Co Proj Ser A............................... 8.250 01/01/19 2,295,898
1,630 Brownsville, TX Util Sys Rev..................... 7.375 01/01/10 1,888,909
3,480 Houston, TX Arpt Sys Rev......................... 9.500 07/01/10 4,668,246
2,000 Tarrant Cnty, TX Hlth Fac Dev TX Hlth Res Sys Ser
A (MBIA Insd).................................... 5.000 02/15/26 1,888,120
1,170 Temple, TX Jr College Dist Hsg Rfdg (MBIA
Insd)............................................ 5.250 07/01/18 1,168,467
------------
20,220,121
------------
VIRGINIA 1.1%
2,000 Fairfax Cnty, VA Econ Dev Auth Res Recov Rev
Ogden Martin Sys Proj Ser A...................... 7.750 02/01/11 2,107,100
------------
WASHINGTON 1.0%
2,000 Washington St Pub Pwr Supply Ser A Rfdg.......... 5.125 07/01/18 1,935,160
------------
WYOMING 0.8%
1,500 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd)............................................ 6.700 05/01/12 1,636,500
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO 3.5%
$ 6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (Embedded Cap) (FSA Insd)................... 5.730% 07/01/21 $ 6,871,140
------------
TOTAL INVESTMENTS 98.3%
(Cost $177,411,706)......................................................... 192,755,895
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................... 3,263,761
------------
NET ASSETS 100.0%............................................................ $196,019,656
-----------
</TABLE>
*Zero coupon bond
(a) Asset segregated as collateral for open option transactions.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $177,411,706)....................... $192,755,895
Receivables:
Interest.................................................. 3,449,616
Investments Sold.......................................... 315,201
Unamortized Organizational Costs............................ 2,578
Other....................................................... 2,679
------------
Total Assets.......................................... 196,525,969
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 105,358
Custodian Bank............................................ 74,902
Income Distributions -- Common and Preferred Shares....... 49,781
Administrative Fee........................................ 32,418
Affiliates................................................ 6,753
Accrued Expenses............................................ 146,090
Trustees' Deferred Compensation and Retirement Plans........ 81,636
Options at Market Value (Net premiums received of
$18,142).................................................. 9,375
------------
Total Liabilities..................................... 506,313
------------
NET ASSETS.................................................. $196,019,656
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 15,352,956
Accumulated Undistributed Net Investment Income............. 671,704
Accumulated Net Realized Loss............................... (20,896,563)
------------
Net Assets Applicable to Common Shares................ 116,019,656
------------
NET ASSETS.................................................. $196,019,656
============
NET ASSET VALUE PER COMMON SHARE ($116,019,656 divided by
8,168,211 shares outstanding)............................. $ 14.20
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 5,573,394
------------
EXPENSES:
Investment Advisory Fee..................................... 636,094
Administrative Fee.......................................... 195,721
Preferred Share Maintenance................................. 122,632
Trustees' Fees and Expenses................................. 11,730
Amortization of Organizational Costs........................ 3,965
Custody..................................................... 3,001
Legal....................................................... 2,630
Other....................................................... 78,331
------------
Total Expenses.......................................... 1,054,104
------------
NET INVESTMENT INCOME....................................... $ 4,519,290
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 430,791
Options................................................... 31,199
Futures................................................... (101,541)
------------
Net Realized Gain........................................... 360,449
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 15,477,425
------------
End of the Period:
Investments............................................. 15,344,189
Options................................................. 8,767
------------
15,352,956
------------
Net Unrealized Depreciation During the Period............... (124,469)
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 235,980
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,755,270
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1998
and the Year Ended October 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 4,519,290 $ 9,124,888
Net Realized Gain/Loss.................................. 360,449 (666,553)
Net Unrealized Appreciation/Depreciation During the
Period................................................ (124,469) 5,869,327
------------ ------------
Change in Net Assets from Operations.................... 4,755,270 14,327,662
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (3,038,452) (6,076,946)
Preferred Shares...................................... (1,421,090) (2,851,786)
------------ ------------
Total Distributions..................................... (4,459,542) (8,928,732)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 295,728 5,398,930
NET ASSETS:
Beginning of the Period................................. 195,723,928 190,324,998
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $671,704 and $611,956,
respectively)......................................... $196,019,656 $195,723,928
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
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
(Commencement
Six Months of Investment
Ended Year Ended October 31, Operations) to
April 30, ------------------------------------- October 31,
1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period (a)....... $14.168 $13.507 $13.313 $11.928 $14.972 $14.921
-------- ------- ------- ------- ------- -------
Net Investment Income... .553 1.117 1.122 1.151 1.120 .085
Net Realized and
Unrealized
Gain/Loss............. .029 .637 .186 1.455 (3.072) .125
-------- ------- ------- ------- ------- -------
Total from Investment
Operations.............. .582 1.754 1.308 2.606 (1.952) .210
-------- ------- ------- ------- ------- -------
Less Distributions from
Net Investment Income:
Paid to Common
Shareholders........ .372 .744 .761 .834 .834 -0-
Common Share
Equivalent of
Distributions Paid
to Preferred
Shareholders........ .174 .349 .353 .387 .258 -0-
-------- ------- ------- ------- ------- -------
Total Distributions....... .546 1.093 1.114 1.221 1.092 -0-
-------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period.............. $14.204 $14.168 $13.507 $13.313 $11.928 $15.131
======== ======= ======= ======= ======= =======
Market Price Per Share at
End of the Period....... $12.500 $12.500 $11.500 $11.500 $9.875 $14.625
Total Investment Return at
Market Price (b)........ 2.90%* 15.58% 6.82% 25.22% (27.65%) (2.50%)*
Total Return at Net Asset
Value (c)............... 2.84%* 10.71% 7.44% 19.09% (16.10%) .87%*
Net Assets at End of the
Period (In millions).... $196.0 $195.7 $190.3 $188.7 $177.4 $123.6
Ratio of Expenses to
Average Net Assets
Applicable to Common
Shares**................ 1.81% 1.88% 1.94% 1.98% 1.82% 1.30%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares (d)....... 5.32% 5.61% 5.77% 6.01% 6.34% 3.40%
Portfolio Turnover........ 8%* 16% 37% 79% 214% 24%*
*Non-Annualized
**Ratio of Expenses to
Average Net Assets
Including Preferred
Shares.................. 1.08% 1.09% 1.12% 1.12% 1.09% 1.30%
</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.
See Notes to Financial Statements
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
April 30, 1998 (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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At April 30, 1998, 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.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
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 April 30, 1998, for federal income tax purposes, cost of long-term
investments is $177,411,706; the aggregate gross unrealized appreciation is
$15,455,759 and the aggregate gross unrealized depreciation is $102,803,
resulting in net unrealized appreciation including open option transactions of
$15,352,956.
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.
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
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
assets of the Trust. The administrative services provided by the Administrator
include record keeping and reporting responsibilities with respect to the
Trust's portfolio and preferred shares and providing certain services to
shareholders.
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $1,900 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 six months ended April 30, 1998, the Trust recognized expenses of
approximately $27,500 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 per trustee under the plan is $2,500.
At April 30, 1998, 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 $16,288,828 and $16,502,651,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In these instances the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the six months ended April 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1997................... -0- $ -0-
Options Written................................... 275 49,341
Options Expired................................... (200) (31,199)
------ -------
Outstanding at April 30, 1998..................... 75 $18,142
------ -------
</TABLE>
The related futures contracts of the outstanding option transactions as of
April 30, 1998 and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Index
June 1998--Written Puts
(Current notional value of
$121,063
per contract)................... 75 Jun/116 ($9,375)
----- ----------- -------
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into 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).
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended April 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1997............................. 40
Futures Opened.............................................. 40
Futures Closed.............................................. (80)
---
Outstanding at April 30,1998................................ -0-
===
</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 April 30, 1998, was 4.095%. During the six months ended April
30, 1998, the rates ranged from 3.100% to 5.000%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
21
<PAGE> 23
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn.: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
22
<PAGE> 24
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at WWW.VKAC.COM -- to view prospectuses, select
Investors' Place, then Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
23
<PAGE> 25
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
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., 1998. All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
24
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> ADVANTAGE MUNI INCOME II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 177,411,706
<INVESTMENTS-AT-VALUE> 192,755,895
<RECEIVABLES> 3,764,817
<ASSETS-OTHER> 2,578
<OTHER-ITEMS-ASSETS> 2,679
<TOTAL-ASSETS> 196,525,969
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 506,313
<TOTAL-LIABILITIES> 506,313
<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> 671,704
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (20,896,563)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,352,956
<NET-ASSETS> 196,019,656
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,573,394
<OTHER-INCOME> 0
<EXPENSES-NET> (1,054,104)
<NET-INVESTMENT-INCOME> 4,519,290
<REALIZED-GAINS-CURRENT> 360,449
<APPREC-INCREASE-CURRENT> (124,469)
<NET-CHANGE-FROM-OPS> 4,755,270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,459,542)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 295,728
<ACCUMULATED-NII-PRIOR> 611,956
<ACCUMULATED-GAINS-PRIOR> (21,257,012)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 636,094
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,054,104
<AVERAGE-NET-ASSETS> 117,371,298
<PER-SHARE-NAV-BEGIN> 14.168
<PER-SHARE-NII> 0.553
<PER-SHARE-GAIN-APPREC> 0.029
<PER-SHARE-DIVIDEND> (0.546)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.204
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
