-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ABYBd/utTumcQKTDNmeDGF0uxupF/c8e3dFhFbju8dtCtBL8+WE2RimqzwUz9N7f mz2U6I5MGHbchIXh2u1M8g== 0000950137-04-005328.txt : 20040629 0000950137-04-005328.hdr.sgml : 20040629 20040629151400 ACCESSION NUMBER: 0000950137-04-005328 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040629 EFFECTIVENESS DATE: 20040629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II CENTRAL INDEX KEY: 0000908993 IRS NUMBER: 367041986 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07868 FILM NUMBER: 04888425 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLAZA STREET 2: VAN KAMPEN INVESTMENTS INC CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 6306846774 MAIL ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC STREET 2: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TR II DATE OF NAME CHANGE: 19960102 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT ADVANTAGE MUNICIPAL INCOME TRUST II DATE OF NAME CHANGE: 19930712 N-CSRS 1 c85441nvcsrs.txt SEMIANNUAL REPORT DATED APRIL 30, 2004 ------------------------- OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: October 31, 2006 Estimated average burden hours per response: 19.3 ------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-7868 Van Kampen Advantage Municipal Income Trust II ___________________________________________________________________________ (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 ___________________________________________________________________________ (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas, New York, New York 10020 ___________________________________________________________________________ (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 10/31 Date of reporting period: 4/30/04 Item 1. Report to Shareholders The Trust's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Advantage Municipal Income Trust II performed during the semiannual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the trust's financial statements and a list of trust investments as of April 30, 2004. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the trust will achieve its investment objective. Trusts are subject to market risk, which is the possibility that the market values of securities owned by the trust will decline and that the value of trust shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this trust. Income may subject certain individuals to the federal Alternative Minimum Tax (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 4/30/04
ADVANTAGE MUNICIPAL INCOME TRUST II SYMBOL: VKI - ------------------------------------------------------ AVERAGE ANNUAL BASED ON BASED ON TOTAL RETURNS NAV MARKET PRICE Since Inception (08/27/93) 6.24% 5.39% 10-year 7.89 8.03 5-year 6.70 7.16 1-year 2.35 -3.61 6-month 1.41 -1.07 - ------------------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value (NAV) and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding. The common share market price is the price the market is willing to pay for shares of the trust at a given time. Common share market price is influenced by a range of factors, including supply and demand and market conditions. Total return assumes an investment at the beginning of the period, reinvestment of all distributions for the period in accordance with the trust's dividend reinvestment plan, and sale of all shares at the end of the period. The Lehman Brothers Municipal Bond Index is a broad-based statistical composite of municipal bonds. The index is unmanaged and does not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 1 Trust Report FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004 Van Kampen Advantage Municipal Income Trust II is managed by the adviser's Municipal Fixed Income team.(1) Current members include Timothy D. Haney, Vice President; Robert Wimmel, Vice President; and John Reynoldson, Executive Director. MARKET CONDITIONS The state of the U.S. economy remained mixed over the six-month period under review. On the positive side, economic growth continued to be robust, with Gross Domestic Product growth topping 4 percent in both the last quarter of 2003 and, preliminarily, the first quarter of this year. While this strength in output has historically triggered fears of rising interest rates, yields remained stubbornly low across the municipal curve. These low yields were partly the result of the continued low levels of observed inflation in the U.S. economy. Unfortunately, they also reflected continuing weakness in the job market, which remained soft throughout the period. The soft job numbers, coupled with persistently low inflation, led the Federal Open Market Committee (the Fed) to maintain its accommodative stance throughout the period. The surprisingly rapid job growth data released in April, coupled with rapidly rising commodity and high oil prices, led many investors to fear that the Fed would be forced to raise interest rates earlier than the market initially expected. As a result, bond yields across all major sectors spiked in April. Supply of new municipal bonds in calendar 2003 hit record levels as municipalities moved to take advantage of historically low interest rates. Many cities and states sought to reduce expenditures by refinancing existing debt and replacing it with lower-yielding bonds. In other cases, municipalities attempted to meet current and future funding needs by issuing new debt. This activity slowed in the first months of 2004. The low interest rates that prevailed over much of the period also had an impact on the demand for municipal bonds. Retail and institutional investor activity slowed as holders of municipal bonds saw little reason to sell bonds purchased at higher yield levels and reinvest at lower yields. However, the period was marked by rising activity among non-traditional investors, such as hedge funds and insurance companies seeking to take advantage of the attractiveness of municipal bonds relative to some taxable securities. Additionally, investors' search for yield led to significant outperformance by lower-rated bonds with greater credit risk. Sectors such as health care, with a preponderance of lower-rated issues, performed particularly well. (1)Team members may change without notice at any time. 2 PERFORMANCE ANALYSIS Closed-end fund returns can be calculated based upon either the market price or the net asset value (NAV) of its shares. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding, while market price reflects the supply and demand for the shares. As a result, the two returns can differ significantly. On an NAV basis, the trust outperformed its benchmark, the Lehman Brothers Municipal Bond Index, but underperformed on a market-price basis. (See table below.) The trust uses leverage to enhance its dividend to common shareholders. The trust borrows money at short-term rates through the issuance of preferred shares. The proceeds are typically reinvested in longer-term securities, taking advantage of the difference between short- and longer-term rates. As yields rose toward the end of the period, the prices of bonds declined. The trust's use of leverage magnified this negative price movement. However, the portfolio saw strong relative performance from its higher-yielding holdings during the period, counterbalancing the leverage and helping to produce a total return at NAV slightly higher than that of the benchmark, which is not leveraged. Our analysis of the macroeconomic environment, coupled with the levels of interest rates near multi-decade lows, led us to believe that interest rates were more likely to rise than to fall further. As a result, we kept the trust's duration (a measure of interest-rate sensitivity) below that of its benchmark in order to limit the potentially damaging impact of any increase in interest rates. This approach hampered the trust's returns as interest rates fell for much of the period. That said, the strategy provided a cushion to returns when interest rates soared in the final weeks of the period. TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004
- ---------------------------------------------------------- BASED ON BASED ON LEHMAN BROTHERS NAV MARKET PRICE MUNICIPAL BOND INDEX 1.41% -1.07% 1.19% - ----------------------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. See Performance Summary for additional performance information and index definition. 3 We also adjusted the portfolio's term structure in anticipation of rising interest rates. Our research showed that the intermediate portion of the curve offered the most promising total-return potential. As a result, we focused our purchases on the 15- to 20-year segment of the curve. These securities had the added appeal of premium coupons and 10-year call dates, which offered attractive income coupled with limited interest-rate exposure. Our term-structure strategy also included an attempt to capitalize on a temporary pricing anomaly which boosted the short-term returns of securities in the ten-year range as they "rolled down" the yield curve at the end of the calendar year. While the trust has a high-quality bias overall, its performance benefited from its holdings of high-yield issues. During the period, municipal-bond investors responded to the protracted low rate environment by favoring high-yield bonds, which caused the yield spreads between higher- and lower-rated bonds to narrow. (Yield spreads reflect the premium demanded by investors to buy lower-rated bonds.) As a result, lower-quality bonds outperformed. The portfolio had approximately 83 percent exposure to bonds rated AA/Aa or higher at the end of the period. Our trading activity during the period was below traditional norms because we wanted to avoid having to reinvest into securities with low yields. That said, we were able to make selective relative-value trades among securities and sectors as they moved into and out of fair value. Some of these acquisitions were funded by the proceeds of bonds that were called away by their issuers during the period. In other cases we sold bonds that met their performance objectives. We reinvested this cash into securities that we believed had more promising TOP 5 SECTORS AS OF 4/30/04 RATINGS ALLOCATION AS OF 4/30/04 Health Care 18.3% AAA/Aaa 76.4% Public Education 12.4 AA/Aa 6.3 Transportation 10.6 A/A 4.0 Public Building 10.4 BBB/Baa 11.5 General Purpose 8.9 BB/Ba 0.5 Non-Rated 1.3
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the sectors shown above. All percentages are as a percentage of long-term investments. Securities are classified by sectors that represent broad groupings of related industries. Ratings allocations based upon ratings as issued by Standard and Poor's and Moody's. Van Kampen is a wholly owned subsidiary of a global securities firm which is engaged in a wide range of financial services including, for example, securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 4 total-return characteristics, including several lower-rated issues and premium- coupon high-grade bonds. The trust's portfolio remained well diversified during the period, with its holdings spread across most major municipal-bond sectors. We believe this long-standing strategy helps to minimize the risk of over-concentration in any single sector, while also giving the portfolio exposure to as many potential sources of return as possible. The three largest sector exposures at the end of the period were health care, public education and transportation. As mentioned above, the portfolio's below-market duration served it well in the final weeks of the period, when interest rates rose sharply. While it is impossible to predict how long this trend will hold, we believe that the trust is well positioned to weather further increases in rates. We look forward to becoming more active in seeking attractive structures and relative-value trading opportunities now that rates have moved into a more normal range. 5 PROXY VOTING POLICIES AND PROCEDURES A description of the trust's policies and procedures with respect to the voting of proxies relating to the trust's portfolio securities is available without charge, upon request, by calling 1-800-847-2424. This information is also available on the Securities and Exchange Commission's website at http://www.sec.gov. 6 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED)
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- MUNICIPAL BONDS 166.4% ALABAMA 3.2% $ 3,640 University South AL Univ Rev Cap Impt Rfdg (FGIC Insd)........................................... 5.000% 03/15/21 $ 3,741,228 ------------ ARIZONA 11.6% 5,755 Arizona Sch Fac Brd Ctf Part Ser A (MBIA Insd)........................................... 5.250 09/01/17 6,150,886 3,000 Arizona St Transn Brd Hwy Rev Ser B............. 5.250 07/01/19 3,174,900 2,000 Phoenix, AZ Civic Impt Corp Arpt Rev Jr Lien (AMT) (FGIC Insd)............................... 5.375 07/01/29 2,015,400 910 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 956,956 1,300 Tempe, AZ Excise Tax Rev Rfdg................... 5.250 07/01/18 1,391,169 ------------ 13,689,311 ------------ CALIFORNIA 17.4% 6,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Pub Impt Proj Ser C (FSA Insd).................. * 09/01/19 2,744,820 5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Pub Impt Proj Ser C (FSA Insd).................. * 09/01/32 1,018,400 1,000 California St (AMBAC Insd)...................... 5.125 10/01/27 1,003,090 2,800 California St Dept Wtr Res Pwr Ser A (AMBAC Insd)........................................... 5.500 05/01/16 3,056,144 2,500 California St Pub Wks Brd Dept Corrections Ser C............................................... 5.000 06/01/24 2,388,525 2,000 California St Pub Wks Brd Lease Rev Dept of Corrections St Prisons Ser A Rfdg (AMBAC Insd)........................................... 5.000 12/01/19 2,094,140 4,450 Los Angeles, CA Dept Wtr & Pwr Ser A (FGIC Insd)........................................... 5.125 07/01/40 4,452,626 13,880 San Joaquin Hills, CA Transn Corridor Agy Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA Insd)........ * 01/15/28 3,725,670 ------------ 20,483,415 ------------ COLORADO 5.5% 1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470 Proj Ser B (Prerefunded @ 08/31/05) (a)......... 7.000 08/31/26 1,102,170 5,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470 Proj Ser C (Prerefunded @ 08/31/05)............. * 08/31/26 1,021,950 1,475 Colorado Ed & Cultural Fac Auth Rev Impt Charter Sch Proj Rfdg (XLCA Insd)....................... 5.250 08/15/19 1,549,709 1,000 Colorado Hlth Fac Auth Rev Hosp Portercare Adventist Hlth.................................. 6.500 11/15/31 1,084,800 380 Colorado Hsg Fin Auth Single Family Pgm Sr Ser A (AMT)........................................... 8.000 06/01/25 385,195 225 Colorado Hsg Fin Auth Single Family Pgm Sr Ser A2 (AMT)........................................ 7.250 05/01/27 227,891 129 Colorado Hsg Fin Auth Single Family Pgm Sr Ser B1 (AMT)........................................ 7.650 11/01/26 132,240 1,000 Northern CO Wtr Conservancy (MBIA Insd)......... 5.000 10/01/21 1,021,670 ------------ 6,525,625 ------------
See Notes to Financial Statements 7 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- CONNECTICUT 1.9% $ 1,010 Mashantucket Western Pequot Tribe CT Spl Rev Ser A, 144A--Private Placement (b).................. 6.400% 09/01/11 $ 1,080,437 990 Mashantucket Western Pequot Tribe CT Spl Rev Ser A, 144A--Private Placement (Prerefunded @ 09/01/07) (b)................................... 6.400 09/01/11 1,112,750 ------------ 2,193,187 ------------ FLORIDA 2.7% 3,000 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd)..... 5.375 07/01/17 3,227,490 ------------ GEORGIA 6.1% 3,130 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev North Hill Apts Proj Rfdg (FNMA Collateralized) (Variable Rate Coupon).......................... 6.625 01/01/25 3,214,009 2,000 Georgia St Rd & Twy Auth Rev.................... 5.000 10/01/19 2,100,320 1,745 Municipal Elec Auth GA Combustion Turbine Proj Ser A (MBIA Insd)............................... 5.250 11/01/20 1,835,984 ------------ 7,150,313 ------------ ILLINOIS 7.9% 1,710 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA Insd)........................................... * 01/01/29 427,415 5,400 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser B-1 (FGIC Insd)................................. * 12/01/28 1,357,668 7,375 Illinois Hlth Fac Auth Rev Swedish Amern Hosp Rfdg (AMBAC Insd) (c)........................... 5.375 11/15/13 7,543,298 ------------ 9,328,381 ------------ INDIANA 1.3% 1,500 Indiana St Dev Fin Auth Rev Exempt Fac Conv Rfdg (AMT) (a)....................................... 5.950 08/01/30 1,521,135 ------------ KENTUCKY 2.4% 2,500 Kentucky St Ppty & Bldgs Comm Proj No. 74 Rfdg (Prerefunded @ 02/01/12) (FSA Insd)............. 5.375 02/01/15 2,780,025 ------------ LOUISIANA 3.1% 1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen Retirement Ser A................................ 6.700 12/01/25 1,425,732 2,000 New Orleans, LA Rfdg (FGIC Insd)................ 5.500 12/01/21 2,216,640 ------------ 3,642,372 ------------ MARYLAND 4.3% 1,000 Maryland St Econ Dev Corp Univ MD College Park Proj............................................ 5.625 06/01/35 1,010,860 4,000 Maryland St Hlth & Higher Ed Fac Auth Rev Subn Hosp Rfdg (AMBAC Insd).......................... 5.000 07/01/13 4,090,400 ------------ 5,101,260 ------------
8 See Notes to Financial Statements VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- MASSACHUSETTS 3.6% $ 1,200 Massachusetts Bay Tran Auth MA Gen Tran Sys Ser A Rfdg.......................................... 6.250% 03/01/12 $ 1,392,000 1,000 Massachusetts St Hlth & Ed Fac Auth Rev Saint Mem Med Ctr Ser A............................... 6.000 10/01/23 930,140 1,886 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental Ser A (AMT) (AMBAC Insd)........................ 6.650 07/01/19 1,926,729 ------------ 4,248,869 ------------ MICHIGAN 10.4% 2,000 Detroit, MI Downtown Dev Auth Tax Increment Rev Dev Area No 1 Proj Ser C1 (Prerefunded @ 07/01/06)....................................... 6.250 07/01/25 2,223,980 2,790 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser C Rfdg (MBIA Insd)................................ 5.250 07/01/19 2,953,131 2,000 Grand Rapids, MI Wtr Supply (FGIC Insd)......... 5.750 01/01/15 2,216,560 2,075 South Lyon, MI Cmnty Sch Bldg & Site (FGIC Insd)........................................... 5.250 05/01/18 2,196,263 2,285 Taylor, MI Bldg Auth (AMBAC Insd)............... 6.000 03/01/13 2,635,816 ------------ 12,225,750 ------------ MINNESOTA 0.8% 1,000 Duluth, MN Econ Dev Auth Benedictine Hlth Sys Saint Marys..................................... 5.250 02/15/33 980,270 ------------ MISSISSIPPI 4.2% 3,000 Mississippi Bus Fin Corp MS Pollutn Ctl Rev Sys Energy Res Inc Proj Rfdg........................ 5.900 05/01/22 3,016,380 1,210 Mississippi Home Corp Single Family Rev Mtg Ser C (AMT) (GNMA Collateralized)................... 7.600 06/01/29 1,294,603 615 Mississippi Home Corp Single Family Rev Mtg Ser F (AMT) (GNMA Collateralized)................... 6.250 12/01/16 637,718 ------------ 4,948,701 ------------ MISSOURI 5.2% 2,000 Curators Univ MO Sys Fac Rev Ser B Rfdg......... 5.000 11/01/20 2,072,720 4,000 Saint Louis, MO Arpt Rev Arpt Dev Pgm Ser A (MBIA Insd)..................................... 5.250 07/01/31 4,060,560 ------------ 6,133,280 ------------ NEBRASKA 2.6% 3,000 Omaha Convention Hotel Corp Convention Ctr First Tier Ser A (AMBAC Insd)......................... 5.125 04/01/32 3,029,040 ------------ NEW HAMPSHIRE 3.0% 1,000 New Hampshire Hlth & Ed Fac Auth Rev Derryfield Sch............................................. 7.000 07/01/30 996,890 1,500 New Hampshire Hlth & Ed Fac Hlthcare Sys Covenant Hlth (d)............................... 5.500 07/01/34 1,479,015 1,000 New Hampshire St Bus Fin Auth Wtr Fac Rev Pennichuck Wtrwks Inc (AMT) (AMBAC Insd)........ 6.300 05/01/22 1,105,870 ------------ 3,581,775 ------------
See Notes to Financial Statements 9 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- NEW JERSEY 3.2% $ 2,210 New Jersey Econ Dev Auth Wtr Fac Rev NJ American Wtr Co Inc Ser B (AMT) (FGIC Insd).............. 5.375% 05/01/32 $ 2,257,692 1,600 New Jersey Hlthcare Fac Fin Auth Rev Cap Hlth Sys Oblig Grp Ser A............................. 5.375 07/01/33 1,563,024 ------------ 3,820,716 ------------ NEW MEXICO 1.3% 1,500 Jicarilla, NM Apache Nation Rev Adj Ser A (Acquired 10/23/03, Cost $1,514,910) (e)........ 5.000 09/01/18 1,504,110 ------------ NEW YORK 14.7% 905 New York City Ser G............................. 6.000 02/01/11 983,219 2,095 New York City Ser G (Prerefunded @ 02/01/06).... 6.000 02/01/11 2,276,071 5,000 New York City Ser H (MBIA Insd)................. 5.250 03/15/14 5,382,150 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 2,312,177 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 3,174,600 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 3,188,730 ------------ 17,316,947 ------------ NORTH CAROLINA 1.4% 1,500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser D........................................... 6.700 01/01/19 1,657,065 ------------ OHIO 8.4% 3,000 Cincinnati, OH City Sch Dist Sch Impt (FSA Insd)........................................... 5.250 06/01/18 3,179,280 1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc Proj............................................ 7.500 01/01/30 1,101,400 1,000 Dayton, OH Arpt Rev James M Cox Dayton Ser C Rfdg (AMT) (Radian Insd)........................ 5.250 12/01/27 984,140 1,165 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg... 6.100 05/15/06 1,236,601 3,290 Pickerington, OH Loc Sch Dist Cap Apprec Sch Fac Contract (FGIC Insd)............................ * 12/01/11 2,433,843 900 Toledo Lucas Cnty, OH Port Auth Northwest Bd Fd Ser A (AMT)..................................... 6.000 05/15/11 949,293 ------------ 9,884,557 ------------ OKLAHOMA 4.3% 1,755 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev (AMBAC Insd)........................................... 6.250 11/01/22 2,019,654 2,785 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Ctr Proj Rfdg (Escrowed to Maturity) (Connie Lee Insd)........................................... 6.250 06/01/06 3,025,903 ------------ 5,045,557 ------------ OREGON 2.1% 2,010 Emerald Peoples Util Dist OR Rfdg (FGIC Insd)... 7.350 11/01/09 2,424,884 ------------
10 See Notes to Financial Statements VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- PENNSYLVANIA 1.8% $ 2,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev Colver Proj Ser D (AMT)......................... 7.150% 12/01/18 $ 2,067,460 ------------ SOUTH DAKOTA 0.9% 1,000 South Dakota St Hlth & Ed Fac Auth Rev Childrens Care Hosp Rfdg.................................. 6.125 11/01/29 1,045,700 ------------ TENNESSEE 2.3% 1,270 Elizabethton, TN Hlth & Ed Fac Brd Rev Impt Hosp First Mtg Ser B Rfdg............................ 8.000 07/01/33 1,467,612 1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev First Mtg Mtn St Hlth Ser A Rfdg (MBIA Insd).... 7.500 07/01/25 1,233,310 ------------ 2,700,922 ------------ TEXAS 15.1% 1,000 Brazos River Auth TX Pollutn Ctl Rev Adj TXU Elec Co Proj Ser C Rfdg (Variable Rate Coupon) (AMT)........................................... 5.750 05/01/36 1,057,330 1,050 Brownsville, TX Util Sys Rev (Escrowed to Maturity)....................................... 7.375 01/01/10 1,204,182 1,515 Cameron Cnty, TX Ctf Oblig (AMBAC Insd)......... 5.750 02/15/16 1,678,317 3,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt Jt Ser A Rfdg (AMT) (FGIC Insd)........................ 5.500 11/01/31 3,073,080 3,110 Houston, TX Arpt Sys Rev (Escrowed to Maturity)....................................... 9.500 07/01/10 3,837,087 1,000 Mesquite, TX Hlth Fac Dev Corp Retirement Fac Christian Care Ctr Ser A........................ 7.625 02/15/28 1,044,790 2,000 San Antonio, TX Elec & Gas Sys Rfdg............. 5.375 02/01/16 2,151,540 1,990 Stafford, TX Econ Dev Corp (FGIC Insd).......... 6.000 09/01/19 2,246,033 1,510 Texas St Wtr Fin Assistance..................... 5.500 08/01/35 1,559,498 ------------ 17,851,857 ------------ VIRGINIA 1.4% 1,595 Richmond, VA Indl Dev Auth Govt Fac Rev Bds (AMBAC Insd).................................... 5.000 07/15/16 1,710,287 ------------ WASHINGTON 2.7% 1,745 Clark Cnty, WA Sch Dist No 114 Evergreen (FSA Insd)........................................... 5.500 12/01/15 1,903,481 1,280 Pierce Cnty, WA Sch Dist No 343 Dieringer Impt Rfdg (FSA Insd)................................. 5.000 12/01/20 1,315,174 ------------ 3,218,655 ------------ WISCONSIN 2.2% 2,500 Milwaukee, WI Redev Auth Rev Milwaukee Pub Schs (AMBAC Insd).................................... 5.125 08/01/21 2,582,025 ------------ WYOMING 1.3% 1,500 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC Insd)........................................... 6.700 05/01/12 1,521,045 ------------
See Notes to Financial Statements 11 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- PUERTO RICO 6.1% $ 6,000 Puerto Rico Comwlth Hwy & Trans Auth Hwy Rev Ser Y Rfdg (FSA Insd)............................... 6.250% 07/01/21 $ 7,233,960 ------------ TOTAL INVESTMENTS 166.4% (Cost $187,427,134)........................................................ 196,117,174 OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%.................................. 1,808,027 PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (67.9%).................. (80,008,007) ------------ NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $117,917,194 ============
* Zero coupon bond (a) Security converts to a fixed coupon rate at a predetermined date. (b) 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (c) All or a portion of these securities have been physically segregated in connection with open futures contracts. (d) Securities purchased on a when-issued or delayed delivery basis. (e) These securities are restricted and may be resold only in transactions exempt from registration which are normally those transactions with qualified institutional buyers. Restricted securities comprise 1.3% of net assets applicable to common shares. AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax Connie Lee--Connie Lee Insurance Co. FGIC--Financial Guaranty Insurance Co. FNMA--Federal National Mortgage Association FSA--Financial Security Assurance Inc. GNMA--Government National Mortgage Association MBIA--Municipal Bond Investors Assurance Corp. Radian--Radian Asset Assurance XLCA--XL Capital Assurance Inc. 12 See Notes to Financial Statements VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II FINANCIAL STATEMENTS Statement of Assets and Liabilities April 30, 2004 (Unaudited) ASSETS: Total Investments (Cost $187,427,134)....................... $196,117,174 Cash........................................................ 293,265 Receivables: Interest.................................................. 3,220,200 Investments Sold.......................................... 1,210,707 Other....................................................... 1,782 ------------ Total Assets............................................ 200,843,128 ------------ LIABILITIES: Payables: Investments Purchased..................................... 2,453,355 Investment Advisory Fee................................... 98,304 Variation Margin on Futures............................... 60,437 Income Distributions--Common Shares....................... 21,390 Other Affiliates.......................................... 10,104 Administrative Fee........................................ 8,192 Trustees' Deferred Compensation and Retirement Plans........ 208,577 Accrued Expenses............................................ 57,568 ------------ Total Liabilities....................................... 2,917,927 Preferred Shares (including accrued distributions).......... 80,008,007 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $117,917,194 ============ NET ASSET VALUE PER COMMON SHARE ($117,917,194 divided by 8,175,881 shares outstanding)............................. $ 14.42 ============ NET ASSETS CONSIST OF: Common Shares ($.01 par value with an unlimited number of shares authorized, 8,175,881 shares issued and outstanding).............................................. $ 81,759 Paid in Surplus............................................. 108,295,261 Net Unrealized Appreciation................................. 9,337,028 Accumulated Undistributed Net Investment Income............. 1,470,850 Accumulated Net Realized Loss............................... (1,267,704) ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $117,917,194 ============ PREFERRED SHARES ($.01 par value, authorized 100,000,000 shares, 3,200 issued with liquidation preference of $25,000 per share)........................................ $ 80,000,000 ============ NET ASSETS INCLUDING PREFERRED SHARES....................... $197,917,194 ============
See Notes to Financial Statements 13 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II FINANCIAL STATEMENTS continued Statement of Operations For the Six Months Ended April 30, 2004 (Unaudited) INVESTMENT INCOME: Interest.................................................... $ 5,217,085 ----------- EXPENSES: Investment Advisory Fee..................................... 603,329 Preferred Share Maintenance................................. 115,488 Administrative Fee.......................................... 50,277 Trustees' Fees and Related Expenses......................... 43,732 Legal....................................................... 13,543 Custody..................................................... 6,883 Other....................................................... 74,452 ----------- Total Expenses.......................................... 907,704 ----------- NET INVESTMENT INCOME....................................... $ 4,309,381 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 711,625 Futures................................................... (1,162,220) ----------- Net Realized Loss........................................... (450,595) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 11,091,817 ----------- End of the Period: Investments............................................. 8,690,040 Futures................................................. 646,988 ----------- 9,337,028 ----------- Net Unrealized Depreciation During the Period............... (1,754,789) ----------- NET REALIZED AND UNREALIZED LOSS............................ $(2,205,384) =========== DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (370,766) =========== NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS................................................ $ 1,733,231 ===========
14 See Notes to Financial Statements VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II FINANCIAL STATEMENTS continued Statements of Changes in Net Assets (Unaudited)
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED APRIL 30, 2004 OCTOBER 31, 2003 ------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................... $ 4,309,381 $ 8,782,170 Net Realized Gain/Loss.................................. (450,595) 2,363,476 Net Unrealized Depreciation During the Period........... (1,754,789) (3,608,434) Distributions to Preferred Shareholders: Net Investment Income................................. (370,766) (805,099) ------------ ------------ Change in Net Assets Applicable to Common Shares from Operations............................................ 1,733,231 6,732,113 Distributions to Common Shareholders: Net Investment Income................................. (3,922,200) (8,184,010) ------------ ------------ NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM INVESTMENT ACTIVITIES............................ (2,188,969) (1,451,897) FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment.......................................... 115,004 -0- ------------ ------------ TOTAL DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES................................................ (2,073,965) (1,451,897) NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of the Period................................. 119,991,159 121,443,056 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $1,470,850 and $1,454,435, respectively)......................................... $117,917,194 $119,991,159 ============ ============
See Notes to Financial Statements 15 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II FINANCIAL HIGHLIGHTS (UNAUDITED) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS ENDED APRIL 30, ------------------------------ 2004 2003 2002 (a) 2001 -------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.......... $ 14.69 $ 14.87 $ 14.77 $ 13.46 ------- ------- ------- ------- Net Investment Income......................... .53 1.08 1.10 1.12 Net Realized and Unrealized Gain/Loss......... (.27) (.16) .10 1.23 Common Share Equivalent of Distributions Paid to Preferred Shareholders: Net Investment Income....................... (.05) (.10) (.14) (.32) ------- ------- ------- ------- Total from Investment Operations.................. .21 .82 1.06 2.03 Distributions Paid to Common Shareholders: Net Investment Income....................... (.48) (1.00) (.96) (.72) ------- ------- ------- ------- NET ASSET VALUE, END OF THE PERIOD................ $ 14.42 $ 14.69 $ 14.87 $ 14.77 ======= ======= ======= ======= Common Share Market Price at End of the Period.... $ 13.31 $ 13.90 $ 13.98 $ 12.95 Total Return (b).................................. -1.07%* 6.57% 15.64% 18.05% Net Assets Applicable to Common Shares at End of the Period (In millions)........................ $ 117.9 $ 120.0 $ 121.4 $ 120.6 Ratio of Expenses to Average Net Assets Applicable to Common Shares (c)............................ 1.49% 1.48% 1.58% 1.76% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c).......... 7.09% 7.23% 7.55% 7.89% Portfolio Turnover................................ 10%* 26% 45% 38% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (c)............................ .90% .89% .95% 1.04% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d).......... 6.48% 6.57% 6.59% 5.66% SENIOR SECURITIES: Total Preferred Shares Outstanding................ 3,200 3,200 3,200 3,200 Asset Coverage Per Preferred Share (e)............ $61,852 $62,499 $62,954 $62,695 Involuntary Liquidating Preference Per Preferred Share........................................... $25,000 $25,000 $25,000 $25,000 Average Market Value Per Preferred Share.......... $25,000 $25,000 $25,000 $25,000
* Non-Annualized (a)As required, effective November 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended October 31, 2002 was to increase net investment income per share by $.02, decrease net realized and unrealized gains and losses per share by $.02 and increase the ratio of net investment income to average net assets applicable to common shares by .17%. Per share, ratios, and supplemental data for periods prior to October 31, 2002 have not been restated to reflect this change in presentation. (b)Total return assumes an investment at the common share 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 share market price at the end of the period indicated. (c)Ratios do not reflect the effect of dividend payments to preferred shareholders. (d)Ratios reflect the effect of dividend payments to preferred shareholders. (e)Calculated by subtracting the Trust's total liabilities (not including the preferred shares) from the Trust's total assets and dividing this by the number of preferred shares outstanding. 16
YEAR ENDED OCTOBER 31, - ------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------ $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31 $ 11.93 $ 14.97 ------- -------- -------- -------- -------- -------- -------- 1.08 1.10 1.10 1.12 1.12 1.15 1.12 .64 (1.84) .54 .63 .19 1.45 (3.07) (.40) (.32) (.35) (.35) (.35) (.39) (.26) ------- -------- -------- -------- -------- -------- -------- 1.32 (1.06) 1.29 1.40 .96 2.21 (2.21) (.78) (.74) (.74) (.74) (.76) (.83) (.83) ------- -------- -------- -------- -------- -------- -------- $ 13.46 $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31 $ 11.93 ======= ======== ======== ======== ======== ======== ======== $11.625 $11.1875 $13.6875 $ 12.50 $ 11.50 $ 11.50 $ 9.875 11.15% -13.37% 15.87% 15.58% 6.82% 25.22% -27.65% $ 109.9 $ 105.6 $ 120.2 $ 115.7 $ 110.3 $ 108.7 $ 97.4 1.88% 1.79% 1.83% 1.88% 1.94% 1.98% 1.82% 8.35% 7.86% 7.67% 8.16% 8.42% 9.06% 8.24% 24% 36% 15% 16% 37% 79% 214% 1.07% 1.06% 1.09% 1.09% 1.12% 1.12% 1.09% 5.27% 5.60% 5.24% 5.61% 5.77% 6.01% 6.34% 3,200 3,200 1,600 1,600 1,600 1,600 1,600 $59,345 $ 57,986 $125,139 $122,327 $118,953 $117,963 $110,892 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements 17 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Advantage Municipal Income Trust II (the "Trust") is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Trust's investment objective is to seek 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. Effective November 30, 2003, the Trust's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management. 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. 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 segregate assets with its custodian 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, 2004, the Trust had $2,453,355 of when-issued or delayed delivery purchase commitments. C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Trust intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At October 31, 2003, the Trust had an 18 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued accumulated capital loss carryforward for tax purposes of $1,289,613 which will expire between October 31, 2005 and October 31, 2008. At April 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $186,875,357 ============ Gross tax unrealized appreciation........................... $ 9,706,855 Gross tax unrealized depreciation........................... (465,038) ------------ Net tax unrealized appreciation on investments.............. $ 9,241,817 ============
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly dividends from net investment income to common shareholders. Net realized gains, if any, are distributed annually on a pro rata basis to common and preferred shareholders. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included as ordinary income for tax purposes. The tax character of distributions paid during the year ended October 31, 2003 was as follows: Distributions paid from: Ordinary income........................................... $119,925 Long-term capital gain.................................... -0- -------- $119,925 ========
As of October 31, 2003, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $82,706
Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of the deferral of losses relating to wash sale transactions. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Asset Management (the "Adviser") provides investment advice and facilities to the Trust for an annual fee payable monthly of .60% of the average daily net assets of the Trust. In addition, the Trust pays a monthly administrative fee to Van Kampen Investments Inc. or its affiliates (collectively "Van Kampen"), the Trust's Administrator, at an annual rate of .05% of the average daily net assets of the Trust. Effective June 1, 2004, the administrative fee was reduced from ..05% to .00%. For the six months ended April 30, 2004, the Trust recognized expenses of approximately $6,400 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Trust. The Adviser allocates the cost of such services to each trust. For the six months ended April 30, 2004, the Trust recognized expenses of 19 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued approximately $15,500 representing Van Kampen's cost of providing accounting and legal services to the Trust, which are reported as part of "Other" and "Legal" expenses, respectively, on the Statement of Operations. Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable upon retirement 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, 2004, Van Kampen owned 6,700 common shares of the Trust. 3. CAPITAL TRANSACTIONS At April 30, 2004 and October 31, 2003, paid in surplus related to common shares aggregated $108,295,261 and $108,180,334, respectively. Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED APRIL 30, 2004 OCTOBER 31, 2003 Beginning Shares........................................ 8,168,211 8,168,211 Shares Issued Through Dividend Reinvestment............. 7,670 -0- --------- --------- Ending Shares........................................... 8,175,881 8,168,211 ========= =========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $27,225,025 and $19,765,806, respectively. 5. 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. In order to seek to manage the interest rate exposure of the Trust's portfolio in a changing interest rate environment, the Trust may purchase or sell financial futures contracts or engage in transactions involving interest rate swaps, caps, floors or collars. The Trust expects to enter into these transactions primarily as a hedge against anticipated interest rate or fixed-income market changes, for duration management or for risk management purposes, but may also enter into these transactions to generate additional income. 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 taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. During the period, the Trust invested in futures contracts, a type of derivative. 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 exchange traded futures contracts on 20 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued U.S. Treasury Bonds and Notes and typically closes the contract prior to the delivery date. Upon entering into futures contracts, the Trust maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a future commission merchant pursuant to rules and regulations promulgated under the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. 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). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the six months ended April 30, 2004 were as follows:
CONTRACTS Outstanding at October 31, 2003............................. 196 Futures Opened.............................................. 539 Futures Closed.............................................. (467) ---- Outstanding at April 30, 2004............................... 268 ====
The futures contracts outstanding as of April 30, 2004, and the descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION SHORT CONTRACTS: U.S. Treasury Notes 10-Year Futures June 2004 (Current Notional Value of $110,500 per contract)......... 48 $151,890 U.S. Treasury Notes 5-Year Futures June 2004 (Current Notional Value of $109,938 per contract)......... 220 495,098 --- -------- 268 $646,988 === ========
6. PREFERRED SHARES The Trust has outstanding 3,200 Auction Preferred Shares ("APS") in two series of 1,600 shares each. Dividends are cumulative and the dividend rate is generally reset every 7 days for both series through an auction process. The average rate in effect on April 30, 2004 was 1.035%. During the six months ended April 30, 2004, the rates ranged from 0.627% to 1.400%. 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 on the Statement of Operations. The APS are redeemable at the option of the Trust in whole or in part at the liquidation value of $25,000 per share plus accumulated and unpaid dividends. The Trust is subject to certain asset coverage tests and the APS are subject to mandatory redemption if the tests are not met. 21 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II 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 22 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II DIVIDEND REINVESTMENT PLAN continued of the Trust's Common Shares, resulting in the acquisition of fewer Common Shares than if the dividend or distribution had been paid in Common Shares issued by the Trust. All reinvestments are in full and fractional Common Shares and are carried to three decimal places. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the changes sent to all Common Shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent by at least 90 days written notice to all Common Shareholders of the Trust. COSTS OF THE PLAN The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. No other charges will be made to participants for reinvesting dividends or capital gains distributions, except for certain brokerage commissions, as described above. TAX IMPLICATIONS You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax which may be payable on dividends or distributions. RIGHT TO WITHDRAW Plan participants may withdraw at any time by calling 1-800-341-2929 or by writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200. If you withdraw, you will receive, without charge, a share certificate issued in your name for all full Common Shares credited to your account under the Plan and a cash payment will be made for any fractional Common Share credited to your account under the Plan. You may again elect to participate in the Plan at any time by calling 1-800-341-2929 or writing to the Trust at: Van Kampen Funds Inc. Attn: Closed-End Funds 2800 Post Oak Blvd. Houston, TX 77056 23 VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, NY 10020 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY c/o EquiServe P.O. Box 43011 Providence, Rhode Island 02940-3011 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 * "Interested persons" of the Trust, as defined in the Investment Company Act of 1940, as amended. 24 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you conduct with us, our affiliates, or third parties. We may also collect information you provide when using our Web site, and text files (also known as "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. VKI SAR 6/04 RN04-00743P-Y04/04 Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semi-annual reports. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. [Reserved.] Item 9. Controls and Procedures (a) The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a) Code of Ethics - Not applicable for semi-annual reports. (b)(1) A certification for the Principal Executive Officer of the registrant is attached hereto as part of EX-99.CERT. (b)(2) A certification for the Principal Financial Officer of the registrant is attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen Advantage Municipal Income Trust II By: /s/ Ronald E. Robison ----------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: June 22, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison ----------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: June 22, 2004 By: /s/ John L. Sullivan ----------------------- Name: John L. Sullivan Title: Principal Financial Officer Date: June 22, 2004 EX-99.CERT 2 c85441exv99wcert.txt CERTIFICATION I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Advantage Municipal Income Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: June 22, 2004 /s/ Ronald E. Robison --------------------------- Principal Executive Officer I, John L. Sullivan, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Advantage Municipal Income Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: b) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] e) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): c) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: June 22, 2004 /s/ John L. Sullivan --------------------- Principal Financial Officer EX-99.906CERT 3 c85441exv99w906cert.txt 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Advantage Municipal Income Trust II In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended April 30, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: June 22, 2004 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Advantage Municipal Income Trust II and will be retained by Van Kampen Advantage Municipal Income Trust II and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Advantage Municipal Income Trust II In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended April 30, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: June 22, 2004 /s/ John L. Sullivan --------------------------- John L. Sullivan Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Advantage Municipal Income Trust II and will be retained by Van Kampen Advantage Municipal Income Trust II and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. -----END PRIVACY-ENHANCED MESSAGE-----