As filed with the Securities and Exchange Commission on August 9, 2005
Securities Act File No. 333-126299
Investment Company Act File No. 811-7868
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO. __
(CHECK APPROPRIATE BOX OR BOXES)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
(800) 341-2929
(AREA CODE AND TELEPHONE NUMBER)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
AMY R. DOBERMAN, ESQ.
MANAGING DIRECTOR
VAN KAMPEN INVESTMENTS INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
CHARLES B. TAYLOR, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
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Approximate Date of Proposed Offering: As soon as practicable after this
Registration Statement is declared effective.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED PER UNIT PRICE FEE
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Common Shares ($0.01 par value) 42,219,728 $ 13.86 (1) $ 585,165,431 $ 68,874.00(2)
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Auction Preferred Shares ($0.01 par value) 13,600 $ 25,000 $ 340,000,000 $ 40,018.00(2)
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(1) Average of high and low reported price for common shares on August 4, 2005.
(2) Includes registration fee of $117.70 previously paid in connection with the
initial filing of the Registration Statement.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement is organized as follows:
- Questions and Answers to Shareholders of Van Kampen Municipal
Opportunity Trust II, Van Kampen Value Municipal Income Trust and Van
Kampen Advantage Municipal Income Trust II
- Notice of Joint Special Meeting of Shareholders of Van Kampen Municipal
Opportunity Trust II, Van Kampen Value Municipal Income Trust and Van
Kampen Advantage Municipal Income Trust II
- Joint Proxy Statement/Prospectus for Van Kampen Municipal Opportunity
Trust II, Van Kampen Value Municipal Income Trust and Van Kampen
Advantage Municipal Income Trust II
- Statement of Additional Information regarding the proposed
Reorganizations of Van Kampen Municipal Opportunity Trust II and Van
Kampen Value Municipal Income Trust into Van Kampen Advantage Municipal
Income Trust II
- Part C Information
- Exhibits
-- AUGUST 2005 --
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IMPORTANT NOTICE
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TO SHAREHOLDERS OF VAN KAMPEN
MUNICIPAL OPPORTUNITY TRUST II,
VAN KAMPEN
VALUE MUNICIPAL INCOME TRUST AND
VAN KAMPEN
ADVANTAGE MUNICIPAL INCOME TRUST II
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QUESTIONS & ANSWERS
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Although we recommend that you read the complete Joint Proxy Statement/
Prospectus, we have provided for your convenience a brief overview of the issues
to be voted on.
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Q WHY IS A SHAREHOLDER
MEETING BEING HELD?
A Shareholders of
Van Kampen Municipal Opportunity Trust II and Van Kampen Value Municipal Income
Trust: You are being asked to vote on a reorganization (each a "Reorganization"
and collectively the "Reorganizations") of your fund (each such fund being
referred to herein as a "Target Fund" and together as the "Target Funds") into
Van Kampen Advantage Municipal Income Trust II (the "Acquiring Fund"), a closed-
end fund that pursues the same investment objective and has similar investment
policies and which is managed by the same investment advisory personnel as the
Target Funds.
Shareholders of Van Kampen Advantage Municipal Income Trust II: You are being
asked to vote on the issuance of additional common shares of the Acquiring Fund
in connection with the Reorganizations.
Q WHY IS EACH
REORGANIZATION BEING RECOMMENDED?
A The Board of Trustees of
each Fund has determined that each Reorganization will benefit common
shareholders of the respective Target Fund and the Acquiring Fund. The Target
Funds and the Acquiring Fund are similar. Each Fund seeks to provide common
shareholders with a high level of current income exempt from federal income tax,
consistent with preservation of capital, by investing substantially all of its
assets in municipal securities rated investment grade at the time of investment.
Each Fund is managed by the same investment advisory personnel. After the
Reorganizations, it is anticipated that common shareholders of each Fund will
experience a reduced annual operating expense ratio, as certain fixed
administrative costs will be spread across the combined fund's larger asset
base. It is not anticipated that the Reorganizations will directly benefit
preferred shareholders of the Funds; however, the Reorganizations will not
adversely affect preferred shareholders, and none of the expenses of the
Reorganizations will be borne by preferred shareholders.
Q HOW WILL THE
REORGANIZATIONS AFFECT ME?
A Assuming shareholders
approve the Reorganizations of the Target Funds and shareholders of the
Acquiring Fund approve the issuance of additional common shares of the Acquiring
Fund, the assets and liabilities of the Target Funds will be combined with those
of the Acquiring Fund and the Target Funds will dissolve.
Shareholders of the Target Funds: You will become a shareholder of the Acquiring
Fund. If you are a holder of common shares of a Target Fund, you will receive
newly-issued common shares of the Acquiring Fund, the aggregate net asset value
of which will equal the aggregate net asset value of the common shares you held
immediately prior to the Reorganization, less the costs of the Reorganization
(though you may receive cash for fractional shares). If you are a holder of
preferred shares of a Target Fund, you will receive newly-issued preferred
shares of the Acquiring Fund, the aggregate liquidation preference of which will
equal the aggregate liquidation preference of the preferred shares you held
immediately prior to the Reorganization.
Shareholders of the Acquiring Fund: You will remain a shareholder of the
Acquiring Fund.
Q WILL I HAVE TO PAY ANY
SALES LOAD, COMMISSION OR OTHER SIMILAR FEE IN CONNECTION WITH THE
REORGANIZATIONS?
A You will pay no sales loads
or commissions in connection with the Reorganizations. However, if the
Reorganizations are completed, the costs associated with the Reorganizations,
including the costs associated with the shareholder meeting, will be borne by
common shareholders of the Target Funds and the Acquiring Fund in proportion to
their projected annual expense savings as a result of the Reorganizations.
Q WILL I HAVE TO PAY ANY
FEDERAL TAXES AS A RESULT OF THE REORGANIZATIONS?
A Each of the
Reorganizations is intended to qualify as a "reorganization" within the meaning
of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended. If the
Reorganizations so qualify, in general, shareholders of the Target Funds will
recognize no gain or loss upon the receipt solely of shares of the Acquiring
Fund in connection with the Reorganizations. Additionally, the Target Funds will
recognize no gain or loss as a result of the transfer of all of their assets and
liabilities in exchange for the shares of the Acquiring Fund or as a result of
their dissolution. Neither the Acquiring Fund nor its shareholders will
recognize any gain or loss in connection with the Reorganizations.
Q WHAT HAPPENS IF
SHAREHOLDERS OF ONE TARGET FUND DO NOT APPROVE ITS REORGANIZATION BUT
SHAREHOLDERS OF THE OTHER TARGET FUND DO APPROVE ITS REORGANIZATION?
A An unfavorable vote on a
proposed Reorganization by the shareholders of one Target Fund will not affect
the implementation of a Reorganization by the other Target Fund, if such
Reorganization is approved by the shareholders of such Target Fund and the
issuance of additional common shares is approved by the shareholders of the
Acquiring Fund.
Q WHY IS THE VOTE OF
COMMON SHAREHOLDERS OF THE ACQUIRING FUND BEING SOLICITED?
A Although the Acquiring
Fund will continue its legal existence and operations after the Reorganizations,
the rules of the American Stock Exchange and the Chicago Stock Exchange (on
which the Acquiring Fund's common shares are listed) require the Acquiring
Fund's common shareholders to approve the issuance of additional common shares
in connection with the Reorganizations. If the issuance of additional common
shares of the Acquiring Fund is not approved, neither Reorganization will occur.
Q HOW DOES THE BOARD OF
TRUSTEES OF MY FUND SUGGEST THAT I VOTE?
A After careful consideration,
the Board of Trustees of your fund recommends that you vote "FOR" the item
proposed for your fund.
Q HOW DO I VOTE MY PROXY?
A You may cast your vote by
mail, phone or internet. To vote by mail, please mark your vote on the enclosed
proxy card and sign, date and return the card in the postage-paid envelope
provided. If you choose to vote by phone or internet, please refer to the
instructions found on the proxy card accompanying this Joint Proxy
Statement/Prospectus. To vote by phone or internet, you will need the "control
number" that appears on the proxy card.
Q WHOM DO I CONTACT FOR
FURTHER INFORMATION?
A You can contact your
financial adviser for further information. You may also call Van Kampen's Client
Relations Department at (800) 341-2929 (Telecommunication Device for the Deaf
users may call (800) 421-2833) or visit our website at www.vankampen.com where
you can send us an e-mail message by selecting "Contact Us."
ABOUT THE PROXY CARD
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Please vote on the proposal(s) applicable to your fund using blue or black ink
to mark an X in one of the boxes provided on the proxy card.
SHAREHOLDERS OF VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II AND VAN KAMPEN VALUE
MUNICIPAL INCOME TRUST:
APPROVAL OF REORGANIZATION -- mark "For," "Against" or "Abstain."
COMMON SHAREHOLDERS OF VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II:
APPROVAL OF ISSUANCE OF ADDITIONAL COMMON SHARES -- mark "For," "Against" or
"Abstain."
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
VAN KAMPEN XXXXX
JOINT SPECIAL MEETING OF SHAREHOLDERS
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
FOR AGAINST ABSTAIN
1. The proposal to [ ] [ ] [ ] 2. The proposal to issue additional
approve the common shares. FOR AGAINST ABSTAIN
Reorganization. [ ] [ ] [ ]
3. To transact such other business as may
properly come before the Meeting or any
adjournment thereof.
Please be sure to sign and date this Proxy, Date
Shareholder sign here Co-owner sign here
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SAMPLE
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II,
VAN KAMPEN VALUE MUNICIPAL
INCOME TRUST
AND
VAN KAMPEN ADVANTAGE MUNICIPAL
INCOME TRUST II
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 23, 2005
Notice is hereby given that a joint special meeting of shareholders (the
"Special Meeting") of Van Kampen Municipal Opportunity Trust II ("Municipal
Opportunity Trust II"), Van Kampen Value Municipal Income Trust ("Value
Municipal Income Trust") and Van Kampen Advantage Municipal Income Trust II (the
"Acquiring Fund") will be held at the offices of Van Kampen Investments Inc., 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555 on September 23, 2005 at
11:00 a.m. for the following purposes:
1. Approval of Reorganizations:
a. For shareholders of Municipal Opportunity Trust II:
To approve an Agreement and Plan of Reorganization between Municipal
Opportunity Trust II and the Acquiring Fund, the termination of
Municipal Opportunity Trust II's registration under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the dissolution
of Municipal Opportunity Trust II under applicable state law;
b. For shareholders of Value Municipal Income Trust:
To approve an Agreement and Plan of Reorganization between Value
Municipal Income Trust and the Acquiring Fund, the termination of Value
Municipal Income Trust's registration under the 1940 Act, and the
dissolution of Value Municipal Income Trust under applicable state law;
2. Approval of Issuance of Common Shares:
For common shareholders of the Acquiring Fund:
To approve the issuance of additional common shares of the Acquiring
Fund in connection with each Agreement and Plan of Reorganization; and
3. Other Business:
For shareholders of each fund:
To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
Shareholders of record as of the close of business on July 29, 2005 are
entitled to vote at the Special Meeting or any adjournment thereof.
THE BOARD OF TRUSTEES OF MUNICIPAL OPPORTUNITY TRUST II, VALUE MUNICIPAL
INCOME TRUST AND THE ACQUIRING FUND REQUESTS THAT YOU VOTE YOUR SHARES BY
INDICATING YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATING AND
SIGNING SUCH PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHICH IS
ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES, OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE
INTERNET.
THE BOARD OF TRUSTEES OF MUNICIPAL OPPORTUNITY TRUST II AND VALUE MUNICIPAL
INCOME TRUST RECOMMENDS THAT YOU CAST YOUR VOTE:
- FOR THE REORGANIZATION OF YOUR FUND PURSUANT TO AN AGREEMENT AND PLAN OF
REORGANIZATION AS DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS.
THE BOARD OF TRUSTEES OF THE ACQUIRING FUND RECOMMENDS THAT YOU CAST YOUR
VOTE:
- FOR THE ISSUANCE OF ADDITIONAL COMMON SHARES OF THE ACQUIRING FUND IN
CONNECTION WITH EACH AGREEMENT AND PLAN OF REORGANIZATION AS DESCRIBED IN
THE JOINT PROXY STATEMENT/PROSPECTUS.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY CARD OR RECORD YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA
THE INTERNET PROMPTLY.
For the Board of Trustees,
Lou Anne McInnis
Assistant Secretary
Van Kampen Municipal
Opportunity Trust II
Van Kampen Value
Municipal Income Trust
Van Kampen Advantage Municipal
Income Trust II
August 9, 2005
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YOUR VOTE IS IMPORTANT.
PLEASE VOTE PROMPTLY BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE
OR VIA THE INTERNET NO MATTER HOW MANY SHARES YOU OWN.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 9, 2005
JOINT PROXY STATEMENT/PROSPECTUS
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II,
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
AND
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
JOINT SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 23, 2005
This Joint Proxy Statement/Prospectus is furnished to you as a shareholder of
Van Kampen Municipal Opportunity Trust II ("Municipal Opportunity Trust II"),
Van Kampen Value Municipal Income Trust ("Value Municipal Income Trust") and/or
Van Kampen Advantage Municipal Income Trust II (the "Acquiring Fund"). A joint
special meeting of shareholders of Municipal Opportunity Trust II, Value
Municipal Income Trust and the Acquiring Fund (the "Special Meeting") will be
held at the offices of Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555 on September 23, 2005 at 11:00 a.m. to consider the
items listed below and discussed in greater detail elsewhere in this Joint Proxy
Statement/Prospectus. If you are unable to attend the Special Meeting or any
adjournment thereof, the Board of Trustees of each fund requests that you vote
your shares by completing and returning the enclosed proxy card or by recording
your voting instructions by telephone or via the internet. The approximate
mailing date of this Joint Proxy Statement/Prospectus and accompanying form of
proxy is August 12, 2005.
The purposes of the Special Meeting are:
1. Approval of Reorganizations:
a. For shareholders of Municipal Opportunity Trust II:
To approve an Agreement and Plan of Reorganization between Municipal
Opportunity Trust II and the Acquiring Fund, the termination of
Municipal Opportunity Trust II's registration under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the dissolution
of Municipal Opportunity Trust II under applicable state law;
b. For shareholders of Value Municipal Income Trust:
To approve an Agreement and Plan of Reorganization between Value
Municipal Income Trust and the Acquiring Fund, the termination of Value
Municipal Income Trust's registration under the 1940 Act, and the
dissolution of Value Municipal Income Trust under applicable state law;
2. Approval of Issuance of Common Shares:
For common shareholders of the Acquiring Fund:
To approve the issuance of additional common shares of the Acquiring
Fund in connection with each Agreement and Plan of Reorganization; and
3. Other Business:
For shareholders of each fund:
To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
Municipal Opportunity Trust II and Value Municipal Income Trust are sometimes
referred to herein individually as a "Target Fund" or collectively as the
"Target Funds." The Target Funds and the Acquiring Fund are sometimes referred
to herein each as a "Fund" and collectively as the "Funds." Each Agreement and
Plan of Reorganization is sometimes referred to herein individually as a
"Reorganization Agreement" or collectively as the "Reorganization Agreements."
Each Reorganization Agreement that Target Fund shareholders are being asked to
consider involves a transaction that will be referred to in this Joint Proxy
Statement/Prospectus individually as a "Reorganization" and collectively as the
"Reorganizations."
The Reorganizations seek to combine three similar Funds to achieve certain
economies of scale and other operational efficiencies. The investment objective
of each Fund is to seek to provide common shareholders with a high level of
current income exempt from federal income tax, consistent with preservation of
capital. Each Fund seeks to achieve its investment objective by investing
substantially all of its assets in municipal securities rated investment grade
at the time of investment. In each Reorganization, the Acquiring Fund will
acquire substantially all of the assets and assume substantially all of the
liabilities of the Target Fund in exchange for an equal aggregate value of
newly-issued common shares of beneficial interest of the Acquiring Fund, par
value $0.01 per share ("Acquiring Fund Common Shares"), and newly-issued auction
preferred shares of the Acquiring Fund with a par value of $0.01 per share and a
liquidation preference of $25,000 per share ("Acquiring Fund APS"). The Target
Fund will distribute Acquiring Fund Common Shares to common shareholders of the
Target Fund and Acquiring Fund APS to preferred shareholders of the Target Fund,
and will then terminate its registration under the 1940 Act and dissolve under
applicable state law. The aggregate net asset value of Acquiring Fund Common
Shares received in each Reorganization will equal the aggregate net asset value
of Target Fund common shares held
2
immediately prior to such Reorganization, less the costs of such Reorganization
(though common shareholders may receive cash for their fractional shares). The
aggregate liquidation preference of Acquiring Fund APS received in each
Reorganization will equal the aggregate liquidation preference of Target Fund
preferred shares held immediately prior to such Reorganization. The Acquiring
Fund will continue to operate after the Reorganizations as a registered
closed-end investment company with the investment objective and policies
described in this Joint Proxy Statement/Prospectus.
In connection with the Reorganizations, common shareholders of the Acquiring
Fund are being asked to approve the issuance of additional Acquiring Fund Common
Shares.
The Board of Trustees of each Fund has determined that including these
proposals in one Joint Proxy Statement/Prospectus will reduce costs and is in
the best interests of each Fund's shareholders.
In the event that shareholders of one or both of the Target Funds do not
approve the Reorganization(s), such Target Fund(s) will continue to exist and
the Board of Trustees of such Target Fund(s) will consider what additional
action, if any, to take. In the event Acquiring Fund common shareholders do not
approve the issuance of additional Acquiring Fund Common Shares, then all of the
Funds will continue to exist and the respective Board of Trustees of each Fund
will consider what additional action, if any, to take.
This Joint Proxy Statement/Prospectus sets forth concisely the information
shareholders of each Fund should know before voting on the proposals for their
Fund and constitutes an offering of Acquiring Fund Common Shares and Acquiring
Fund APS. Please read it carefully and retain it for future reference. A
Statement of Additional Information, dated August 9, 2005, relating to this
Joint Proxy Statement/Prospectus (the "Reorganization Statement of Additional
Information") has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated herein by reference. If you wish to request the
Reorganization Statement of Additional Information, please ask for the
"Reorganization Statement of Additional Information." Copies of each Fund's most
recent annual report and semi-annual report can be obtained on a web site
maintained by Van Kampen Investments Inc. at www.vankampen.com. In addition,
each Fund will furnish, without charge, a copy of the Reorganization Statement
of Additional Information, its most recent annual report and any more recent
semi-annual report to any shareholder upon request. Any such request should be
directed to the Van Kampen Client Relations Department by calling (800) 341-2929
(TDD users may call (800) 421-2833) or by writing to the respective Fund at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555. The
address of the principal executive offices of the Funds is 1221 Avenue of the
Americas, New York, New York 10020, and the telephone number is (800) 341-2929.
3
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith file reports,
proxy statements, proxy material and other information with the SEC. Materials
filed with the SEC can be reviewed and copied at the SEC's Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549 or downloaded from the SEC's web
site at www.sec.gov. Information on the operation of the SEC's Public Reference
Room may be obtained by calling the SEC at (202) 551-8090. You can also request
copies of these materials, upon payment at the prescribed rates of a duplicating
fee, by electronic request to the SEC's e-mail address (publicinfo@sec.gov) or
by writing the Public Reference Branch, Office of Consumer Affairs and
Information Services, SEC, Washington, DC, 20549-0102.
The Acquiring Fund Common Shares are listed on the American Stock Exchange
(the "AMEX") and the Chicago Stock Exchange (the "CHX") under the ticker symbol
"VKI" and will continue to be so listed subsequent to the Reorganizations.
Reports, proxy statements and other information concerning the Acquiring Fund
may be inspected at the offices of the AMEX, 86 Trinity Place, New York, New
York 10006. The common shares of Municipal Opportunity Trust II are listed on
the New York Stock Exchange (the "NYSE") and the CHX under the ticker symbol
"VOT." The common shares of Value Municipal Income Trust are listed on the NYSE
and the CHX under the ticker symbol "VKV." Reports, proxy statements and other
information concerning Municipal Opportunity Trust II and Value Municipal Income
Trust may be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
This Joint Proxy Statement/Prospectus serves as a prospectus of the Acquiring
Fund in connection with the issuance of Acquiring Fund Common Shares and
Acquiring Fund APS in each Reorganization. No person has been authorized to give
any information or make any representation not contained in this Joint Proxy
Statement/Prospectus and, if so given or made, such information or
representation must not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is unlawful to make such offer or solicitation.
The Board of Trustees of each Fund knows of no business other than that
discussed above that will be presented for consideration at the Special Meeting.
If any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
---------------------
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is August 9, 2005.
4
TABLE OF CONTENTS
PAGE
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SUMMARY..................................................... 7
PROPOSAL 1: REORGANIZATIONS OF THE TARGET FUNDS............. 14
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 15
Market Risk............................................... 15
Interest Rate Risk........................................ 15
Credit Risk............................................... 15
Income Risk............................................... 16
Call Risk................................................. 16
Municipal Securities Risk................................. 16
Risks of Using Strategic Transactions..................... 16
Manager Risk.............................................. 16
Market Discount Risk...................................... 17
Leverage Risk............................................. 17
Anti-Takeover Provisions.................................. 19
Special Risks Related to Preferred Shares................. 19
COMPARISON OF THE FUNDS..................................... 20
Investment Objective and Policies......................... 20
Other Investment Practices and Policies................... 23
Investment Restrictions................................... 25
Management of the Funds................................... 27
Other Service Providers................................... 31
Capitalization............................................ 31
Additional Information about Common Shares of the Funds... 33
Additional Information about Preferred Shares of the
Funds................................................... 37
Governing Law............................................. 41
Certain Provisions of the Declarations of Trust........... 41
Conversion to Open-End Funds.............................. 43
Voting Rights............................................. 43
Financial Highlights...................................... 45
INFORMATION ABOUT THE REORGANIZATIONS....................... 48
General................................................... 48
Terms of the Reorganization Agreements.................... 49
Material U.S. Federal Income Tax Consequences of the
Reorganizations......................................... 51
Shareholder Approval...................................... 53
5
PAGE
----
PROPOSAL 2: ISSUANCE OF ADDITIONAL ACQUIRING FUND COMMON
SHARES.................................................... 54
Shareholder Approval...................................... 54
OTHER INFORMATION........................................... 55
Voting Information and Requirements....................... 55
Shareholder Information................................... 56
Section 16(a) Beneficial Ownership Reporting Compliance... 58
Shareholder Proposals..................................... 58
Solicitation of Proxies................................... 58
Legal Matters............................................. 59
Other Matters to Come Before the Meeting.................. 59
EXHIBIT I: DESCRIPTION OF SECURITIES RATINGS................ I-1
6
------------------------------------------------------------------------------
SUMMARY
------------------------------------------------------------------------------
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus and is qualified in its entirety by reference
to the more complete information contained in this Joint Proxy
Statement/Prospectus and in the Reorganization Statement of Additional
Information. Shareholders should read the entire Joint Proxy
Statement/Prospectus carefully.
PROPOSAL 1: REORGANIZATIONS OF THE TARGET FUNDS
THE PROPOSED REORGANIZATIONS. The Board of Trustees of each Fund, including
the trustees who are not "interested persons" of each Fund (as defined in the
1940 Act), has unanimously approved each Reorganization Agreement. If the
shareholders of a Target Fund approve their Reorganization Agreement and the
common shareholders of the Acquiring Fund approve the issuance of Acquiring Fund
Common Shares (see Proposal 2: "Issuance of Additional Acquiring Fund Common
Shares"), Acquiring Fund Common Shares and Acquiring Fund APS will be issued to
the common shareholders and preferred shareholders of such Target Fund,
respectively, in exchange for substantially all of the assets of the Target Fund
and the assumption of substantially all of the liabilities of the Target Fund.
The Target Fund will then terminate its registration under the 1940 Act and
dissolve under applicable state law. The aggregate net asset value of Acquiring
Fund Common Shares received in the Reorganization will equal the aggregate net
asset value of Target Fund common shares held immediately prior to the
Reorganization, less the costs of the Reorganization (though common shareholders
may receive cash for fractional shares). The aggregate liquidation preference of
Acquiring Fund APS received in the Reorganization will equal the aggregate
liquidation preference of Target Fund preferred shares held immediately prior to
the Reorganization.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATIONS. The Reorganizations
seek to combine three similar Funds to achieve certain economies of scale and
other operational efficiencies. Each Fund is registered as a diversified,
closed-end management investment company under the 1940 Act. The investment
objective of each Fund is to seek to provide common shareholders with a high
level of current income exempt from federal income tax, consistent with
preservation of capital. Each Fund seeks to achieve its investment objective,
under normal market conditions, by investing substantially all of its assets in
municipal securities rated investment grade at the time of investment. Each Fund
may invest an unlimited portion of its assets in municipal securities that pay
interest that is subject to the alternative minimum tax provisions of federal
tax law. The Funds are managed by the same investment advisory personnel.
7
The proposed Reorganizations will combine the assets of these similar Funds by
reorganizing the Target Funds into the Acquiring Fund. The Board of Trustees of
each Target Fund (the "Target Fund Board"), based upon its evaluation of all
relevant information, anticipates that the common shareholders of each Target
Fund will benefit from their Fund's respective Reorganization. The Board of
Trustees of the Acquiring Fund (the "Acquiring Fund Board"), based upon its
evaluation of all relevant information, anticipates that each Reorganization
will benefit holders of Acquiring Fund Common Shares. Each Board believes, based
on data presented by Van Kampen Asset Management, investment adviser to each of
the Funds (the "Adviser"), that common shareholders of each Fund will experience
a reduced annual operating expense ratio as a result of their Fund's respective
Reorganization. The combined fund resulting from the Reorganizations will have a
larger asset base than any of the Funds has currently; certain fixed
administrative costs, such as costs of printing shareholder reports and proxy
statements, legal expenses, audit fees, mailing costs and other expenses, will
be spread across this larger asset base, thereby lowering the expense ratio for
common shareholders of the combined fund.
8
The table below illustrates the anticipated reduction in operating expenses
expected as a result of the Reorganizations. The table sets forth (i) the fees,
expenses and distributions to preferred shareholders paid by the Target Funds
for the 12-month period ended January 31, 2005, (ii) the fees, expenses and
distributions to preferred shareholders paid by the Acquiring Fund for the
12-month period ended January 31, 2005 and (iii) the pro forma fees, expenses
and distributions to preferred shareholders for the Acquiring Fund for the
12-month period ended January 31, 2005, assuming each of the Reorganizations had
been completed at the beginning of such period. As shown below, the
Reorganizations are expected to result in decreased total annual expenses for
shareholders of each Fund (although such savings will not be immediately
realized (see footnote (c) to the table)).
FEE, EXPENSE AND DISTRIBUTIONS ON PREFERRED SHARES TABLE
FOR COMMON SHAREHOLDERS OF THE FUNDS
AS OF JANUARY 31, 2005
PRO
ACTUAL FORMA(F)
------------------------------------- ----------
VAN KAMPEN VAN KAMPEN VAN KAMPEN
VAN KAMPEN VALUE ADVANTAGE ADVANTAGE
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
OPPORTUNITY INCOME INCOME INCOME
TRUST II TRUST TRUST II TRUST II
(VOT) (VKV) (VKI) (VKI)
----------- ---------- ---------- ----------
Common Shareholder Transaction
Expenses(a):
Maximum Sales Load (as a percentage
of offering price)(b)(c).......... None None None None
Dividend Reinvestment Plan Fees..... None None None None
Annual Expenses (as a percentage of
net assets attributable to common
shares):
Investment Advisory Fees(d)......... 0.91% 0.89% 0.92% 0.90%
Interest Payments on Borrowed
Funds............................. 0.00% 0.00% 0.00% 0.00%
Other Expenses(c)................... 0.37% 0.30% 0.40% 0.26%
----- ----- ----- -----
Total Annual Expenses(d).......... 1.28% 1.19% 1.32% 1.16%
----- ----- ----- -----
Distributions
Distributions on Preferred
Shares(e)......................... 0.76% 0.75% 0.80% 0.76%
----- ----- ----- -----
Total Annual Expenses and
Distributions on Preferred
Shares.......................... 2.04% 1.94% 2.12% 1.92%
----- ----- ----- -----
---------------
(a)No expense information is presented with respect to preferred shares because
holders of preferred shares do not bear any transaction or operating expenses
of any of the Funds and will not bear any of the Reorganization expenses or
any transaction or operating expenses of the combined fund.
(b)Common shares purchased in the secondary market may be subject to brokerage
commissions or other charges. No sales load will be charged on the issuance
of common shares in the Reorganizations. Common shares are not available for
purchase from the Funds but may be purchased through a broker-dealer subject
to individually negotiated commission rates.
9
(c)In connection with the Reorganizations, there are certain other transaction
expenses which include, but are not limited to: all costs related to the
preparation, printing and distributing of this Joint Proxy
Statement/Prospectus to shareholders; costs related to preparation and
distribution of materials distributed to each Fund's Board of Trustees; all
expenses incurred in connection with the preparation of the Reorganization
Agreements and the registration statement on Form N-14; SEC and state
securities commission filing fees; legal and audit fees; portfolio transfer
taxes (if any); and any similar expenses incurred in connection with the
Reorganizations. In accordance with applicable SEC rules, the Board of
Trustees of each Fund reviewed the fees and expenses that will be borne
directly or indirectly by the Funds in connection with the Reorganizations.
After considering various alternatives for allocating these costs, the Board
of Trustees of each Fund agreed that, in the event the Reorganizations are
approved and completed, the expenses of the Reorganizations will be shared by
the Target Funds and the Acquiring Fund in proportion to their projected
annual expense savings as a result of the Reorganizations. The table below
summarizes each Fund's net assets (common shares only) at January 31, 2005,
projected annual expense savings to each Fund as a result of the
Reorganizations, allocation of Reorganization expenses among the Funds in
dollars and percentages, an estimated pay-back period (in years) and the
resulting effect on each Fund's net asset value per common share at January
31, 2005. Some Funds will benefit more from projected annual expense savings
of the Reorganizations than other Funds. The projected annual expense savings
are generally not expected to be immediately realized. If shareholders sell
their common shares prior to the estimated pay-back period, then they may not
realize any of the projected expense savings resulting from the reduced
expense ratio of the combined fund. The net asset value per common share of
each Fund will be reduced at the closing date of the respective
Reorganization to reflect the allocation of Reorganization expenses to each
Fund. The reduction in net asset value per common share resulting from the
allocation of Reorganization expenses, when compared to the relative net
asset sizes of each Fund involved in the Reorganizations, will be greater in
some Funds than others. In the event a Reorganization is not completed, the
Adviser will bear the costs associated with such Reorganization. The numbers
presented in the table are estimates; actual results may differ.
REDUCTION TO
PROJECTED ESTIMATED NET ASSET
NET ASSETS ANNUAL REORGANIZATION PAYBACK VALUE PER
(COMMON EXPENSE EXPENSE ALLOCATION PERIOD COMMON
FUND SHARES ONLY) SAVINGS IN DOLLARS/PERCENTAGE (IN YEARS) SHARE
---- ------------ --------- --------------------- ----------- ------------
VOT.................. $179,748,442 $215,698 $205,829/41% 0.95 $0.018
VKV.................. 374,324,371 112,297 105,420/21% 0.94 0.004
VKI.................. 123,228,168 197,165 190,760/38% 0.97 0.023
-----------
Total Expenses....... 502,000/100%
(d)Expense information has been restated to reflect permanent reductions made to
administrative fees of each Fund effective as of June 1, 2004 and permanent
reductions made to management fees of each Fund effective as of November 1,
2004. If assets attributable to preferred shares were included, the
investment advisory fee would be 0.55% for each Fund and for the Acquiring
Fund on a pro forma basis.
(e)In seeking to enhance the income for its common shareholders, each of the
Funds uses preferred shares as financial leverage. Leverage created by
borrowing or other forms of indebtedness would create interest expenses which
would, if used by the Funds, be charged to common shareholders (shown above
as "Interest Payments on Borrowed Funds"). Leverage created by preferred
shares creates dividend payments and/or capital gains distributions to
preferred shareholders which are charged to common shareholders
10
(shown above as "Distributions on Preferred Shares"). The dividend rates are
based on periodic auctions as described herein and thus will differ based on
varying market conditions at the times of such auctions.
(f)As described above the table, the pro forma column shown above assumes all of
the Reorganizations are completed. As described herein, an unfavorable vote
by one of the Target Funds will not affect the implementation of the
Reorganization by the other Target Fund if approved by such other Target
Fund. As such, there could be other combinations of approved Reorganizations,
and the pro forma columns below present these various combinations.
Pro Forma
-------------------
ANNUAL EXPENSES VOT and VKV and
(as a percentage of net assets attributable to common shares): VKI Only VKI Only
-------------------------------------------------------------- -------- --------
Investment Advisory Fees(d).............................. 0.91% 0.90%
Interest Payments on Borrowed Funds...................... 0.00% 0.00%
Other Expenses........................................... 0.32% 0.27%
---- ----
Total Annual Expenses(d)............................... 1.23% 1.17%
---- ----
Distributions
Distributions on Preferred Shares(e)..................... 0.78% 0.76%
---- ----
Total Annual Expenses and Distributions on Preferred
Shares............................................... 2.01% 1.93%
---- ----
EXAMPLE. The following example is intended to help you compare the costs of
investing in the Acquiring Fund pro forma after the Reorganizations with the
costs of investing in the Target Funds and the Acquiring Fund without the
Reorganizations. An investor would pay the following expenses on a $1,000
investment, assuming (1) the operating expense ratio for each Fund (as a
percentage of net assets attributable to common shares) set forth in the table
above and (2) a 5% annual return throughout the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Van Kampen Municipal Opportunity Trust
II (VOT)............................ $13 $41 $70 $155
Van Kampen Value Municipal Income
Trust (VKV)......................... $12 $38 $65 $144
Van Kampen Advantage Municipal Income
Trust II (VKI)...................... $13 $42 $72 $159
Pro Forma -- Van Kampen Advantage
Municipal Income Trust II(a)
(VKI)............................... $12 $37 $64 $141
---------------
(a)Consistent with footnote (f) to the preceding table, the pro forma row shown
above assumes each of the Reorganizations is completed. As described herein,
an unfavorable vote by one of the Target Funds will not affect the
implementation of the Reorganization of the other Target Fund if approved by
such other
11
Target Fund. This means that there could be other combinations of approved
Reorganizations, and the pro forma rows below present these various
combinations:
PRO FORMA 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------ ------- ------- --------
VOT and VKI only.................. $13 $39 $68 $149
VKV and VKI only.................. $12 $37 $64 $142
The example set forth above assumes the reinvestment of all dividends and
distributions. The example should not be considered a representation of past or
future expenses or annual rates of return. Actual expenses or annual rates of
return may be more or less than those assumed for purposes of the example.
FURTHER INFORMATION REGARDING THE REORGANIZATIONS. The Target Fund Board has
determined that each Reorganization is in the best interests of common
shareholders of the respective Target Fund and that the interests of such
shareholders will not be diluted as a result of their Fund's Reorganization.
Similarly, the Acquiring Fund Board has determined that each Reorganization is
in the best interests of common shareholders of the Acquiring Fund and that the
interests of such shareholders will not be diluted as a result of any
Reorganization. It is not anticipated that the Reorganizations will directly
benefit preferred shareholders of any of the Funds; however, the Reorganizations
will not materially adversely affect preferred shareholders of any of the Funds,
and the expenses of the Reorganizations will not be borne by preferred
shareholders of any of the Funds. As a result of the Reorganizations, however,
shareholders of each Fund will hold a reduced percentage of ownership in the
larger combined fund than they did in any of the separate Funds.
Each Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"). If the Reorganizations so qualify, in general,
shareholders of the Target Funds will recognize no gain or loss upon the receipt
of shares of the Acquiring Fund in connection with the Reorganizations.
Additionally, the Target Funds will recognize no gain or loss as a result of the
transfer of all of their assets and liabilities in exchange for shares of the
Acquiring Fund or as a result of their dissolution. Neither the Acquiring Fund
nor its shareholders will recognize any gain or loss in connection with the
Reorganizations.
The Target Fund Board requests that shareholders of each Target Fund approve
their Fund's proposed Reorganization at the Special Meeting to be held on
September 23, 2005. Shareholder approval of each Reorganization requires the
affirmative vote of shareholders of the respective Target Fund representing more
than 50% of the outstanding common shares and preferred shares of such Target
Fund entitled to vote, each voting separately as a class. Subject to the
requisite
12
approval of the shareholders of each Fund with regard to each Reorganization, it
is expected that the closing date of the transaction (the "Closing Date") will
be after the close of business on or about October 7, 2005, but it may be at a
different time as described herein.
The Target Fund Board recommends that you vote "FOR" your Target Fund's
proposed Reorganization.
PROPOSAL 2: ISSUANCE OF ADDITIONAL ACQUIRING FUND COMMON SHARES
In connection with each proposed Reorganization described under "Proposal 1:
Reorganizations of the Target Funds," the Acquiring Fund will issue additional
Acquiring Fund Common Shares and list such shares on the AMEX and CHX. The
Acquiring Fund will acquire substantially all of the assets and assume
substantially all of the liabilities of each Target Fund in exchange for
newly-issued Acquiring Fund Common Shares and newly-issued Acquiring Fund APS.
The Reorganizations will result in no reduction of the net asset value of the
Acquiring Fund Common Shares, other than to reflect the costs of the
Reorganizations. No gain or loss will be recognized by the Acquiring Fund or its
shareholders in connection with the Reorganization. The Acquiring Fund Board,
based upon its evaluation of all relevant information, anticipates that each
Reorganization will benefit holders of Acquiring Fund Common Shares. In
particular, the Acquiring Fund Board believes, based on data presented by the
Adviser, that the Acquiring Fund will experience a reduced annual operating
expense ratio as a result of the Reorganizations.
The Acquiring Fund Board requests that common shareholders of the Acquiring
Fund approve the issuance of additional Acquiring Fund Common Shares at the
Special Meeting to be held on September 23, 2005. Shareholder approval of the
issuance of additional Acquiring Fund Common Shares requires the affirmative
vote of a majority of the votes cast on the proposal, provided that total votes
cast on the proposal represent over 50% in interest of all securities entitled
to vote on the matter. Subject to the requisite approval of the shareholders of
each Fund with regard to the Reorganizations, it is expected that the Closing
Date will be after the close of business on or about October 7, 2005, but it may
be at a different time as described herein.
The Acquiring Fund Board recommends that you vote "FOR" the issuance of
additional Acquiring Fund Common Shares in connection with the Reorganizations.
13
------------------------------------------------------------------------------
PROPOSAL 1: REORGANIZATIONS OF THE TARGET FUNDS
------------------------------------------------------------------------------
The Reorganizations seek to combine three similar Funds to achieve certain
economies of scale and other operational efficiencies. Each Fund is registered
as a diversified, closed-end management investment company under the 1940 Act.
The investment objective of each Fund is to seek to provide common shareholders
with a high level of current income exempt from federal income tax, consistent
with preservation of capital. Each Fund seeks to achieve its investment
objective, under normal market conditions, by investing substantially all of its
assets in municipal securities rated investment grade at the time of investment.
The Funds are managed by the same investment advisory personnel.
In each Reorganization, the Acquiring Fund will acquire substantially all of
the assets and assume substantially all of the liabilities of the Target Fund in
exchange for an equal aggregate value of Acquiring Fund Common Shares and
Acquiring Fund APS. The Target Fund will distribute Acquiring Fund Common Shares
to common shareholders of the Target Fund and Acquiring Fund APS to preferred
shareholders of the Target Fund, and will then terminate its registration under
the 1940 Act and dissolve under applicable state law. The aggregate net asset
value of Acquiring Fund Common Shares received in the Reorganization will equal
the aggregate net asset value of the Target Fund common shares held immediately
prior to the Reorganization, less the costs of the Reorganization (though common
shareholders may receive cash for fractional shares). The aggregate liquidation
preference of Acquiring Fund APS received in the Reorganization will equal the
aggregate liquidation preference of Target Fund preferred shares held
immediately prior to the Reorganization. The Acquiring Fund will continue to
operate as a registered closed-end investment company with the investment
objective and policies described in this Joint Proxy Statement/Prospectus.
The Target Fund Board, based upon its evaluation of all relevant information,
anticipates that the common shareholders of each Target Fund will benefit from
their Fund's respective Reorganization. In particular, the Target Fund Board
believes, based on data presented by the Adviser, that common shareholders of
each Target Fund will experience a reduced annual operating expense ratio as a
result of their Fund's respective Reorganization. The combined fund resulting
from the Reorganizations will have a larger asset base than any of the Funds has
currently; certain fixed administrative costs, such as costs of printing
shareholder reports and proxy statements, legal expenses, audit fees, mailing
costs and other expenses, will be spread across this larger asset base, thereby
lowering the expense ratio for common shareholders of the combined fund.
14
RISK FACTORS AND SPECIAL CONSIDERATIONS
Because each Fund, under normal market conditions, invests substantially all
of its assets in municipal securities rated investment grade at the time of
investment, any risks inherent in such investments are equally applicable to
each Fund and will apply to the combined fund after the Reorganizations. The
Reorganizations themselves are not expected to adversely affect the rights of
shareholders of any of the Funds or to create additional risks.
MARKET RISK
Market risk is the possibility that the market values of securities owned by
each Fund will decline. The prices of debt securities tend to fall as interest
rates rise, and such declines tend to be greater among debt securities with
longer maturities. Market risk is often greater among certain types of debt
securities, such as zero coupon bonds which do not make regular interest
payments but are instead bought at a discount to their face values and paid in
full upon maturity. As interest rates change, these securities often fluctuate
more in price than securities that make regular interest payments and therefore
subject the Funds to greater market risk than a fund that does not own these
types of securities. When-issued and delayed delivery transactions are subject
to changes in market conditions from the time of the commitment until
settlement. This may adversely affect the prices or yields of the securities
being purchased. The greater the Funds' outstanding commitments for these
securities, the greater the Funds' exposure to market price fluctuations.
INTEREST RATE RISK
Interest rate risk is the risk that prices of municipal securities generally
increase when interest rates decline and decrease when interest rates increase.
Prices of longer-term securities generally change more in response to interest
rate changes than prices of shorter-term securities.
CREDIT RISK
Credit risk is the risk that the issuer will be unable to pay the interest or
principal when due. The degree of credit risk depends on both the financial
condition of the issuer and the terms of the obligation. Each Fund invests
substantially all of its assets in municipal securities that are rated
investment grade by Standard & Poor's ("S&P") or Moody's Investors Service Inc.
("Moody's") (or comparably rated by another nationally recognized statistical
rating organization). Securities rated in the lowest investment grade category
may have certain speculative characteristics.
15
INCOME RISK
The income shareholders receive from their Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, the income from the Funds may drop as well.
CALL RISK
If interest rates fall, it is possible that issuers of securities with high
interest rates will prepay or "call" their securities before their maturity
dates. In this event, the proceeds from the called securities would likely be
reinvested by the Funds in securities bearing the new, lower interest rates,
resulting in a possible decline in the Funds' income and distributions to
shareholders.
MUNICIPAL SECURITIES RISK
Under normal market conditions, the Funds invest primarily in municipal
securities. The yields of municipal securities may move differently and
adversely compared to the yields of overall debt securities markets. Although
the interest received from municipal securities generally is exempt from federal
income tax, each Fund may invest all or a substantial portion of its total
assets in municipal securities that pay interest that is subject to the federal
alternative minimum tax. In addition, there could be changes in applicable tax
laws or tax treatments that reduce or eliminate the current federal income tax
exemption on municipal securities or otherwise adversely affect the current
federal or state tax status of municipal securities.
RISKS OF USING STRATEGIC TRANSACTIONS
Each Fund may engage in certain transactions ("Strategic Transactions")
designed to, among other things, reduce its exposure to interest rate movements.
For example, each Fund may purchase and sell exchange-listed and over-the-
counter put and call options on securities, financial futures and other
financial instruments, purchase and sell financial futures contracts and enter
into various interest rate transactions such as swaps, caps, floors or collars.
If a Fund incorrectly forecasts market values, interest rates or other factors,
that Fund's performance could suffer as a result of its Strategic Transactions.
Each Fund also may suffer a loss if the other party to the Strategic Transaction
fails to meet its obligations. The Funds are not required to use Strategic
Transactions and may choose not to do so.
MANAGER RISK
As with any managed fund, the investment adviser to each Fund may not be
successful in selecting the best-performing securities or investment techniques,
and a Fund's performance may lag behind that of similar funds.
16
MARKET DISCOUNT RISK
Whether investors will realize gains or losses upon the sale of shares of a
Fund will depend upon the market price of the shares at the time of original
purchase and subsequent sale, which may be less or more than such Fund's net
asset value per share. Since the market price of the shares will be affected by
such factors as the relative demand for and supply of the shares in the market,
general market and economic conditions and other factors beyond the control of
the Funds, the Funds cannot predict whether shares of the Funds will trade at,
below or above net asset value. Shares of closed-end funds often trade at a
discount to their net asset values, and the Funds' shares may trade at such a
discount.
In order to reduce or eliminate a market value discount from net asset value,
the Board of Trustees of a Fund may, subject to the terms of its preferred
shares, authorize such Fund from time to time to repurchase its common shares in
the open market or to tender for its common shares at net asset value. The Board
of Trustees of a Fund, in consultation with the Adviser, reviews on a quarterly
basis the possibility of open-market repurchases and/or tender offers for such
Fund's common shares. Subject to its borrowing restrictions, a Fund may incur
debt to finance such repurchases, which entails risks. The ability of a Fund to
enter into tender offers and the common share repurchases may be limited by the
1940 Act asset coverage requirements and any additional asset coverage
requirements which may be imposed by a rating agency in connection with any
rating of the preferred shares. No assurance can be given that the Board of
Trustees of a Fund will, in fact, authorize such Fund to undertake such
repurchases and/or tender offers or that, if undertaken, such actions would
result in such Fund's common shares trading at a price which is equal or close
to net asset value.
LEVERAGE RISK
Use of leverage, through the issuance of preferred shares, involves certain
risks to holders of common shares of the Funds. For example, each Fund's
issuance of preferred shares may result in higher volatility of the net asset
value of its common shares and potentially more volatility in the market value
of its common shares. In addition, changes in the short-term and medium-term
dividend rates on, and the amount of taxable income allocable to, the preferred
shares of a Fund will affect the yield to holders of common shares of such Fund.
In certain circumstances, when a Fund is required to allocate taxable income to
holders of its preferred shares, such Fund may be required to make an additional
distribution to such holders in an amount approximately equal to the tax
liability resulting from the allocation (an "Additional Dividend"). Leverage
will allow holders of each Fund's common shares to realize a higher current rate
of return than if a Fund were not leveraged as long as such Fund, while
accounting for its costs and operating expenses, is able to realize a higher net
return on its investment portfolio than the then-current dividend
17
rate (and any Additional Dividend) paid on its preferred shares. Similarly,
since a pro rata portion of each Fund's net realized capital gains is generally
payable to holders of a Fund's common shares, the use of leverage will increase
the amount of such gains distributed to holders of a Fund's common shares.
However, short-term, medium-term and long-term interest rates change from time
to time as do their relationships to each other (i.e., the slope of the yield
curve) depending upon such factors as supply and demand forces, monetary and tax
policies and investor expectations. Changes in any or all of such factors could
cause the relationship between short-term, medium-term and long-term rates to
change (i.e., to flatten or to invert the slope of the yield curve) so that
short-term and medium-term rates may substantially increase relative to the
long-term obligations in which each Fund may be invested. To the extent that the
current dividend rate (and any Additional Dividend) on a Fund's preferred shares
approaches the net return on such Fund's investment portfolio, the benefit of
leverage to holders of common shares of such Fund will be decreased. If the
current dividend rate (and any Additional Dividend) on the preferred shares were
to exceed the net return on a Fund's portfolio, holders of common shares of such
Fund would receive a lower rate of return than if the Fund were not leveraged.
Similarly, since both the costs of issuing preferred shares and any decline in
the value of a Fund's investments (including investments purchased with the
proceeds from any preferred shares offering) will be borne entirely by holders
of such Fund's common shares, the effect of leverage in a declining market would
result in a greater decrease in net asset value to holders of common shares than
if a Fund were not leveraged. If a Fund is liquidated, holders of that Fund's
preferred shares will be entitled to receive liquidating distributions before
any distribution is made to holders of common shares of such Fund.
In an extreme case, a decline in net asset value could affect a Fund's ability
to pay dividends on its common shares. Failure to make such dividend payments
could adversely affect a Fund's qualification as a regulated investment company
under the federal tax laws. However, each Fund intends to take all measures
necessary to make required common share dividend payments. If a Fund's current
investment income is ever insufficient to meet dividend payments on either its
common shares or its preferred shares, such Fund may have to liquidate certain
of its investments. In addition, each Fund has the authority to redeem its
preferred shares for any reason and may be required to redeem all or part of its
preferred shares in the following circumstances:
- if the asset coverage for the preferred shares declines below 200%, either
as a result of a decline in the value of a Fund's portfolio investments or
as a result of the repurchase of common shares in tender offers or
otherwise, or
- in order to maintain the asset coverage guidelines established by Moody's
and S&P in rating the preferred shares.
18
Redemption of the preferred shares or insufficient investment income to make
dividend payments may reduce the net asset value of a Fund's common shares and
require a Fund to liquidate a portion of its investments at a time when it may
be disadvantageous to do so.
ANTI-TAKEOVER PROVISIONS
The Declaration of Trust of each Fund (in each case, the "Declaration of
Trust") includes provisions that could limit the ability of other entities or
persons to acquire control of that Fund or to change the composition of its
Board of Trustees. Such provisions could limit the ability of common
shareholders to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of either Fund.
SPECIAL RISKS RELATED TO PREFERRED SHARES
AUCTION RISK. The dividend rate for the preferred shares of each Fund,
including the Acquiring Fund, normally is set through an auction process. These
preferred shares are referred to as "auction preferred shares." In the auction,
preferred shareholders may indicate the dividend rate at which they would be
willing to hold or sell their auction preferred shares or purchase additional
shares. An auction fails if there are more auction preferred shares offered for
sale than there are buyers, in which case preferred shareholders may not be able
to sell their shares. Also, if preferred shareholders place bids to retain
shares at an auction only at a specified dividend rate and that rate exceeds the
rate set at the auction, they will not retain their shares. Additionally, if
preferred shareholders buy auction preferred shares or elect to retain shares
without specifying a dividend rate below which they would not wish to buy or
continue to hold those shares, they could receive a lower rate of return on
their auction preferred shares than the market rate. Finally, the dividend
period for the auction preferred shares may be changed by the Funds, subject to
certain conditions, including notice to preferred shareholders, which could also
affect the liquidity of an investment in those shares.
SECONDARY MARKET RISK. Broker-dealers may maintain a secondary trading market
in the preferred shares outside of auctions; however, they are not obligated to
do so and there can be no assurance that such a secondary market will develop
or, if it does develop, that it will provide preferred shareholders with a
liquid trading market. It may not be possible to sell preferred shares between
auctions, or it may only be possible to sell them for a price less than their
liquidation preference plus any accumulated dividends. An increase in the level
of interest rates likely will have an adverse effect on the secondary market
price of the preferred shares. Auction preferred shares may only be transferred
outside of auctions to or through broker-dealers or other persons as the Funds
permits.
19
RATINGS AND ASSET COVERAGE RISKS. Although the preferred shares of each Fund
have been rated "Aaa" by Moody's and "AAA" by S&P, such ratings do not eliminate
or necessarily mitigate the risks of investing in preferred shares. Moody's or
S&P could downgrade its rating of the preferred shares or withdraw its rating at
any time, which may make the preferred shares less liquid at an auction or in
the secondary market. If a Fund fail to satisfy its asset coverage ratios, it
will be required to redeem a sufficient number of preferred shares in order to
return to compliance with the asset coverage ratios. A Fund may voluntarily
redeem preferred shares under certain circumstances in order to meet asset
coverage tests.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVE AND POLICIES
The Funds pursue the same investment objective and have similar investment
policies. Each Fund seeks to provide common shareholders with a high level of
current income exempt from federal income tax, consistent with preservation of
capital. Under normal market conditions, each Fund invests at least 80% of its
net assets in municipal securities.
Under normal market conditions, each Fund invests substantially all of its
assets in municipal securities rated investment grade at the time of investment.
Investment grade rated securities are rated BBB or higher by S&P or Baa or
higher by Moody's (or comparably rated by any other nationally recognized
statistical rating organization) in the case of long-term obligations, and have
equivalent ratings in the case of short-term obligations. Securities rated BBB
by S&P are regarded by S&P as having an adequate capacity to pay interest and
repay principal. Securities rated Baa by Moody's are considered by Moody's as
medium-grade obligations which lack outstanding investment characteristics and
in fact have speculative characteristics as well.
The foregoing policies with respect to credit quality of portfolio investments
apply only at the time of purchase of a security, and the Funds are not required
to dispose of a security in the event that S&P or Moody's (or any other
nationally recognized statistical rating organization) downgrades its assessment
of the credit characteristics of a particular issuer. In determining whether a
Fund will retain or sell such a security, the Adviser may consider such factors
as the Adviser's assessment of the credit quality of the issuer of such
security, the price at which such security could be sold and the rating, if any,
assigned to such security by other nationally recognized statistical rating
organizations.
Each Fund may invest an unlimited portion of its assets in municipal
securities that pay interest that is subject to the alternative minimum tax
provisions of federal tax law. A substantial portion of the income produced by
each Fund may be taxable
20
under the alternative minimum tax. The Funds may not be suitable investments for
investors who are already subject to the federal alternative minimum tax or who
would become subject to the federal alternative minimum tax as a result of an
investment in the Funds.
Each Fund may engage in certain hedging transactions and may purchase and sell
put and call options on municipal securities and municipal securities indices.
Such transactions are not treated as investments in municipal securities for the
purpose of each Fund's policy of investing 80% of its net assets in municipal
securities.
MUNICIPAL SECURITIES. Municipal securities are obligations issued by or on
behalf of states, certain territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is, in the opinion of bond counsel or
other counsel to the issuer of such securities, at the time of issuance, not
includable in gross income for regular federal income tax purposes. Under normal
market conditions, at least 80% of each Fund's net assets are invested in
municipal securities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue securities are usually payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source. Industrial development bonds are usually revenue securities, the
credit quality of which is normally directly related to the credit standing of
the industrial user involved.
Within these principal classifications of municipal securities, there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, municipal leases, custodial
receipts, participation certificates and municipal securities the terms of which
include elements of, or are similar in effect to, certain Strategic Transactions
in which the Funds may engage. Variable rate securities bear rates of interest
that are adjusted periodically according to formulae intended to reflect market
rates of interest and include securities whose rates vary inversely with changes
in market rates of interest. Municipal notes include tax, revenue and bond
anticipation notes of short maturity, generally less than three years, which are
issued to obtain temporary funds for various public purposes. Municipal leases
are obligations issued by state and local governments or authorities to finance
the acquisition of equipment and facilities. Certain municipal lease obligations
may include "nonappropriation" clauses which provide that the municipality has
no obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Custodial
receipts are underwritten by securities dealers or banks and evidence ownership
of future interest payments, principal payments or both on certain municipal
securities. Participation certificates are obligations issued by state and
21
local governments or authorities to finance the acquisition of equipment and
facilities. They may represent participations in a lease, an installment
purchase contract, or a conditional sales contract. Municipal securities may not
be backed by the faith, credit and taxing power of the issuer.
The Funds do not generally invest 25% or more of their respective total assets
in any one industry. Governmental issuers of municipal securities are not
considered part of any "industry" and are accordingly not subject to this 25%
limitation. However, municipal securities backed only by the assets and revenues
of non-governmental users may for this purpose be deemed to be issued by such
non-governmental users, and the 25% limitation would apply to such obligations.
Each Fund may invest in municipal securities backed by original issue
insurance or secondary market insurance (collectively, "insurance"). The credit
rating assigned by Moody's or S&P (or any other nationally recognized
statistical rating organization) to municipal securities covered by insurance
ordinarily will be based, at least in part, on such insurance. Although the
Adviser periodically reviews the financial condition of insurers, there can be
no assurance that the insurers will be able to honor their obligations in all
circumstances. In the event of a default by an insurer on its obligations with
respect to any municipal securities in a Fund's portfolio, the Fund would look
to the issuer or guarantor of such municipal securities for payments of
principal and interest and such issuer or any guarantor may not be rated
investment grade. Alternatively, the Fund could elect to dispose of such
municipal securities; however, the market prices for such municipal securities
may be lower than the Fund's purchase price for them and the Fund could sustain
a capital loss as a result.
The amount of available information about the financial condition of municipal
securities issuers may be less extensive than that for corporate issuers with
publicly traded securities. Municipal securities in which the Funds may each
invest include special obligation bonds, lease obligations, participation
certificates, variable rate instruments and municipal securities the terms of
which include elements of, or are similar in effect to, certain Strategic
Transactions in which the Funds may engage. Certain of these instruments
represent relatively recent innovations in the municipal securities markets.
While the markets for such recent innovations progress through stages of
development, such markets may be less liquid than more fully developed markets
for municipal securities. Liquidity relates to the ability of a Fund to sell a
security in a timely manner at a price which reflects the value of that
security. Although it is generally the policy of the Funds to hold municipal
securities until their maturity, the relative illiquidity of some of a Fund's
portfolio securities may adversely affect the ability of the Fund to dispose of
such securities in a timely manner and at a fair price.
Each Fund may invest up to 15% of its net assets in "inverse floating rate
obligations." Floating rate obligations bear rates of interest that are adjusted
22
periodically to reflect changes in market rates of interest. Inverse floating
rate obligations have rates that vary inversely with changes in market rates of
interest. These securities have varying degrees of liquidity and the market
value of such securities generally will fluctuate in response to changes in
market rates of interest to a greater extent that the value of an equal
principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity. These securities tend to underperform the
market for fixed rate bonds in a rising interest rate environment, but tend to
outperform the market for fixed rate bonds when interest rates decline or remain
relatively stable.
TEMPORARY DEFENSIVE STRATEGIES. At times, the Adviser may judge that
conditions in the markets for municipal securities make pursuing a Fund's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times, the Adviser may use alternative strategies, primarily designed to
reduce fluctuations in the value of such Fund's assets. In implementing these
"defensive" strategies, each Fund may invest to a substantial degree in other
investment grade municipal securities, including liquid, high-quality,
short-term municipal securities. If these other municipal securities are not
available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, each Fund may invest in investment grade
taxable securities. To the extent that a Fund invests in taxable securities for
temporary defensive purposes, that Fund will not be invested in a manner
primarily designed to achieve its investment objective of seeking to provide
common shareholders with a high level of current income exempt from federal
income tax, consistent with preservation of capital.
OTHER INVESTMENT PRACTICES AND POLICIES
In connection with the investment objective and policies described above, each
Fund may, but is not required to, utilize various other investment strategies as
described below to earn income, to facilitate portfolio management and to
mitigate risk. Such strategies are generally accepted by modern portfolio
managers and are regularly utilized by many investment companies and other
institutional investors. These investment practices entail risks. Although the
Adviser believes that these investment practices may further the Funds'
respective investment objectives, no assurance can be given that these
investment practices will achieve this result.
STRATEGIC TRANSACTIONS. Each Fund may engage in certain Strategic Transactions
to attempt to protect against possible changes in the market value of securities
held in or to be purchased for its portfolio resulting from securities markets
fluctuations, to protect unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of its portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Municipal Opportunity Trust II and the Acquiring
Fund may also use Strategic Transactions
23
and Value Municipal Income Trust may use Strategic Transactions, other than
Strategic Transactions involving Financial Futures and options thereon, to
enhance potential gain, although no more than 5% of each Fund's assets will be
committed to Strategic Transactions for non-hedging purposes. Any or all of
these investment techniques may be used at any time and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables, including market
conditions. The ability of a Fund to utilize these Strategic Transactions
successfully depends on the Adviser's ability to predict pertinent market
movements, which cannot be assured. Each Fund complies with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions have risks associated with them, including possible
default by the other party to the transaction, liquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to a Fund,
force the sale of portfolio securities at inopportune times or for prices other
than at current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might otherwise
sell. The use of options and futures transactions entails certain other risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the contemplated use of these futures contracts and
options thereon should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time they tend to limit any potential
gain which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts and the sale of
options thereon would create, a greater ongoing potential financial risk than
would purchases of options, where the exposure is limited to the cost of the
initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. Income earned or gains realized or deemed to
be earned or realized, if any, by a Fund from engaging in Strategic Transactions
generally will be taxable income of the Fund. Such income is allocated among the
common shares and the preferred shares of a Fund on a pro rata basis.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. Each Fund may also purchase
and sell municipal securities on a "when-issued" and "delayed delivery"
24
basis. No income accrues to a Fund on municipal securities in connection with
such transactions prior to the date such Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because a Fund engaging in such transactions relies on the
buyer or seller, as the case may be, to consummate the transaction, failure by
the other party to complete the transaction may result in such Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When a
Fund is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or liquid portfolio securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. A Fund will make commitments to purchase municipal securities
on such basis only with the intention of actually acquiring these securities,
but a Fund may sell such securities prior to the settlement date if such sale is
considered to be advisable. To the extent a Fund engages in "when-issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
securities for a Fund's portfolio consistent with a Fund's investment objective
and policies and not for the purpose of investment leverage. No specific
limitation exists as to the percentage of a Fund's assets which may be used to
acquire securities on a "when-issued" or "delayed delivery" basis.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, each Fund's policy with respect to investing
at least 80% of its net assets in municipal securities and the following
investment restrictions are fundamental and cannot be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities (defined in the 1940 Act as the lesser of (i) more than 50% of the
Fund's outstanding common shares and of its outstanding preferred shares, voting
by class, or (ii) 67% of such outstanding common shares and preferred shares,
voting by class, present at a meeting at which the holders of more than 50% of
the outstanding shares of each such class are present in person or by proxy).
All other investment policies or practices are considered by the Funds not to be
fundamental and accordingly may be changed without shareholder approval. If a
percentage restriction on investment or use of assets set forth below is adhered
to at the time a transaction is effected, later changes in percentage resulting
from changing market values will not be considered a deviation from policy. With
respect to the limitations on borrowings, the percentage limitations apply at
the time of purchase and on an ongoing basis.
The Funds may not:
1. With respect to 75% of their total assets, purchase any securities (other
than obligations issued or guaranteed as to principal or interest by the
United
25
States Government or by its agencies or instrumentalities), if as a result more
than 5% of a Fund's total assets would then be invested in securities of a
single issuer or if as a result a Fund would hold more than 10% of the
outstanding voting securities of any issuer, except that the Funds may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
2. Invest more than 25% of their total assets in a single industry; however,
the Funds may from time to time invest more than 25% of their total assets
in one or more particular segments or sectors of the municipal securities
market.
3. Issue senior securities, as defined in the 1940 Act, other than preferred
shares of beneficial interest, except to the extent such issuance might be
involved with borrowings described under subparagraph (4) below or with
respect to Strategic Transactions.
4. Borrow money, except for temporary or emergency purposes from banks or for
repurchase of their shares, and then only in an amount not exceeding one-
third of a Fund's total assets, including the amount borrowed. The Funds
will not mortgage, pledge or hypothecate any assets except in connection
with a borrowing or a Strategic Transaction. The Funds will not purchase
portfolio securities during any period in which such borrowings exceed 5%
of the total asset value of a Fund. Notwithstanding this investment
restriction, the Funds may enter into "when-issued" and "delayed delivery"
transactions.
5. Make loans of money or property to any person, except to the extent the
securities in which the Funds may invest are considered to be loans and
except that the Funds may lend money or property in connection with
maintenance of the value of or a Fund's interest with respect to the
securities owned by such Fund.
6. Buy any securities "on margin." Neither the deposit of initial or
variation margin in connection with Strategic Transactions nor short-term
credits as may be necessary for the clearance of transactions is
considered the purchase of a security on margin.
7. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell futures or options, except in
connection with Strategic Transactions.
26
8. Act as an underwriter of securities, except to the extent the Funds may be
deemed to be underwriters in connection with the sale of securities held
in their portfolios.
9. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Funds of their
rights under agreements related to municipal securities would be deemed to
constitute such control or participation and except that the Funds may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
10. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
11. Invest in equity interests in oil, gas or other mineral exploration or
development programs except pursuant to the exercise by the Funds of their
rights under agreements relating to municipal securities.
12. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities Funds may invest in are considered to be
interests in real estate, commodities or commodity contracts or to the
extent a Fund exercises its rights under agreements relating to such
municipal securities (in which case such Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent
that the Strategic Transactions in which the Funds may invest are
considered to be commodities or commodities contracts.
As a matter of operating policy, each Fund will not invest 25% or more of its
assets in a single industry; however, each Fund may from time to time invest 25%
or more of its assets in a particular segment of the municipal securities
market.
MANAGEMENT OF THE FUNDS
THE BOARDS. The Board of Trustees of each Fund is responsible for the overall
supervision of the operations of its respective Fund and performs the various
duties imposed on trustees of investment companies by the 1940 Act and under
applicable state law.
27
THE ADVISER. The investment adviser for each Fund is Van Kampen Asset
Management. The Adviser is a wholly owned subsidiary of Van Kampen Investments
Inc. ("Van Kampen Investments"). Van Kampen Investments is a diversified asset
management company that administers more than three million retail investor
accounts, has extensive capabilities for managing institutional portfolios and
has more than $103 billion under management or supervision as of July 31, 2005.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley,
a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses: securities, asset management
and credit services. Morgan Stanley is a full service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services. The principal business
address of the Adviser and Van Kampen Investments is 1221 Avenue of the
Americas, New York, New York 10020.
Pursuant to separate investment advisory agreements between each Fund and the
Adviser, each Fund pays the Adviser a monthly fee at the annual rate of 0.55% of
such Fund's average daily net assets, including assets attributable to its
preferred shares. Effective November 1, 2004, the investment advisory fee paid
by each Fund was reduced from 0.60% to 0.55%. Subsequent to the Reorganizations,
the Adviser will continue to receive compensation at the rate of 0.55% of the
average daily net assets, including assets attributable to preferred shares, of
the combined fund. Because the fees paid to the Adviser are calculated on net
assets, including assets attributable to preferred shares, the fees earned by
the Adviser will be higher when preferred shares are outstanding.
Under a separate accounting services and legal services agreement, the Adviser
(or its affiliate) provides accounting and legal services to each Fund. The
Adviser (or its affiliate) allocates the cost of such services to each Fund.
PORTFOLIO MANAGEMENT. Each Fund's portfolio is managed by members of the
Adviser's Municipal Fixed Income team. Current members of the team jointly and
primarily responsible for the day-to-day management of each Fund's portfolio are
Robert W. Wimmel, Vice President of the Adviser; John R. Reynoldson, Executive
Director of the Adviser; and Robert J. Stryker, Vice President of the Adviser.
Mr. Wimmel has worked for the Adviser since 1996 and began managing the Funds
in 2002. Mr. Reynoldson has worked for the Adviser since 1987 and began managing
the Funds in 2002. Prior to 2002, Messrs. Wimmel and Reynoldson worked in an
investment management capacity for the Adviser. Mr. Stryker has worked for the
Adviser since 1994 and joined the team managing the Funds in July 2005. Prior to
July 2005, Mr. Stryker worked as a municipal credit analyst and in an investment
management capacity for the Adviser.
28
Mr. Wimmel is the lead portfolio manager of each Fund. Mssrs. Reynoldson and
Stryker are co-portfolio managers of each Fund. All team members are responsible
for the execution of the overall strategy of each Fund.
The Reorganization Statement of Additional Information provides additional
information about the portfolio managers' compensation, other accounts managed
by the portfolio managers and the portfolio managers' ownership of securities in
each Fund.
The composition of the team may change without notice from time to time.
PORTFOLIO TRANSACTIONS WITH AFFILIATES. The Adviser may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Funds and the Adviser, if it reasonably believes that the quality of
execution and the commission are comparable to that available from other
qualified firms.
LEGAL PROCEEDINGS INVOLVING THE ADVISER. The Adviser, certain affiliates of
the Adviser, and certain investment companies advised by the Adviser or its
affiliates were named as defendants in a number of similar class action
complaints which were consolidated. The amended complaint also names as
defendants certain individual trustees and directors of certain investment
companies advised by affiliates of the Adviser; the complaint does not, however,
name the individual trustees of any Van Kampen funds. The complaint generally
alleges that defendants violated their statutory disclosure obligations and
fiduciary duties by failing properly to disclose (i) that the Adviser and
certain affiliates of the Adviser allegedly offered economic incentives to
brokers and others to steer investors to the funds advised by the Adviser or its
affiliates rather than funds managed by other companies, and (ii) that the funds
advised by the Adviser or its affiliates allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaint seeks, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants' motion to dismiss this
action is pending. After defendants moved to dismiss, the plaintiffs filed a
motion for leave to amend the complaint, which is also pending. The proposed
amendment drops all claims against the named investment companies, which are
listed only as nominal defendants. The proposed amendment raises similar claims
against the Adviser and its affiliates with respect to the investment companies
advised by the Adviser or its affiliates, and, in addition, alleges that
affiliates of the Adviser received undisclosed compensation for steering
investors into thirteen non-affiliated fund families. The defendants intend to
continue to defend this action vigorously. While the defendants believe that
they have meritorious defenses, the ultimate outcome of this matter is not
presently determinable at this early stage of litigation.
The Adviser and certain affiliates of the Adviser are also named as defendants
in a derivative suit which additionally names as defendants individual trustees
of certain Van Kampen funds; the named investment companies are listed as
nominal defend-
29
ants. The complaint alleges that defendants caused the Van Kampen funds to pay
economic incentives to a proprietary sales force to promote the sale of Van
Kampen funds. The complaint also alleges that the Van Kampen funds paid
excessive commissions to Morgan Stanley and its affiliates in connection with
the sales of the funds. The complaint seeks, among other things, the removal of
the current trustees of the funds, rescission of the management contracts for
the funds, disgorgement of profits by Morgan Stanley and its affiliates and
monetary damages. This complaint has been coordinated with the action described
in the preceding paragraph. The defendants have moved to dismiss this action and
otherwise intend to defend it vigorously. This action is currently stayed until
the later of (i) a ruling on the motion to dismiss the action described in the
preceding paragraph or (ii) a ruling on a motion to dismiss the action described
in the next paragraph. While the defendants believe that they have meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of litigation.
The plaintiff in the action described in the preceding paragraph filed a
separate derivative action against the Adviser, certain affiliates of the
Adviser, the individual trustees of certain Van Kampen funds, and certain
unaffiliated entities. The named investment companies are listed as nominal
defendants. The complaint alleges that certain unaffiliated entities engaged in
or facilitated market timing and late trading in the Van Kampen funds, and that
the Adviser, certain affiliates of the Adviser, and the trustees failed to
prevent and/or detect such market timing and late trading. The complaint seeks,
among other things, the removal of the current trustees of the funds, rescission
of the management contracts and distribution plans for the funds, disgorgement
of fees and profits from the Adviser and its affiliates, and monetary damages.
The defendants' motion to dismiss this action is pending. While the defendants
believe that they have meritorious defenses, the ultimate outcome of this matter
is not presently determinable at this early stage of litigation.
The Adviser and one of the investment companies advised by the Adviser were
named as defendants in a class action complaint generally alleging that the
defendants breached their duties of care to long-term shareholders of the
investment company by valuing portfolio securities at the closing prices of the
foreign exchanges on which they trade without accounting for significant market
information that became available after the close of the foreign exchanges but
before calculation of net asset value. As a result, the complaint alleged,
short-term traders were able to exploit stale pricing information to capture
arbitrage profits that diluted the value of shares held by long-term investors.
The complaint sought unspecified compensatory damages, punitive damages, fees
and costs. The case was recently dismissed with prejudice but remains subject to
appeals.
The Adviser, an affiliate of the Adviser and the individual trustees of
certain Van Kampen funds are named as defendants in a recently filed class
action complaint that alleges the defendants breached various fiduciary and
statutory
30
duties to investors by failing to ensure that the funds participated in
securities class action settlements involving securities held in the funds'
portfolios. The complaint seeks, among other things, compensatory and punitive
damages. None of the funds are named as defendants, and no claims are asserted
against them. The court recently granted the Adviser and its affiliate's motion
to dismiss the complaint, subject to plaintiffs' right to amend. The trustees'
motion to dismiss is pending.
The Adviser, one of the investment companies advised by the Adviser, and
certain officers and directors of the investment company are defendants in a
class action filed in 2001 alleging that the defendants issued a series of
prospectuses and registration statements that were materially false and
misleading. Among other things, the complaint alleges that the prospectuses and
registration statements contained misleading descriptions of the method
defendants used to value senior loan interests in the fund's portfolio, and that
defendants materially overstated the net asset value of the fund. The court has
preliminarily approved a settlement agreement, subject to a later hearing on the
fairness of the settlement agreement.
OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, 225 West Franklin Street, Boston,
Massachusetts 02110, is the custodian for each of the Funds. EquiServe Trust
Company, N.A., 250 Royall Street, Canton, Massachusetts 02021, is the transfer
agent, dividend disbursing agent and registrar for the common shares of each
Fund. Deutsche Bank Trust Company Americas ("Deutsche Bank"), 280 Park Avenue,
New York, New York 10017, is the auction agent and dividend paying agent for the
preferred shares of each Fund.
CAPITALIZATION
The Board of Trustees of each Fund may authorize separate classes of shares
together with such designation of preferences, rights, voting powers,
restrictions, limitations, qualifications or terms as may be determined from
time to time by the trustees. The following table sets forth the capitalization
of the Target Funds and the Acquiring Fund as of January 31, 2005, and the pro
forma capitalization of the combined fund as if the Reorganizations had occurred
on that date.
31
CAPITALIZATION AS OF JANUARY 31, 2005 (UNAUDITED)
ACTUAL PRO FORMA
------------------------------------- ----------------
VAN KAMPEN VAN KAMPEN VAN KAMPEN
VAN KAMPEN VALUE ADVANTAGE ADVANTAGE
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
OPPORTUNITY INCOME INCOME INCOME
TRUST II TRUST TRUST II TRUST II
----------- ---------- ---------- ----------
NET ASSETS CONSIST OF
(AMOUNTS IN THOUSANDS):
Common Shares
($.01 par value)*....... $ 117 $ 236 $ 82 $ 450
Paid in surplus........... 158,834 331,229 108,295 597,841
Net unrealized
appreciation............ 20,694 43,988 13,241 77,923
Accumulated undistributed
net investment income... 848 1,625 916 3,389
Accumulated net realized
gain (loss)............. (745) (2,754) 694 (2,805)
NET ASSETS APPLICABLE TO
COMMON SHARES........... 179,748 374,324 123,228 676,798**
PREFERRED SHARES ($.01 par
value, with liquidation
preference of $25,000,
$25,000, $25,000 and
$25,000,
respectively)*.......... 115,000 225,000 80,000 420,000
NET ASSETS INCLUDING
PREFERRED SHARES........ 294,748 599,324 203,228 1,096,798
NET ASSET VALUE PER COMMON
SHARE..................... 15.39 15.89 15.07 15.05
---------------
* Based on the number of outstanding shares listed in "Outstanding Securities
of the Funds" table below.
** Reflects a non-recurring cost associated with the Reorganizations of
approximately $502,000, with $205,820 to be borne by common shareholders of
Municipal Opportunity Trust II, $105,420 to be borne by common shareholders
of Value Municipal Income Trust and $190,760 to be borne by common
shareholders of the Acquiring Fund, assuming each of these Reorganizations is
approved and completed.
32
OUTSTANDING SECURITIES OF THE FUNDS
AS OF JANUARY 31, 2005
AMOUNT
OUTSTANDING
AMOUNT HELD EXCLUSIVE OF
BY FUND FOR AMOUNT SHOWN
AMOUNT ITS OWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED ACCOUNT COLUMN
-------------- ---------- ----------- ------------
VAN KAMPEN MUNICIPAL OPPORTUNITY
TRUST II
Common Shares.................... Unlimited 0 11,681,272
Preferred Shares................. 100,000,000 0 4,600
VAN KAMPEN VALUE MUNICIPAL INCOME
TRUST
Common Shares.................... Unlimited 0 23,555,115
Preferred Shares................. 100,000,000 0 9,000
VAN KAMPEN ADVANTAGE MUNICIPAL
INCOME TRUST II
Common Shares.................... Unlimited 0 8,175,881
Preferred Shares................. 100,000,000 0 3,200
ADDITIONAL INFORMATION ABOUT COMMON SHARES OF THE FUNDS
GENERAL. Common shareholders of a Fund are entitled to share equally in
dividends declared by the Fund's Board of Trustees payable to holders of the
common shares and in the net assets of the Fund available for distribution to
holders of the common shares after payment of the preferential amounts payable
to preferred shareholders. Common shareholders do not have preemptive or
conversion rights and a Fund's common shares are not redeemable. The outstanding
common shares of each Fund are fully paid and nonassessable (except as described
under "Governing Law" below). So long as any preferred shares of a Fund are
outstanding, holders of the Fund's common shares will not be entitled to receive
any dividends or other distributions from the Fund unless all accumulated
dividends on the Fund's outstanding preferred shares have been paid, and unless
asset coverage (as defined in the 1940 Act) with respect to such preferred
shares would be at least 200% after giving effect to such distributions.
PURCHASE AND SALE. Purchase and sale procedures for the common shares of each
of the Funds are identical. Investors typically purchase and sell common shares
of the Funds through a registered broker-dealer on the NYSE, AMEX or CHX, as the
case may be, thereby incurring a brokerage commission set by the broker-dealer.
Alternatively, investors may purchase or sell common shares of the Funds through
privately negotiated transactions with existing shareholders.
33
COMMON SHARE PRICE DATA. The following table sets forth the high and low sales
prices for common shares of each Fund on the NYSE or AMEX, as the case may be,
for each full quarterly period within each Fund's two most recent fiscal years
and for each full fiscal quarter of the current fiscal year, along with the net
asset value and discount or premium to net asset value for each quotation.
MUNICIPAL OPPORTUNITY TRUST II
HIGH NET ASSET PREMIUM LOW NET ASSET PREMIUM
QUARTERLY PERIOD ENDING PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
----------------------- ----- --------- ---------- ----- --------- ----------
April 30, 2005.......... $14.09 $15.41 -8.57% $12.79 $14.90 -14.16%
January 31, 2005........ $14.22 $15.15 -6.14% $13.52 $14.88 -9.14%
October 31, 2004........ $14.35 $15.23 -5.78% $13.64 $14.88 -8.33%
July 31, 2004........... $13.70 $14.74 -7.06% $12.43 $14.51 -14.33%
April 30, 2004.......... $15.16 $15.54 -2.45% $12.92 $14.79 -12.64%
January 31, 2004........ $14.73 $15.44 -4.60% $14.07 $14.97 -6.01%
October 31, 2003........ $14.35 $15.01 -4.40% $13.35 $14.51 -7.99%
July 31, 2003........... $15.30 $15.84 -3.41% $13.79 $14.57 -5.35%
April 30, 2003.......... $14.35 $15.41 -6.88% $13.90 $15.07 -7.76%
January 31, 2003........ $14.11 $15.03 -6.12% $13.70 $14.95 -8.36%
VALUE MUNICIPAL INCOME TRUST
HIGH NET ASSET PREMIUM LOW NET ASSET PREMIUM
QUARTERLY PERIOD ENDING PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
----------------------- ----- --------- ---------- ----- --------- ----------
April 30, 2005.......... $14.33 $15.91 -9.93% $13.03 $15.39 -15.33%
January 31, 2005........ $14.43 $15.61 -7.56% $12.68 $15.53 -18.35%
October 31, 2004........ $14.80 $15.57 -4.95% $14.02 $15.28 -8.25%
July 31, 2004........... $14.00 $15.25 -8.20% $12.87 $14.98 -14.09%
April 30, 2004.......... $15.55 $16.12 -3.54% $13.25 $15.19 -12.77%
January 31, 2004........ $15.53 $15.82 -1.83% $14.54 $15.70 -7.39%
October 31, 2003........ $14.71 $15.74 -6.54% $14.00 $15.13 -7.47%
July 31, 2003........... $15.59 $16.36 -4.71% $14.30 $15.30 -6.54%
April 30, 2003.......... $14.85 $15.86 -6.37% $14.14 $15.59 -9.30%
January 31, 2003........ $14.57 $15.82 -7.90% $13.91 $15.50 -10.26%
34
ACQUIRING FUND
HIGH NET ASSET PREMIUM LOW NET ASSET PREMIUM
QUARTERLY PERIOD ENDING PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
----------------------- ----- --------- ---------- ----- --------- ----------
April 30, 2005........ $14.46 $15.26 -5.24% $13.30 $14.79 -10.07%
January 31, 2005...... $14.65 $14.83 -1.21% $13.37 $14.78 -9.54%
October 31, 2004...... $14.79 $14.75 0.27% $13.95 $14.56 -4.19%
July 31, 2004......... $14.20 $14.46 -1.80% $12.51 $14.21 -11.96%
April 30, 2004........ $15.65 $15.39 1.69% $13.12 $14.53 -9.70%
January 31, 2004...... $15.75 $15.16 3.89% $13.98 $14.68 -4.77%
October 31, 2003...... $14.13 $14.54 -2.82% $13.44 $14.26 -5.75%
July 31, 2003......... $15.46 $15.53 -0.45% $13.47 $14.40 -6.46%
April 30, 2003........ $14.81 $15.17 -2.37% $14.40 $14.68 -1.91%
January 31, 2003...... $14.70 $14.79 -0.61% $14.05 $14.87 -5.51%
As of July 29, 2005, (i) the net asset value per share for common shares of
Municipal Opportunity Trust II was $15.25 and the market price per share was
$13.87, representing a discount to net asset value of 9.05%, (ii) the net asset
value per share for common shares of Value Municipal Income Trust was $15.75 and
the market price per share was $13.87, representing a discount to net asset
value of 11.94%, and (iii) the net asset value per share for Acquiring Fund
Common Shares was $14.97 and the market price per share was $13.78, representing
a discount to net asset value of 7.95%.
Common shares of the Target Funds have historically traded at a discount to
net asset value while common shares of the Acquiring Fund have historically
traded at both a premium and a discount to net asset value. In order to reduce
or eliminate a market value discount from net asset value, the Board of Trustees
of each Fund may, subject to the terms and conditions of its preferred shares,
authorize that Fund from time to time to repurchase the common shares in the
open market or to tender for the common shares at net asset value. The Board of
Trustees of each Fund, in consultation with the Adviser, will review on a
quarterly basis the possibility of open market repurchases and/or tender offers
for the common shares. Subject to its borrowing restrictions, each Fund may
incur debt to finance such repurchases, which entails risks. The ability of a
Fund to enter into tender offers and the common share repurchases may be limited
by the 1940 Act asset coverage requirements and any additional asset coverage
requirements which may be imposed by a rating agency in connection with any
rating of the preferred shares. No assurance can be given that the Board of
Trustees of any Fund will, in fact, authorize that Fund to undertake such
repurchases and/or tender offers or that, if undertaken, such actions would
result in the common shares trading at a price which is equal or close to net
asset value.
35
DIVIDENDS AND DISTRIBUTIONS. The Funds' current policies with respect to
dividends and distributions relating to their common shares are similar. It is
each Fund's present policy, which may be changed by its Board of Trustees, to
make monthly distributions to holders of its common shares of substantially all
of a Fund's net investment income remaining after the payment of dividends on
any outstanding preferred shares. Net income of each Fund consists of all
interest income accrued on portfolio assets less all expenses of such Fund. Each
Fund, including the Acquiring Fund, is required to allocate net capital gains
and other taxable income, if any, received by the Fund among its common shares
and preferred shares on a pro rata basis in the year for which such capital
gains and other income is realized.
Expenses of each Fund are accrued each day. Net realized capital gains, if
any, are expected to be distributed to shareholders at least once a year. While
there are any preferred shares of a Fund outstanding, such Fund may not declare
any cash dividend or other distribution on their common shares, unless at the
time of such declaration, (1) all accumulated preferred share dividends have
been paid and (2) the value of such Fund's total assets (determined after
deducting the amount of such dividend or other distribution), less all
liabilities and indebtedness of such Fund, is at least 200% (as required by the
1940 Act) of the liquidation value of the outstanding preferred shares (expected
to equal the aggregate original purchase price of the outstanding preferred
shares plus any accumulated and unpaid dividends thereon, whether or not earned
or declared an on a cumulative basis). In addition to the requirements of the
1940 Act, each Fund may be required to comply with other asset coverage
requirements as a condition of a Fund obtaining a rating of its preferred shares
from a nationally recognized rating service. These requirements may include an
asset coverage test more stringent than under the 1940 Act. This limitation on a
Fund's ability to make distributions on its common shares could in certain
circumstances impair the ability of a Fund to maintain its qualification for
taxation as a regulated investment company. Each Fund intends, however, to the
extent possible, to purchase or redeem preferred shares from time to time to
maintain compliance with such asset coverage requirements and may pay special
dividends to the holders of the preferred shares in certain circumstances in
connection with any such impairment of such Fund's status as a regulated
investment company.
For information concerning the manner in which dividends and distributions to
holders of a Fund's common shares may be reinvested automatically in such Fund's
common shares, see "-- Dividend Reinvestment Plan" below.
DIVIDEND REINVESTMENT PLAN. Each Fund offers a Dividend Reinvestment Plan
(each a "Plan," and collectively the "Plans") pursuant to which holders of
common shares may elect to have all distributions of dividends and all capital
gains automatically reinvested in common shares pursuant to such Plan. Unless
common shareholders elect to participate in a Plan, all common shareholders
receive
36
distributions of dividends and capital gains in cash. The Plans for the Target
Funds and the Acquiring Fund are similar. EquiServe Trust Company, N.A., as plan
agent (the "Plan Agent"), serves as agent for the holders of common shares of
each Fund in administering the Plans.
After the Reorganizations, a holder of shares of a Fund who currently elects
to receive dividends in cash will continue to receive dividends in cash; all
holders who currently elect to participate in the Plan of a Fund will have their
dividends automatically reinvested in shares of the combined fund. All
correspondence concerning the Plan should be directed to the Plan Agent at P.O.
Box 43011, Providence, Rhode Island 02940-3011. Telephone calls concerning the
Plan may be directed to the Plan Agent between the hours of 7:30 a.m. and 5:00
p.m. Central Standard Time at (800) 341-2929.
ADDITIONAL INFORMATION ABOUT PREFERRED SHARES OF THE FUNDS
GENERAL. The preferred shares of each Fund are labeled "auction preferred
shares" ("APS"). APS are preferred shares of beneficial interest which entitle
their holders to receive dividends when, as and if declared by the Board of
Trustees of a Fund, out of funds legally available therefore, at a rate per
annum that may vary for the successive dividend periods. The liquidation
preference of each Fund's APS is $25,000 per share. APS are not traded on a
stock exchange or over-the-counter. Holders of a Fund's APS do not have
preemptive rights to purchase any shares of the same series or any other APS
that might be issued. The net asset value per share of a Fund's APS equals its
liquidation preference plus accumulated but unpaid dividends per share.
SERIES. Under the 1940 Act, each Fund is permitted to have outstanding more
than one series of APS as long as no single series has priority over another
series as to the distribution of assets of the Fund or the payment of dividends.
Municipal Opportunity Trust II currently has three series of APS outstanding,
Value Municipal Income Trust currently has five series of APS outstanding and
the Acquiring Fund currently has two series of APS outstanding. If the
Reorganizations are approved and completed, the combined fund will have 10
series of APS. The existing series of Acquiring Fund APS will remain Series A
and Series B, and the Acquiring Fund will issue Series C, Series D and Series E
APS in exchange for the three existing series of APS of Municipal Opportunity
Trust II, and Series F, Series G, Series H, Series I and Series J APS in
exchange for the five existing series of APS of Value Municipal Income Trust.
The aggregate liquidation preference of each new series will equal the aggregate
liquidation preference of the existing shares that the respective new series
replaces. For each series, the number of days in the regular dividend period,
the number of shares and the liquidation preference per share will be the same
as the existing series.
37
PURCHASE AND SALE. Each Fund's APS are purchased and sold at separate auctions
conducted on a regular basis (unless a Fund elects, subject to certain
limitations, to declare a special dividend period) by Deutsche Bank, as the
auction agent for each Fund's APS (the "Auction Agent"). Unless otherwise
permitted by the Funds, existing and potential holders of APS only may
participate in auctions through their broker-dealers. Broker-dealers submit the
orders of their respective customers who are existing and potential holders of
APS to the Auction Agent. On or prior to each auction date for the APS (the
business day next preceding the first day of each dividend period), each holder
may submit orders to buy, sell or hold APS to its broker-dealer. Outside of
these auctions, shares of APS may be purchased or sold through broker-dealers
for the APS in a secondary trading market maintained by the broker-dealers.
However, there can be no assurance that a secondary market will develop or, if
it does develop, that it will provide holders with a liquid trading market.
DIVIDENDS AND DISTRIBUTIONS. The holders of each Fund's APS are entitled to
receive, when, as and if declared by the Board of Trustees of the Fund, out of
funds legally available therefor, cumulative cash dividends on their shares.
Dividends on each Fund's APS so declared and payable shall be paid in preference
to and in priority over any dividends so declared and payable on the Fund's
common shares.
Prior to each dividend payment date, the Funds are required to deposit with
the Auction Agent sufficient funds for the payment of such declared dividends.
The Funds do not intend to establish any reserves for the payment of dividends,
and no interest will be payable in respect of any dividend payment or payment on
a Fund's APS which may be in arrears.
Each Fund, including the Acquiring Fund, is required to allocate net capital
gains and other taxable income, if any, proportionately among its common shares
and APS. The amount of taxable income allocated to the APS depends upon the
amount of such income realized by a Fund.
In normal circumstances, whenever a Fund intends to include any net capital
gains or other taxable income in any dividend on APS, the Fund will notify the
Auction Agent of the amount to be so included prior to the auction establishing
the applicable rate for such dividend. The Auction Agent will in turn notify
each broker-dealer who will notify existing and potential holders of the APS. As
a result, auction participants may, in response to such information, place bids
which take account of the inclusion of net capital gains or other taxable income
in the dividend. If a Fund retroactively allocates any net capital gains or
other taxable income to the APS without having given notice to the Auction
Agent, the Fund will pay an Additional Dividend to offset substantially the tax
effect thereof.
38
DIVIDEND RATES. The following table provides information about the dividend
rates for each series of each Fund's APS as of a recent auction date:
AUCTION DATE FUND/SERIES RATE
------------ ----------- ----
August 1, 2005 Municipal Opportunity Trust II, Series A APS.......... 2.300%
July 29, 2005 Municipal Opportunity Trust II, Series B APS.......... 2.200%
August 2, 2005 Municipal Opportunity Trust II, Series C APS.......... 2.150%
July 28, 2005 Value Municipal Income Trust, Series A APS............ 2.350%
July 5, 2005 Value Municipal Income Trust, Series B APS............ 2.350%
July 27, 2005 Value Municipal Income Trust, Series C APS............ 2.299%
July 12, 2005 Value Municipal Income Trust, Series D APS............ 2.150%
July 27, 2005 Value Municipal Income Trust, Series E APS............ 1.991%
August 1, 2005 Acquiring Fund, Series A APS.......................... 2.300%
August 2, 2005 Acquiring Fund, Series B APS.......................... 2.100%
The dividend rates in effect at the closing of the Reorganizations will be the
rates determined in the auction most recently preceding such closing.
RATINGS. The Funds' APS have all been assigned a rating of "AAA" from S&P and
"Aaa" from Moody's. Each Fund intends that, so long as its APS are outstanding,
the composition of its portfolio will reflect guidelines established by S&P and
Moody's in connection with each Fund's receipt of a rating for such shares of at
least "AAA" from S&P and "Aaa" from Moody's. S&P and Moody's, which are
nationally recognized statistical rating organizations, issue ratings for
various securities reflecting the perceived creditworthiness of such securities.
The guidelines for rating such preferred shares have been developed by S&P and
Moody's in connection with issuances of asset-backed and similar securities,
including debt obligations and variable rate preferred stock, generally on a
case-by-case basis through discussions with the issuers of these securities. The
guidelines are designed to ensure that assets underlying outstanding debt or
preferred stock will be varied sufficiently and will be of sufficient quality
and amount to justify investment grade ratings. The guidelines do not have the
force of law but have been adopted by each Fund in order to satisfy current
requirements necessary for S&P and Moody's to issue the above-described ratings
for the APS, which ratings generally are relied upon by institutional investors
in purchasing such securities. The guidelines provide a set of tests for
portfolio composition and asset coverage that supplement (and in some cases are
more restrictive than) the applicable requirements under the 1940 Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P or Moody's. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for a Fund's APS, at any time, may change or withdraw any
such rating. As set forth in the Certificate of Vote of Trustees Establishing
Preferred
39
Shares of each Fund (each a "Certificate of Vote"), the Board of Trustees of
each Fund, without shareholder approval, may modify certain definitions or
restrictions that have been adopted by the Fund pursuant to the rating agency
guidelines, provided the Board of Trustees has obtained written confirmation
from S&P and Moody's that any such change would not impair the ratings then
assigned by S&P and Moody's to the APS. For so long as any of its APS are rated
by S&P or Moody's, as the case may be, a Fund's use of options and financial
futures contracts and options thereon will be subject to certain limitations
mandated by the rating agencies.
REDEMPTIONS. The redemption provisions pertaining to the APS of each Fund are
similar. APS of each Fund are generally redeemable at the option of the Fund at
a price equal to their liquidation preference of $25,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) to the date
of redemption plus, in certain circumstances, a redemption premium. APS of each
Fund are also subject to mandatory redemption at a price equal to their
liquidation preference plus accumulated but unpaid dividends (whether or not
earned or declared) to the date of redemption upon the occurrence of certain
specified events, such as the failure of a Fund to maintain asset coverage
requirements for its APS specified by Moody's and S&P in connection with their
issuance of ratings on the APS.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of any of
the Funds, whether voluntary or involuntary, the holders of such Fund's APS will
be entitled to receive, out of the assets of the Fund available for distribution
to shareholders, before any distribution or payment is made upon any of the
Fund's common shares or any other capital shares of the Fund ranking junior in
right of payment upon liquidation to APS, $25,000 per share together with the
amount of any dividends accumulated but unpaid (whether or not earned or
declared) thereon to the date of distribution, and after such payment the
holders of APS will be entitled to no other payments except for any Additional
Dividends. If such assets of the Fund are insufficient to make the full
liquidation payment on the APS and liquidation payments on any other outstanding
class or series of preferred shares of the Fund ranking on a parity with the APS
as to payment upon liquidation, then such assets will be distributed among the
holders of APS and the holders of shares of such other class or series ratably
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of liquidation distribution to which they are
entitled, the holders of a Fund's APS will not be entitled to any further
participation in any distribution of assets by the Fund except for any
Additional Dividends. A consolidation, merger or share exchange of a Fund with
or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of the Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund for this purpose.
40
ADDITIONAL INFORMATION. For additional information on Acquiring Fund APS,
Target Fund shareholders should consult the Acquiring Fund's Certificate of Vote
attached as Appendix B to the Reorganization Statement of Additional
Information. Acquiring Fund APS issued in connection with the Reorganizations
will be governed by the Certificate of Vote of the Acquiring Fund, which, upon
completion of the Reorganizations, will be amended to reflect the creation of
new series and the issuance of additional APS. As a result of the
Reorganizations, the last dividend periods for the Target Funds' APS prior to
the Closing Date and the initial dividend periods for the Acquiring Fund APS
issued in connection with the Reorganizations after the Closing Date may be
shorter than the regular dividend periods for such shares.
GOVERNING LAW
Each Fund is organized as a business trust under the laws of The Commonwealth
of Massachusetts. Municipal Opportunity Trust II was organized on April 8, 1993
and commenced investment operations on June 25, 1993; Value Municipal Income
Trust was organized on December 21, 1992 and commenced investment operations on
March 26, 1993; and the Acquiring Fund was organized on June 28, 1993 and
commenced investment operations on August 27, 1993.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust of each Fund contains an express disclaimer of
shareholder liability in connection with Fund property or for acts, obligations
or affairs of the Fund and provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for the obligations of that Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. Given the
nature of each Fund's assets and operations, the possibility of a Fund being
unable to meet its obligations is remote and, in the opinion of counsel to the
Funds, the risk to the Funds' respective shareholders is remote.
Each Fund is also subject to federal securities laws, including the 1940 Act
and the rules and regulations promulgated by the SEC thereunder, and applicable
state securities laws. Each Fund is registered as a diversified, closed-end
management investment company under the 1940 Act.
CERTAIN PROVISIONS OF THE DECLARATIONS OF TRUST
Each Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees, and could
have the effect of depriving common shareholders of an opportunity to sell their
common shares at a
41
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. The Board of Trustees of each Fund is divided
into three classes, with the term of one class expiring at the annual meeting of
shareholders. At each annual meeting, each class whose term is expiring will be
elected to a three-year term. This provision could delay for up to two years the
replacement of a majority of the Board of Trustees. A trustee may be removed
from office only for cause by a written instrument signed by at least two-thirds
of the remaining trustees or by a vote of the holders of at least two-thirds of
the class of shares of the Fund that elected such trustee and entitled to vote
on the matter.
In addition, each Fund's Declaration of Trust requires the favorable vote of
the holders of at least 75% of the outstanding shares of each class of the Fund,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board of Trustees shall by resolution have approved a
memorandum of understanding with such holders, in which case normal voting
requirements would be in effect. For purposes of these provisions, a
5%-or-greater holder of a class of shares (a "Principal Shareholder") refers to
any person who, whether directly or indirectly and whether alone or together
with its affiliates and associates, beneficially owns 5% or more of the
outstanding shares of any class of beneficial interest of the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash (except pursuant to the Dividend Reinvestment
Plan); (iii) the sale, lease or exchange of all or any substantial part of the
assets of the Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the purpose
of such computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); or (iv) the sale, lease or
exchange to the Fund or any subsidiary thereof, in exchange for securities of
the Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for purposes of
such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board of Trustees of each Fund has determined that the 75% voting
requirements described above, which are greater than the minimum requirements
under Massachusetts law or the 1940 Act, are in the best interest of
shareholders of each respective Fund generally. Reference should be made to the
Declaration of Trust of each Fund on file with the SEC for the full text of
these provisions.
The Declaration of Trust of each Fund further provides that no trustee,
officer, employee or agent of the Fund is liable to the Fund or to any
shareholder, nor is any trustee, officer, employee or agent liable to any third
persons in connection with the affairs of the Fund, except as such liability may
arise from his or her own bad faith,
42
willful misfeasance, gross negligence, or reckless disregard of their duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
CONVERSION TO OPEN-END FUND
Each Fund may be converted to an open-end investment company at any time by an
amendment to its Declaration of Trust. Each Fund's Declaration of Trust provides
that such an amendment would require the approval of (a) a majority of the
trustees, including the approval by a majority of the disinterested trustees of
the Fund, and (b) the lesser of (i) more than 50% of the Fund's outstanding
common and preferred shares, each voting as a class or (ii) 67% of the common
and preferred shares, each voting as a class, present at a meeting at which
holders of more than 50% of the outstanding shares of each such class are
present in person or by proxy. If approved in the foregoing manner, conversion
of a Fund could not occur until 90 days after the shareholders' meeting at which
such conversion was approved and would also require at least 30 days prior
notice to all shareholders. Conversion of a Fund to an open-end investment
company would require the redemption of all outstanding preferred shares, which
would eliminate the leveraged capital structure of the Fund. In the event of
conversion, the common shares would cease to be listed on the NYSE, AMEX, CHX,
NASDAQ National Market System or other national securities exchange or national
market system. Shareholders of an open-end investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption. If
a Fund were converted to an open-end fund, it is likely that new common shares
would be sold at net asset value plus a sales load. Following any such
conversion, it is also possible that certain of the Fund's investment policies
and strategies would have to be modified to assure sufficient portfolio
liquidity. In particular, the Fund would be required to maintain its portfolio
such that not more than 15% of its assets would be invested in illiquid
securities. Such requirement could cause the Fund to dispose of portfolio
securities or other assets at a time when it is not advantageous to do so, and
could adversely affect the ability of the Fund to meet its investment objective.
VOTING RIGHTS
Voting rights are identical for the holders of each Fund's common shares.
Common shareholders of each Fund are entitled to one vote for each share held.
Except as set forth above under "Certain Provisions of the Declarations of
Trust" or "Conversion to Open-End Fund," or except as expressly required by
applicable law
43
or expressly set forth in the designation of rights and preferences with respect
to a Fund's preferred shares, preferred shareholders have no voting rights. When
preferred shareholders are entitled to vote, they are also entitled to cast one
vote per share held.
Preferred shareholders of a Fund, voting as a class, are entitled to elect two
of the Fund's trustees. Under the 1940 Act, if at any time dividends on a Fund's
preferred shares are unpaid in an amount equal to two full years dividends
thereon, the holders of all outstanding preferred shares, voting as a class, are
entitled to elect a majority of the Fund's trustees until all dividends have
been paid or declared and set apart for payment. The affirmative vote of a
majority of the preferred shareholders of a Fund, voting as a class, is required
to amend, alter or repeal any of the preferences, rights or powers of preferred
shareholders so as to materially and adversely affect such preferences, rights
or powers, or increase or decrease the number of preferred shares authorized to
be issued.
The Certificate of Vote of each Fund provides that a Fund shall not take
certain actions relating to the preferences, rights or powers of holders of a
Fund's preferred shares without the affirmative vote of the holders of a
majority of the outstanding preferred shares. Additionally, if a Fund has more
than one series of preferred shares outstanding, an affirmative vote of a
majority of the outstanding shares of each series of preferred shares, each
voting separately as a class, is required with respect to any matter that
materially affects one series of preferred shares in a manner different from
that of the other series. The specific provisions of each Fund's Certificate of
Vote with respect to the voting rights of holders of preferred shares may
differ; preferred shareholders of the Target Funds should consult the
Certificate of Vote governing the Acquiring Fund APS, attached as Appendix B to
the Reorganization Statement of Additional Information.
44
FINANCIAL HIGHLIGHTS
MUNICIPAL OPPORTUNITY TRUST II. The following schedule presents financial
highlights for one common share of the Fund outstanding throughout the periods
indicated.
YEAR ENDED OCTOBER 31,
2004 2003 2002(a) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 15.02 $ 15.01 $ 14.91 $ 13.77 $ 13.28 $ 15.08 $ 14.51
------- ------- ------- ------- -------- -------- --------
Net Investment Income............. 1.03 1.08 1.09 1.10 1.13 1.12 1.12
Net Realized and Unrealized
Gain/Loss....................... .19 .02 .06 1.11 .54 (1.82) .57
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.10) (.10) (.13) (.31) (.40) (.32) (.34)
------- ------- ------- ------- -------- -------- --------
Total from Investment Operations... 1.12 1.00 1.02 1.90 1.27 (1.02) 1.35
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.97) (.99) (.92) (.76) (.78) (.78) (.78)
------- ------- ------- ------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 15.17 $ 15.02 $ 15.01 $ 14.91 $ 13.77 $ 13.28 $ 15.08
======= ======= ======= ======= ======== ======== ========
Common Share Market Price at End of
the Period........................ $ 14.07 $ 14.20 $ 13.80 $ 13.36 $11.8125 $11.5625 $14.0625
Total Return(b).................... 6.12% 10.27% 10.36% 20.07% 9.19% -12.84% 17.23%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 177.2 $ 175.4 $ 175.3 $ 174.2 $ 160.8 $ 155.1 $ 176.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.42% 1.44% 1.55% 1.76% 1.85% 1.79% 1.79%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 6.87% 7.11% 7.44% 7.66% 8.44% 7.68% 7.54%
Portfolio Turnover................. 21% 35% 44% 45% 22% 25% 13%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .86% .87% .93% 1.04% 1.06% 1.06% 1.08%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 6.19% 6.46% 6.54% 5.48% 5.48% 5.50% 5.20%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 4,600 4,600 4,600 4,600 4,600 4,600 2,300
Asset Coverage Per Preferred
Share(e).......................... $63,528 $63,132 $63,114 $62,863 $ 59,963 $ 58,717 $126,569
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
YEAR ENDED OCTOBER 31,
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 13.88 $ 13.72 $ 12.20
-------- -------- --------
Net Investment Income............. 1.13 1.14 1.15
Net Realized and Unrealized
Gain/Loss....................... .60 .12 1.55
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.35) (.35) (.38)
-------- -------- --------
Total from Investment Operations... 1.38 .91 2.32
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.75) (.75) (.80)
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 14.51 $ 13.88 $ 13.72
======== ======== ========
Common Share Market Price at End of
the Period........................ $12.6875 $ 11.625 $ 11.375
Total Return(b).................... 16.02% 8.98% 16.07%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 169.5 $ 162.1 $ 160.2
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.83% 1.90% 1.94%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 8.04% 8.31% 8.85%
Portfolio Turnover................. 23% 37% 58%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.08% 1.10% 1.10%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.56% 5.77% 5.88%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 2,300 2,300 2,300
Asset Coverage Per Preferred
Share(e).......................... $123,694 $120,481 $119,666
Involuntary Liquidating Preference
Per Preferred Share............... $ 50,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 50,000 $ 50,000 $ 50,000
(a) As required, effective November 1, 2001, the Fund 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 period ended October 31, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of investment income to
average net assets applicable to common shares by .03%. Per share, ratios
and supplemental data for the periods prior to October 31, 2002 have not
been restated to reflect this change in presentation.
(b) Total return based 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 Fund'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 Fund's total liabilities (not including the
preferred shares) from the Fund's total assets and dividing this by the
number of preferred shares outstanding.
45
VALUE MUNICIPAL INCOME TRUST. The following schedule presents financial
highlights for one common share of the Fund outstanding throughout the periods
indicated.
YEAR ENDED OCTOBER 31,
2004 2003 2002(a) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 15.58 $ 15.63 $ 15.68 $ 14.38 $ 13.80 $ 15.64 $ 15.14
------- ------- ------- ------- -------- -------- --------
Net Investment Income............. 1.05 1.10 1.11 1.13 1.15 1.14 1.14
Net Realized and Unrealized
Gain/Loss....................... .12 (.04) (.06) 1.25 .63 (1.86) .51
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.10) (.10) (.13) (.31) (.39) (.31) (.34)
------- ------- ------- ------- -------- -------- --------
Total from Investment Operations... 1.07 .96 .92 2.07 1.39 (1.03) 1.31
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.99) (1.01) (.97) (.77) (.81) (.81) (.81)
------- ------- ------- ------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 15.66 $ 15.58 $ 15.63 $ 15.68 $ 14.38 $ 13.80 $ 15.64
======= ======= ======= ======= ======== ======== ========
Common Share Market Price at End of
the Period........................ $ 14.46 $ 14.70 $ 14.37 $ 13.78 $ 12.25 $12.0625 $ 14.75
Total Return(b).................... 5.25% 9.61% 11.50% 19.22% 8.56% -13.29% 15.10%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 368.9 $ 366.9 $ 368.1 $ 369.3 $ 338.7 $ 325.1 $ 368.5
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.32% 1.33% 1.46% 1.63% 1.77% 1.67% 1.67%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 6.76% 6.99% 7.22% 7.49% 8.36% 7.56% 7.41%
Portfolio Turnover................. 24% 30% 38% 30% 25% 35% 24%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .82% .83% .90% 1.00% 1.05% 1.02% 1.03%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 6.09% 6.37% 6.36% 5.44% 5.55% 5.50% 5.21%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 9,000 9,000 9,000 9,000 9,000 9,000 4,500
Asset Coverage Per Preferred
Share(e).......................... $65,999 $65,769 $65,910 $66,028 $ 62,631 $ 61,123 $131,890
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
YEAR ENDED OCTOBER 31,
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 14.50 $ 14.37 $ 12.90
-------- -------- --------
Net Investment Income............. 1.16 1.17 1.18
Net Realized and Unrealized
Gain/Loss....................... .63 .13 1.57
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.34) (.34) (.38)
-------- -------- --------
Total from Investment Operations... 1.45 .96 2.37
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.81) (.83) (.90)
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 15.14 $ 14.50 $ 14.37
======== ======== ========
Common Share Market Price at End of
the Period........................ $13.5625 $ 12.375 $ 12.75
Total Return(b).................... 16.61% 3.70% 27.67%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 356.6 $ 341.5 $ 338.4
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.70% 1.77% 1.80%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 7.93% 8.15% 8.67%
Portfolio Turnover................. 32% 42% 50%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.03% 1.06% 1.06%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.61% 5.78% 5.90%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 4,500 4,500 4,500
Asset Coverage Per Preferred
Share(e).......................... $129,243 $125,881 $125,198
Involuntary Liquidating Preference
Per Preferred Share............... $ 50,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 50,000 $ 50,000 $ 50,000
(a) As required, effective November 1, 2001, the Fund 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 less than $.01, decrease net realized and unrealized
gains and losses per share by less than $.01 and increase the ratio of net
investment income to average net assets applicable to common shares by .02%.
Per share, ratios, and supplemental data for the periods prior to October
31, 2002 have not been restated to reflect this change.
(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 Fund'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 Fund's total liabilities (not including the
preferred shares) from the Fund's total assets and dividing this by the
number of preferred shares outstanding.
46
ACQUIRING FUND. The following schedule presents financial highlights for one
common share of the Fund outstanding throughout the periods indicated.
YEAR ENDED OCTOBER 31,
2004 2003 2002(a) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 14.69 $ 14.87 $ 14.77 $ 13.46 $ 12.92 $ 14.72 $ 14.17
------- ------- ------- ------- ------- -------- --------
Net Investment Income............. 1.05 1.08 1.10 1.12 1.08 1.10 1.10
Net Realized and Unrealized
Gain/Loss....................... .18 (.16) .10 1.23 .64 (1.84) .54
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.10) (.10) (.14) (.32) (.40) (.32) (.35)
------- ------- ------- ------- ------- -------- --------
Total from Investment Operations... 1.13 .82 1.06 2.03 1.32 (1.06) 1.29
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.96) (1.00) (.96) (.72) (.78) (.74) (.74)
------- ------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 14.86 $ 14.69 $ 14.87 $ 14.77 $ 13.46 $ 12.92 $ 14.72
======= ======= ======= ======= ======= ======== ========
Common Share Market Price at End of
the Period........................ $ 14.70 $ 13.90 $ 13.98 $ 12.95 $11.625 $11.1875 $13.6875
Total Return(b).................... 13.05% 6.57% 15.64% 18.05% 11.15% -13.37% 15.87%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 121.5 $ 120.0 $ 121.4 $ 120.6 $ 109.9 $ 105.6 $ 120.2
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.46% 1.48% 1.58% 1.76% 1.88% 1.79% 1.83%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 7.14% 7.23% 7.55% 7.89% 8.35% 7.86% 7.67%
Portfolio Turnover................. 29% 26% 45% 38% 24% 36% 15%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .88% .89% .95% 1.04% 1.07% 1.06% 1.09%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 6.44% 6.57% 6.59% 5.66% 5.27% 5.60% 5.24%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 3,200 3,200 3,200 3,200 3,200 3,200 1,600
Asset Coverage Per Preferred
Share(e).......................... $62,967 $62,499 $62,954 $62,695 $59,345 $ 57,986 $125,139
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 50,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 50,000
YEAR ENDED OCTOBER 31,
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 13.51 $ 13.31 $ 11.93
-------- -------- --------
Net Investment Income............. 1.12 1.12 1.15
Net Realized and Unrealized
Gain/Loss....................... .63 .19 1.45
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.35) (.35) (.39)
-------- -------- --------
Total from Investment Operations... 1.40 .96 2.21
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.74) (.76) (.83)
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 14.17 $ 13.51 $ 13.31
======== ======== ========
Common Share Market Price at End of
the Period........................ $ 12.50 $ 11.50 $ 11.50
Total Return(b).................... 15.58% 6.82% 25.22%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 115.7 $ 110.3 $ 108.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.88% 1.94% 1.98%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 8.16% 8.42% 9.06%
Portfolio Turnover................. 16% 37% 79%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.09% 1.12% 1.12%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.61% 5.77% 6.01%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 1,600 1,600 1,600
Asset Coverage Per Preferred
Share(e).......................... $122,327 $118,953 $117,963
Involuntary Liquidating Preference
Per Preferred Share............... $ 50,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 50,000 $ 50,000 $ 50,000
(a) As required, effective November 1, 2001, the Fund 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 Fund'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 Fund's total liabilities (not including the
preferred shares) from the Fund's total assets and dividing this by the
number of preferred shares outstanding.
47
INFORMATION ABOUT THE REORGANIZATIONS
GENERAL
Under the Reorganization Agreements (a form of which is attached as Appendix A
to the Reorganization Statement of Additional Information), the Acquiring Fund
will acquire substantially all of the assets, and will assume substantially all
of the liabilities, of the Target Funds, in exchange for Acquiring Fund Common
Shares and Acquiring Fund APS to be issued by the Acquiring Fund. The Acquiring
Fund will issue and cause to be listed on the AMEX and CHX additional Acquiring
Fund Common Shares. The Acquiring Fund Common Shares issued to the Target Funds
will have an aggregate net asset value equal to the aggregate net asset value of
the Target Funds' common shares, less the costs of the Reorganizations. The
Acquiring Fund APS issued to the Target Funds will have an aggregate liquidation
preference equal to the aggregate liquidation preference of the Target Funds'
preferred shares. Upon receipt by the Target Funds of such shares, the Target
Funds will (i) distribute the Acquiring Fund Common Shares to the Target Funds'
common shareholders and (ii) distribute the Acquiring Fund APS to the Target
Funds' preferred shareholders. As soon as practicable after the Closing Date for
the Reorganizations, the Target Funds will deregister as investment companies
under the 1940 Act and dissolve under applicable state law.
The Target Funds will distribute the Acquiring Fund Common Shares and the
Acquiring Fund APS received by them pro rata to the holders of record of their
common shares and preferred shares, as applicable, in exchange for such
shareholders' shares in the Target Funds. Such distribution will be accomplished
by opening new accounts on the books of the Acquiring Fund in the names of the
common and preferred shareholders of the Target Funds and transferring to those
shareholder accounts the Acquiring Fund Common Shares and the Acquiring Fund APS
previously credited on those books to the accounts of the Target Funds. Each
newly-opened account on the books of the Acquiring Fund for the former common
shareholders of the Target Funds will represent the respective pro rata number
of Acquiring Fund Common Shares (rounded down, in the case of fractional shares
held other than in a Dividend Reinvestment Plan account, to the next largest
number of whole shares) due such shareholder. No fractional Acquiring Fund
Common Shares will be issued (except for shares held in a Plan account). In the
event of fractional shares in an account other than a Plan account, the
Acquiring Fund's transfer agent will aggregate all such fractional Acquiring
Fund Common Shares and sell the resulting whole shares on the NYSE for the
account of all holders of such fractional interests, and each such holder will
be entitled to the pro rata share of the proceeds from such sale upon surrender
of the Target Fund common share certificates. Similarly, each newly-opened
account on the books of the Acquiring Fund for the former preferred shareholders
of Target Fund would represent the respective pro rata number of Acquiring Fund
APS due such
48
shareholder. See "Terms of the Reorganization Agreements -- Surrender and
Exchange of Share Certificates" below for a description of the procedures to be
followed by the Target Funds' shareholders to obtain their Acquiring Fund Common
Shares or Acquiring Fund APS (and cash in lieu of fractional shares, if any).
As a result of the Reorganizations, each common shareholder of a Target Fund
will own Acquiring Fund Common Shares that (except for cash payments received in
lieu of fractional shares) will have an aggregate net asset value immediately
after the Closing Date equal to the aggregate net asset value of that
shareholder's Target Fund common shares immediately prior to the Closing Date.
Since the Acquiring Fund Common Shares will be issued at net asset value in
exchange for the net assets of each Target Fund having a value equal to the
aggregate net asset value of those Acquiring Fund Common Shares, the net asset
value per share of Acquiring Fund Common Shares should remain virtually
unchanged by the Reorganizations except for its share of the costs of the
Reorganizations. Similarly, the aggregate liquidation preference of the
Acquiring Fund APS to be issued to each Target Fund will equal the aggregate
liquidation preference of each Target Fund's preferred shares. Each preferred
shareholder of a Target Fund will receive Acquiring Fund APS that will have an
aggregate liquidation preference immediately after the Closing Date equal to the
aggregate liquidation preference of that shareholder's Target Fund preferred
shares immediately prior to the Closing Date. The liquidation preference per
share of the Acquiring Fund APS will remain unchanged by the Reorganizations.
Thus, the Reorganization will result in no dilution of net asset value of the
Acquiring Fund Common Shares or the Target Funds' common shares, other than to
reflect the costs of the Reorganization, and will result in no dilution of the
value per share for preferred shareholders of the Acquiring Fund or the Target
Fund. However, as a result of the Reorganizations, a shareholder of any of the
Funds will hold a reduced percentage of ownership in the larger combined entity
than he or she did in any of the separate Funds. No sales charge or fee of any
kind will be charged to shareholders of the Target Funds in connection with
their receipt of Acquiring Fund Common Shares or Acquiring Fund APS in the
Reorganizations.
TERMS OF THE REORGANIZATION AGREEMENTS
The following is a summary of the significant terms of a Reorganization
Agreement. The terms of each Reorganization Agreement are similar. This summary
is qualified in its entirety by reference to the form of Reorganization
Agreement, attached as Appendix A to the Reorganization Statement of Additional
Information.
VALUATION OF ASSETS AND LIABILITIES. The assets of each Fund will be valued
after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on
the Closing Date. For the purpose of determining the net asset value of a common
share
49
of each Fund, the value of the securities held by the Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding preferred shares of the Fund is divided by the total number of
common shares of the Fund outstanding at such time. Daily expenses, including
the fees payable to the Adviser, will accrue on the Closing Date.
AMENDMENTS AND CONDITIONS. The Reorganization Agreement may be amended at any
time prior to the Closing Date with respect to any of the terms therein. The
obligations of each Fund pursuant to the Reorganization Agreement are subject to
various conditions, including a registration statement on Form N-14 being
declared effective by the SEC, approval by the shareholders of the Target Fund,
approval of the issuance of additional Acquiring Fund Common Shares by the
common shareholders of the Acquiring Fund, receipt of an opinion of counsel as
to tax matters, receipt of an opinion of counsel as to corporate and securities
matters and the continuing accuracy of various representations and warranties of
the Funds being confirmed by the respective parties.
POSTPONEMENT; TERMINATION. Under the Reorganization Agreement, the Board of
Trustees of either Fund may cause the Reorganization to be postponed or
abandoned in certain circumstances should such Board determine that it is in the
best interests of the shareholders of its respective Fund to do so.
The Reorganization Agreement may be terminated, and the Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of either of the Funds) prior to the Closing Date, or the Closing
Date may be postponed: (i) by mutual consent of the Boards of Trustees of the
Funds and (ii) by the Board of Trustees of either Fund if any condition to that
Fund's obligations set forth in the Reorganization Agreement has not been
fulfilled or waived by such Board.
SURRENDER AND EXCHANGE OF SHARE CERTIFICATES. After the Closing Date, each
holder of an outstanding certificate or certificates formerly representing
Target Fund common shares will be entitled to receive, upon surrender of his or
her certificate or certificates, a certificate or certificates representing the
number of Acquiring Fund Common Shares distributable with respect to such
holder's Target Fund common shares, together with cash in lieu of any fractional
Acquiring Fund Common Shares held other than in a Dividend Reinvestment Plan
account. Promptly after the Closing Date, the transfer agent for the Acquiring
Fund Common Shares will mail to each holder of certificates formerly
representing Target Fund common shares a letter of transmittal for use in
surrendering his or her certificates for certificates representing Acquiring
Fund Common Shares and cash in lieu of any fractional shares held other than in
a Plan account.
50
Please do not send in any share certificates at this time. Upon consummation
of the Reorganization, holders of Target Fund common shares will be furnished
with instructions for exchanging their share certificates for Acquiring Fund
share certificates and, if applicable, cash in lieu of fractional shares.
From and after the Closing Date, certificates formerly representing Target
Fund common shares will be deemed for all purposes to evidence ownership of the
number of full Acquiring Fund Common Shares distributable with respect to the
Target Fund common shares held before the Reorganization as described above,
provided that, until such share certificates have been so surrendered, no
dividends payable to the holders of record of Target Fund common shares as of
any date subsequent to the Closing Date will be reinvested pursuant to the
Acquiring Fund's Dividend Reinvestment Plan, but will instead be paid in cash.
Once such Target Fund share certificates have been surrendered, participants in
the Target Fund's Dividend Reinvestment Plan will automatically be enrolled in
the Plan of the Acquiring Fund.
From and after the Closing Date, there will be no transfers on the share
transfer books of the Target Fund. If, after the Closing Date, certificates
representing Target Fund Common Shares are presented to the Acquiring Fund, they
will be cancelled and exchanged for certificates representing Acquiring Fund
Common Shares, as applicable, and cash in lieu of fractional shares, if any,
distributable with respect to such Target Fund Common Shares in the
Reorganization.
Preferred shares are held in "street name" by the Depository Trust Company and
all transfers will be accomplished by book entry.
EXPENSES OF THE REORGANIZATION. In the event the Reorganization is approved
and completed, the expenses of the Reorganization will be shared by the Target
Fund and the Acquiring Fund in proportion to their respective projected annual
expense savings as a result of the Reorganization. The expenses of the
Reorganization will not be borne by the preferred shareholders of either Fund.
In the event the Reorganization is not completed, the Adviser will bear the
costs associated with the Reorganization. Neither the Funds nor the Adviser will
pay any expenses of shareholders arising out of or in connection with the
Reorganization.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
The following is a general summary of the material anticipated U.S. federal
income tax consequences of the Reorganizations. The discussion is based upon the
Internal Revenue Code, Treasury regulations, court decisions, published
positions of the Internal Revenue Service ("IRS") and other applicable
authorities, all as in effect on the date hereof and all of which are subject to
change or differing interpretations (possibly with retroactive effect). The
discussion is limited to U.S. persons who hold shares of a Target Fund as
capital assets for U.S. federal income
51
tax purposes (generally, assets held for investment). This summary does not
address all of the U.S. federal income tax consequences that may be relevant to
a particular shareholder or to shareholders who may be subject to special
treatment under U.S. federal income tax laws. No ruling has been or will be
obtained from the IRS regarding any matter relating to the Reorganizations. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax aspects described below.
Prospective investors must consult their own tax advisers as to the U.S. federal
income tax consequences of the Reorganizations, as well as the effects of state,
local and non-U.S. tax laws.
It is a condition to closing each Reorganization that the respective Target
Fund and the Acquiring Fund receive an opinion from Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps"), dated as of the Closing Date, regarding the
characterization of such Reorganization as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code. As such a reorganization, the
U.S. federal income tax consequences of each Reorganization can be summarized as
follows:
- No gain or loss will be recognized by a Target Fund or the Acquiring Fund
upon the transfer to the Acquiring Fund of substantially all of the assets
of the Target Fund in exchange for Acquiring Fund Common Shares and
Acquiring Fund APS and the assumption by the Acquiring Fund of substantially
all of the liabilities of the Target Fund and the subsequent liquidation of
the Target Fund.
- No gain or loss will be recognized by a shareholder of a Target Fund who
exchanges, as the case may be, all of his, her or its Target Fund common
shares for Acquiring Fund Common Shares pursuant to a Reorganization (except
with respect to cash received in lieu of a fractional share, as discussed
below) or all of his, her or its Target Fund preferred shares for Acquiring
Fund APS pursuant to a Reorganization.
- The aggregate tax basis of the Acquiring Fund Common Shares or Acquiring
Fund APS, as the case may be, received by a shareholder of a Target Fund
pursuant to a Reorganization will be the same as the aggregate tax basis of
the shares of the Target Fund surrendered in exchange therefor (reduced by
any amount of tax basis allocable to a fractional share for which cash is
received).
- The holding period of the Acquiring Fund Common Shares or Acquiring Fund
APS, as the case may be, received by a shareholder of a Target Fund pursuant
to a Reorganization will include the holding period of the shares of the
Target Fund surrendered in exchange therefor.
- A shareholder of a Target Fund that receives cash in lieu of a fractional
Acquiring Fund Common Share pursuant to the Reorganization will recognize
capital gain or loss with respect to the fractional share in an amount equal
to the difference between the amount of cash received for the fractional
share and
52
the portion of such shareholder's tax basis in its Target Fund common shares
that is allocable to the fractional share. The capital gain or loss will be
long-term if the holding period for such Target Fund common shares is more
than one year as of the date of the exchange.
- The Acquiring Fund's tax basis in a Target Fund's assets received by the
Acquiring Fund pursuant to a Reorganization will, in each instance, equal
the tax basis of such assets in the hands of such Target Fund immediately
prior to such Reorganization, and the Acquiring Fund's holding period of
such assets will, in each instance, include the period during which the
assets were held by such Target Fund.
The Acquiring Fund intends to continue to be taxed under the rules applicable
to regulated investment companies as defined in Section 851 of the Internal
Revenue Code, which are the same rules currently applicable to each of the
Target Funds and their shareholders.
The opinion of Skadden Arps will be based on U.S. federal income tax law in
effect on the Closing Date. In rendering its opinion, Skadden Arps will also
rely upon certain representations of the management of the Acquiring Fund and
the Target Funds and assume, among other things, that the Reorganizations will
be consummated in accordance with the Reorganization Agreements and as described
herein. An opinion of counsel is not binding on the IRS or any court.
SHAREHOLDER APPROVAL
Under the Declaration of Trust of each Target Fund (as amended to date and
including the Certificate of Vote of each Target Fund), relevant Massachusetts
law and the rules of the NYSE and CHX, shareholder approval of each
Reorganization Agreement requires the affirmative vote of shareholders of the
respective Target Fund representing more than 50% of the outstanding common
shares and preferred shares of such Target Fund entitled to vote, each voting
separately as a class.
53
------------------------------------------------------------------------------
PROPOSAL 2: ISSUANCE OF ADDITIONAL ACQUIRING FUND
COMMON SHARES
------------------------------------------------------------------------------
Pursuant to the Reorganization Agreements, which are described more fully
under "Proposal 1: Reorganizations of the Target Funds" herein, the Acquiring
Fund will acquire substantially all of the assets and assume substantially all
of the liabilities of each Target Fund in exchange for Acquiring Fund Common
Shares and Acquiring Fund APS. Each Target Fund will distribute Acquiring Fund
Common Shares to its common shareholders and Acquiring Fund APS to its preferred
shareholders, and will then terminate its registration under the 1940 Act and
dissolve under applicable state law. The Acquiring Fund Board, based upon its
evaluation of all relevant information, anticipates that each Reorganization
will benefit holders of Acquiring Fund Common Shares.
The aggregate net asset value of Acquiring Fund Common Shares received in each
Reorganization will equal the aggregate net asset value of the Target Fund's
common shares held immediately prior to the Reorganization, less the costs of
the Reorganization (though common shareholders of a Target Fund may receive cash
for their fractional shares). The aggregate liquidation preference of Acquiring
Fund APS received in the Reorganization will equal the aggregate liquidation
preference of the Target Fund's preferred shares held immediately prior to the
Reorganization. The Reorganization will result in no dilution of net asset value
of the Acquiring Fund Common Shares, other than to reflect the costs of each
Reorganization. No gain or loss will be recognized by the Acquiring Fund or its
shareholders in connection with each Reorganization. The Acquiring Fund will
continue to operate as a registered closed-end investment company with the
investment objective and policies described in this Joint Proxy
Statement/Prospectus.
In connection with the Reorganizations and as contemplated by the
Reorganization Agreements, the Acquiring Fund will issue additional Acquiring
Fund Common Shares and list such shares on the AMEX and the CHX. While
applicable state and federal law does not require the shareholders of the
Acquiring Fund to approve the Reorganizations, applicable AMEX rules require the
common shareholders of the Acquiring Fund to approve the issuance of additional
Acquiring Fund Common Shares to be issued in connection with the
Reorganizations.
SHAREHOLDER APPROVAL
Shareholder approval of the issuance of additional Acquiring Fund Common
Shares requires the affirmative vote of a majority of the votes cast on the
proposal, provided that the total votes cast on the proposal represents over 50%
in interest of all securities entitled to vote on the matter. For more
information regarding voting requirements, see the section entitled "Other
Information -- Voting Information and Requirements" below.
54
------------------------------------------------------------------------------
OTHER INFORMATION
------------------------------------------------------------------------------
VOTING INFORMATION AND REQUIREMENTS
GENERAL. A list of shareholders of each Fund entitled to be present and vote
at the Special Meeting will be available at the offices of the Funds, 1 Parkview
Plaza, Oakbrook Terrace, Illinois 60181-5555, for inspection by any shareholder
during regular business hours for ten days prior to the date of the Special
Meeting.
RECORD DATE. The Board of Trustees of each Fund has fixed the close of
business on July 29, 2005 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote at, the Special
Meeting or any adjournment thereof. Shareholders on the Record Date will be
entitled to one vote for each share held, with no shares having cumulative
voting rights. At the Record Date, Municipal Opportunity Trust II had
outstanding 11,731,272 common shares and 4,600 preferred shares, Value Municipal
Income Trust had outstanding 23,555,115 common shares and 9,000 preferred shares
and the Acquiring Fund had outstanding 8,175,881 common shares and 3,200
preferred shares.
PROXIES. Shareholders may vote by appearing in person at the Special Meeting,
by returning the enclosed proxy card or by casting their vote via telephone or
the internet using the instructions provided on the enclosed proxy card and more
fully described below. Shareholders of each Fund have the opportunity to submit
their voting instructions via the internet by utilizing a program provided by a
third-party vendor hired by the Funds, or by "touch-tone" telephone voting. The
giving of such a proxy will not affect your right to vote in person should you
decide to attend the Special Meeting. To use the internet, please access the
internet address found on your proxy card. To record your voting instructions by
automated telephone, please call the toll-free number listed on your proxy card.
The internet and automated telephone voting instructions are designed to
authenticate shareholder identities, to allow shareholders to give their voting
instructions, and to confirm that shareholders' instructions have been recorded
properly. Shareholders submitting their voting instructions via the internet
should understand that there may be costs associated with internet access, such
as usage charges from internet access providers and telephone companies, that
must be borne by the shareholders. Any person giving a proxy may revoke it at
any time prior to its exercise by giving written notice of the revocation to the
Secretary of the applicable Fund at the address indicated above, by delivering a
duly executed proxy bearing a later date, by recording later-dated voting
instructions via the internet or automated telephone or by attending the Special
Meeting and voting in person. The giving of a proxy will not affect your right
to vote in person if you attend the Special Meeting and wish to do so.
All properly executed proxies received prior to the Special Meeting will be
voted in accordance with the instructions marked thereon or otherwise as
provided therein. Unless instructions to the contrary are marked, proxies will
be voted
55
"FOR" the approval of each proposal. Abstentions and broker non-votes (i.e.,
where a nominee such as a broker holding shares for beneficial owners votes on
certain matters pursuant to discretionary authority or instructions from
beneficial owners, but with respect to one or more proposals does not receive
instructions from beneficial owners or does not exercise discretionary
authority) are not treated as votes "FOR" a proposal.
With respect to Proposal 1, abstentions and broker non-votes have the same
effect as votes "AGAINST" the proposals since their approvals are based on the
affirmative vote of a majority of each Target Fund's outstanding common shares
and preferred shares, each voting as a separate class. With respect to Proposal
2, abstentions will not be treated as votes "FOR" the proposal but will be
counted as votes cast on the proposal and will therefore have the same effect as
votes "AGAINST" the proposal. Broker non-votes will not be treated as votes
"FOR" the proposal and will not be counted as votes cast on the proposal and
will therefore have the effect of reducing the aggregate number of shares voting
on the proposal and reducing the number of votes "FOR" required to approve the
proposal.
With respect to each proposal, a majority of the outstanding shares of each
class entitled to vote on the proposal must be present in person or by proxy to
have a quorum to conduct business at the Special Meeting. Abstentions and broker
non-votes will be deemed present for quorum purposes.
CERTAIN VOTING INFORMATION REGARDING PREFERRED SHARES OF THE TARGET FUNDS.
Pursuant to the rules of the NYSE, preferred shares of each Target Fund held in
"street name" may be voted under certain conditions by broker-dealer firms and
counted for purposes of establishing a quorum of that Fund if no instructions
are received one business day before the Special Meeting or, if adjourned, one
business day before the day to which the Special Meeting is adjourned. These
conditions include, among others, that (i) at least 30% of a Target Fund's
preferred shares outstanding have voted on such Fund's Reorganization and (ii)
less than 10% of a Target Fund's preferred shares outstanding have voted against
such Fund's Reorganization. In such instance, the broker-dealer firm will vote
such uninstructed Target Fund's preferred shares on such Reorganization in the
same proportion as the votes cast by all Target Fund preferred shareholders who
voted on such Reorganization. Each Target Fund will include shares held of
record by broker-dealers as to which such authority has been granted in its
tabulation of the total number of shares present for purposes of determining
whether the necessary quorum of shareholders of such Fund exists.
SHAREHOLDER INFORMATION
ACQUIRING FUND. As of July 29, 2005, to the knowledge of the Acquiring Fund,
no shareholder owned beneficially more than 5% of a class of the Acquiring
Fund's outstanding shares.
56
Except as set forth below, as of July 29, 2005, no trustees or executive
officers owned, directly or beneficially, Acquiring Fund Common Shares or
Acquiring Fund APS.
NUMBER OF COMMON
TRUSTEE SHARES OWNED
------- ----------------
David C. Arch....................................... 500
Rod Dammeyer........................................ 139,089(1.7%)
Hugo Sonnenschein................................... 350
Wayne W. Whalen..................................... 500
As of July 29, 2005, the trustees and executive officers of the Acquiring Fund
as a group owned approximately 1.7% of the outstanding shares of the Acquiring
Fund.
MUNICIPAL OPPORTUNITY TRUST II. As of July 29, 2005, to the knowledge of
Municipal Opportunity Trust II, no shareholder owned beneficially more than 5%
of a class of outstanding shares of Municipal Opportunity Trust II.
Except as set forth below, as of July 29, 2005, no trustees or executive
officers owned, directly or beneficially, common shares or APS of Municipal
Opportunity Trust II.
NUMBER OF COMMON
TRUSTEE SHARES OWNED
------- ----------------
Rod Dammeyer........................................ 113,394
Hugo Sonnenschein................................... 350
Wayne W. Whalen..................................... 500
As of July 29, 2005, the trustees and executive officers of Municipal
Opportunity Trust II individually and as a group owned less than 1% of the
outstanding shares of Municipal Opportunity Trust II.
VALUE MUNICIPAL INCOME TRUST. As of July 29, 2005, to the knowledge of Value
Municipal Income Trust, no shareholder owned beneficially more than 5% of a
class of outstanding shares of Value Municipal Income Trust.
Except as set forth below, as of July 29, 2005, no trustees or executive
officers owned, directly or beneficially, common shares or APS of Value
Municipal Income Trust.
NUMBER OF COMMON
TRUSTEE SHARES OWNED
------- ----------------
Rod Dammeyer........................................ 60,342
As of July 29, 2005, the trustees and executive officers of Value Municipal
Income Trust individually and as a group owned less than 1% of the outstanding
shares of Value Municipal Income Trust.
57
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(f) of the 1940 Act and Section 16(a) of the Securities Exchange Act
of 1934, as amended, require the Funds' trustees, officers, investment adviser,
affiliated persons of the investment adviser and persons who own more than 10%
of a registered class of a Fund's equity securities to file forms with the SEC
and the NYSE reporting their affiliation with a Fund and reports of ownership
and changes in ownership of Fund shares. These persons and entities are required
by SEC regulation to furnish a Fund with copies of all such forms they file.
Based on a review of these forms furnished to each Fund, each Fund believes that
during its last fiscal year, its trustees, officers, investment adviser and
affiliated persons of the investment adviser complied with the applicable filing
requirements.
SHAREHOLDER PROPOSALS
To be considered for presentation at a shareholder's meeting, rules
promulgated by the SEC generally require that, among other things, a
shareholder's proposal must be received at the offices of the relevant Fund a
reasonable time before a solicitation is made. Timely submission of a proposal
does not necessarily mean that such proposal will be included. Any shareholder
who wishes to submit a proposal for consideration at a meeting of such
shareholder's Fund should send such proposal to the relevant Fund at the
principal executive offices of the Fund at 1221 Avenue of the Americas, New
York, New York 10020.
Information regarding the deadline for timely submission of proposals intended
to be presented at the year 2006 Annual Meeting of the Funds will be provided in
the proxy statement relating to the 2005 Annual Meeting of the Funds, which is
expected to take place later this year. Shareholder proposals intended to be
presented at the 2005 Annual Meeting of the Funds pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must be
received by the respective Fund at such Fund's principal executive offices by
August 16, 2005. In order for proposals made outside of Rule 14a-8 under the
Exchange Act to be considered "timely" within the meaning of Rule 14a-4(c) under
the Exchange Act, such proposals must be received by the respective Fund at such
Fund's principal executive offices by August 16, 2005. If the Reorganizations of
the Target Funds are approved and completed prior to their 2005 Annual Meeting,
such Funds will cease to exist and will not hold their 2005 Annual Meeting.
SOLICITATION OF PROXIES
Solicitation of proxies on behalf of the Funds is being made primarily by the
mailing of this Notice and Joint Proxy Statement/Prospectus with its enclosures
on or about August 12, 2005. Shareholders whose shares are held by nominees such
as brokers can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, employees of the Adviser and
its affiliates as well
58
as dealers or their representatives may, without additional compensation,
solicit proxies in person or by mail, telephone, telegraph, facsimile or oral
communication. The Funds have retained Computershare Fund Services ("CFS") to
make telephone calls to shareholders of the Funds to remind them to vote. CFS
will be paid a project management fee as well as fees charged on a per call
basis and certain other expenses. Management estimates that the telephone
solicitation by CFS will cost approximately $20,200 for Municipal Opportunity
Trust II, $37,900 for Value Municipal Income Trust and $16,300 for the Acquiring
Fund. Proxy solicitation expenses are an expense of the Reorganizations which
will be borne by the Target Funds and the Acquiring Fund in proportion to their
projected annual expense savings as a result of the Reorganizations.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganizations and the issuance of Acquiring Fund Common Shares and Acquiring
Fund APS will be passed upon by Skadden Arps, which serves as counsel to the
Target Funds and the Acquiring Fund. Wayne W. Whalen, a partner of Skadden Arps,
is a trustee of both the Target Funds and the Acquiring Fund.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Trustees of each Fund knows of no business other than that
described in this Joint Proxy Statement/Prospectus which will be presented for
consideration at the Special Meeting. If any other matters are properly
presented, it is the intention of the persons named on the enclosed proxy card
to vote proxies in accordance with their best judgment.
In the event that a quorum is present at the Special Meeting but sufficient
votes to approve any of the proposals are not received, proxies (including
abstentions and broker non-votes) will be voted in favor of one or more
adjournments of the Special Meeting to permit further solicitation of proxies on
such proposals, provided that the Board of Trustees of each Fund determines that
such an adjournment and additional solicitation is reasonable and in the
interest of shareholders based on a consideration of all relevant factors,
including the percentage of votes then cast, the percentage of negative votes
cast, the nature of the proposed solicitation activities and the nature of the
reasons for such further solicitation. Any such adjournment will require the
affirmative vote of the holders of a majority of the outstanding shares of the
respective Fund voted at the session of the Special Meeting to be adjourned.
59
If you cannot be present in person at the Special Meeting, please fill in,
sign and return the enclosed proxy card or please record your voting
instructions by telephone or via the internet promptly. No postage is necessary
if the enclosed proxy card is mailed in the United States.
Lou Anne McInnis
Assistant Secretary
Van Kampen Municipal Opportunity
Trust II
Van Kampen Value Municipal
Income Trust
Van Kampen Advantage Municipal
Income Trust II
August 9, 2005
60
EXHIBIT I
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The issue credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances. Issue credit ratings can be either long-term or
short-term. Short-term ratings are generally assigned to those obligations
considered short term in the relevant market. In the U.S., for example, that
means obligations with an original maturity of no more than 365 days, including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the short-term ratings
address the put feature, in addition to the usual long-term rating. Medium-term
notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following
considerations:
- Likelihood of payment -- capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with the terms
of the obligation;
- Nature of and provisions of the obligation;
- Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower
I-1
than senior obligations, to reflect the lower priority in bankruptcy, as noted
above. (Such differentiation applies when an entity has both senior and
subordinated obligations, secured and unsecured obligations, or operating
company and holding company obligations.) Accordingly, in the case of junior
debt, the rating may not conform exactly with the category definition.
AAA: An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated "A" is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Obligations rated "BB", "B", "CCC", "CC" and "C" are
regarded as having significant speculative characteristics. "BB" indicates the
least degree of speculation and "C" the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse
I-2
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A "C" also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D: An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating.
N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.
SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated "A-1" is rated in the highest category by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more
I-3
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
MOODY'S INVESTORS SERVICE INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
Aaa: Obligations rated Aaa are judged to be of the highest quality with
minimal credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.
A: Obligations rated A are considered upper-medium grade and are subject to
low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics.
Ba: Obligations rated Ba are judged to have speculative elements and are
subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high
credit risk.
Caa: Obligations rated Caa are judged to be of poor standing and are subject
to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.
I-4
C: Obligations rated C are the lowest rated class of bonds, and are typically
in default, with little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Moody's assigns long-term ratings to individual debt securities issued from
medium-term note (MTN) programs, in addition to indicating ratings to MTN
programs themselves. Notes issued under MTN programs with such indicated ratings
are rated at issuance at the rating applicable to all pari passu notes issued
under the same program, at the program's relevant indicated rating, provided
such notes do not exhibit any of the characteristics listed below:
-- Notes containing features that link interest or principal to the
credit performance of any third party or parties.
-- Notes allowing for negative coupons, or negative principal.
-- Notes containing any provision that could obligate the investor to
make any additional payments.
-- Notes containing provisions that subordinate the claim.
For notes with any of these characteristics, the rating of the individual note
may differ from the indicated rating of the program.
Market participants must determine whether any particular note is rated, and
if so, at what rating level. Moody's encourages market participants to contact
Moody's Ratings Desks directly or visit www.moodys.com directly if they have
questions regarding ratings for specific notes issued under a medium-term note
program. Unrated notes issued under an MTN program may be assigned an NR symbol.
I-5
SHORT-TERM RATINGS
Moody's short-term ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted. Moody's employs the following designations to indicate the
relative repayment ability of rated issuers:
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
NOTE: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced
by the senior-most long-term rating of the issuer, its guarantor or
support-provider.
I-6
[VAN KAMPEN INVESTMENTS LOGO]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 9, 2005
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF THE ASSETS AND LIABILITIES OF
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
AND
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
DATED AUGUST 9, 2005
This Statement of Additional Information is available to the shareholders
of Van Kampen Municipal Opportunity Trust II ("Municipal Opportunity Trust II")
and Van Kampen Value Municipal Income Trust ("Value Municipal Income Trust")
(each a "Target Fund" and collectively the "Target Funds") in connection with
proposed reorganizations (each a "Reorganization" and collectively the
"Reorganizations") whereby Van Kampen Advantage Municipal Income Trust II (the
"Acquiring Fund") will acquire substantially all of the assets and assume
substantially all of the liabilities of the Target Funds in exchange for an
equal aggregate value of newly-issued common shares of beneficial interest, par
value $0.01 per share ("Acquiring Fund Common Shares"), and newly-issued auction
preferred shares with a par value of $0.01 per share and a liquidation
preference of $25,000 per share ("Acquiring Fund APS"). The Target Funds will
distribute Acquiring Fund Common Shares to common shareholders of the Target
Funds and Acquiring Fund APS to preferred shareholders of the Target Funds, and
will then terminate their registrations under the Investment Company Act of
1940, as amended (the "1940 Act"), and dissolve under applicable state law. A
copy of a form of the Agreement and Plan of Reorganization between each Target
Fund and the Acquiring Fund is attached hereto as Appendix A. Unless otherwise
defined herein, capitalized terms have the meanings given to them in the Joint
Proxy Statement/Prospectus.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Joint Proxy Statement/Prospectus dated August 9,
2005 relating to the proposed Reorganizations of the Target Funds into the
Acquiring Fund. A copy of the Joint Proxy Statement/Prospectus may be obtained,
without charge, by writing to the Van Kampen Client Relations Department at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555 or by
calling (800) 341-2929 (TDD users may call (800) 421-2833).
The Acquiring Fund will provide, without charge, upon the written or oral
request of any person to whom this Statement of Additional Information is
delivered, a copy of any and all documents that have been incorporated by
reference in the registration statement of which this Statement of Additional
Information is a part.
S-1
TABLE OF CONTENTS
Trustees and Officers....................................... S-3
Investment Advisory Agreement............................... S-14
Other Agreements............................................ S-16
Fund Management............................................. S-17
Code of Ethics.............................................. S-19
Portfolio Transactions and Brokerage Allocation............. S-20
Other Information........................................... S-22
Financial Statements........................................ S-22
Pro Forma Financial Statements.............................. S-23
Appendix A -- Form of Agreement and Plan of A-1
Reorganization............................................
Appendix B -- Certificate of Vote of Trustees Establishing B-1
Preferred Shares..........................................
Appendix C -- Proxy Voting Policy and Procedures............ C-1
Appendix D -- Annual Report of the Acquiring Fund........... D-1
Appendix E -- Semiannual Report of the Acquiring Fund....... E-1
Appendix F -- Annual Report of Municipal Opportunity Trust F-1
II........................................................
Appendix G -- Semiannual Report of Municipal Opportunity G-1
Trust II..................................................
Appendix H -- Annual Report of Value Municipal Income H-1
Trust.....................................................
Appendix I -- Semiannual Report of Value Municipal Income I-1
Trust.....................................................
Appendix J -- Pro Forma Financial Statements................ J-1
S-2
TRUSTEES AND OFFICERS
GENERAL
The business and affairs of each Fund are managed under the direction of
each Fund's Board of Trustees and each Fund's officers appointed by the Board of
Trustees. The Acquiring Fund and the Target Funds share the same Board of
Trustees and executive officers. The tables below list the trustees and
executive officers of the Funds and their principal occupations during the last
five years, other directorships held by trustees and their affiliations, if any,
with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Asset
Management (the "Adviser"), Van Kampen Funds Inc. (the "Administrator"), Van
Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Statement of
Additional Information. Trustees of the Funds generally serve three-year terms
or until their successors are duly elected and qualified. Officers are annually
elected by the trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (60) Trustee Trustee Chairman and Chief Executive 79 Trustee/Director/
Blistex Inc. since 1993 Officer of Blistex Inc., a Managing General
1800 Swift Drive consumer health care products Partner of funds in
Oak Brook, IL 60523 manufacturer. Director of the the Fund Complex.
Heartland Alliance, a
nonprofit organization serving
human needs based in Chicago.
Director of St. Vincent de
Paul Center, a Chicago based
day care facility serving the
children of low income
families. Board member of the
Illinois Manufacturers'
Association.
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 77 Trustee/Director/
33971 Selva Road since 2003 Chairman and Chief Executive Managing General
Suite 130 Officer of the Allstate Partner of funds in
Dana Point, CA 92629 Corporation ("Allstate") and the Fund Complex.
Allstate Insurance Company. Director of Amgen
Prior to January 1995, Inc., a
President and Chief Executive biotechnological
Officer of Allstate. Prior to company, and Director
August 1994, various of Valero Energy
management positions at Corporation, an
Allstate. independent refining
company.
S-3
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer+ (64) Trustee Trustee President of CAC, L.L.C., a 79 Trustee/Director/
CAC, L.L.C. since 1993 private company offering Managing General
4350 LaJolla Village Drive capital investment and Partner of funds in
Suite 980 management advisory services. the Fund Complex.
San Diego, CA 92122-6223 Prior to February 2001, Vice Director of
Chairman and Director of Stericycle, Inc.,
Anixter International, Inc., a Ventana Medical
global distributor of wire, Systems, Inc., and
cable and communications GATX Corporation, and
connectivity products. Prior Trustee of The
to July 2000, Managing Partner Scripps Research
of Equity Group Corporate Institute. Prior to
Investment (EGI), a company January 2005, Trustee
that makes private investments of the University of
in other companies. Chicago Hospitals and
Health Systems. Prior
to April 2004,
Director of
TheraSense, Inc.
Prior to January
2004, Director of
TeleTech Holdings
Inc. and Arris Group,
Inc. Prior to May
2002, Director of
Peregrine Systems
Inc. Prior to
February 2001,
Director of IMC
Global Inc. Prior to
July 2000, Director
of Allied Riser
Communications Corp.,
Matria Healthcare
Inc., Transmedia
Networks, Inc., CNA
Surety, Corp. and
Grupo Azcarero Mexico
(GAM).
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of Heidrick & 77 Trustee/Director/
Heidrick & Struggles since 2003 Struggles, an executive search Managing General
233 South Wacker Drive firm. Trustee on the Partner of funds in
Suite 7000 University of Chicago the Fund Complex.
Chicago, IL 60606 Hospitals Board, Vice Chair of
the Board of the YMCA of
Metropolitan Chicago and a
member of the Women's Board of
the University of Chicago.
Prior to 1997, Partner of Ray
& Berndtson, Inc., an
executive recruiting firm.
Prior to 1996, Trustee of The
International House Board, a
fellowship and housing
organization for international
graduate students. Prior to
1995, Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice President
of The Exchange National Bank.
S-4
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (53) Trustee Trustee Director and President of the 77 Trustee/Director/
1744 R Street, NW since 2003 German Marshall Fund of the Managing General
Washington, DC 20009 United States, an independent Partner of funds in
U.S. foundation created to the Fund Complex.
deepen understanding, promote
collaboration and stimulate
exchanges of practical
experience between Americans
and Europeans. Formerly,
advisor to the Dennis Trading
Group Inc., a managed futures
and option company that
invests money for individuals
and institutions. Prior to
1992, President and Chief
Executive Officer, Director
and member of the Investment
Committee of the Joyce
Foundation, a private
foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President and 79 Trustee/Director/
736 North Western Avenue since 1993 Chief Executive Officer of Managing General
P.O. Box 317 Pocklington Corporation, Inc., Partner of funds in
Lake Forest, IL 60045 an investment holding company. the Fund Complex.
Director of the Marrow Director of the Lake
Foundation. Forest Bank & Trust.
Jack E. Nelson (69) Trustee Trustee President of Nelson Investment 77 Trustee/Director/
423 Country Club Drive since 2003 Planning Services, Inc., a Managing General
Winter Park, FL 32789 financial planning company and Partner of funds in
registered investment adviser the Fund Complex.
in the State of Florida.
President of Nelson Ivest
Brokerage Services Inc., a
member of the NASD, Securities
Investors Protection Corp. and
the Municipal Securities
Rulemaking Board. President of
Nelson Sales and Services
Corporation, a marketing and
services company to support
affiliated companies.
Hugo F. Sonnenschein+ (64) Trustee Trustee President Emeritus and 79 Trustee/Director/
1126 E. 59th Street since 1994 Honorary Trustee of the Managing General
Chicago, IL 60637 University of Chicago and the Partner of funds in
Adam Smith Distinguished the Fund Complex.
Service Professor in the Director of Winston
Department of Economics at the Laboratories, Inc.
University of Chicago. Prior
to July 2000, President of the
University of Chicago. Trustee
of the University of Rochester
and a member of its investment
committee. Member of the
National Academy of Sciences,
the American Philosophical
Society and a fellow of the
American Academy of Arts and
Sciences.
S-5
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications Officer 77 Trustee/Director/
815 Cumberstone Road since 2003 of the National Academy of Managing General
Harwood, MD 20776 Sciences/National Research Partner of funds in
Council, an independent, the Fund Complex.
federally chartered policy Director of Fluor
institution, from 2001 to Corp., an
November 2003 and Chief engineering,
Operating Officer from 1993 to procurement and
2001. Director of the construction
Institute for Defense organization, since
Analyses, a federally funded January 2004 and
research and development Director of Neurogen
center, Director of the German Corporation, a
Marshall Fund of the United pharmaceutical
States, Director of the Rocky company, since
Mountain Institute and Trustee January 1998.
of Colorado College. Prior to
1993, Executive Director of
the Commission on Behavioral
and Social Sciences and
Education at the National
Academy of Sciences/National
Research Council. From 1980
through 1989, Partner of
Coopers & Lybrand.
S-6
INTERESTED TRUSTEES*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee and Trustee President of funds in the Fund 77 Trustee/Director/
1221 Avenue of the Americas President since Complex. Chairman, President, Managing General
New York, NY 10020 2003; Chief Executive Officer and Partner of funds in
President Director of the Adviser and Van the Fund Complex.
since 2002 Kampen Advisors Inc. since
December 2002. Chairman,
President and Chief Executive
Officer of Van Kampen Investments
since December 2002. Director of
Van Kampen Investments since
December 1999. Chairman and
Director of Van Kampen Funds Inc.
since December 2002. President,
Director and Chief Operating
Officer of Morgan Stanley
Investment Management since
December 1998. President and
Director since April 1997 and
Chief Executive Officer since
June 1998 of Morgan Stanley
Investment Advisors Inc. and
Morgan Stanley Services Company
Inc. Chairman, Chief Executive
Officer and Director of Morgan
Stanley Distributors Inc. since
June 1998. Chairman since June
1998, and Director since January
1998 of Morgan Stanley Trust.
Director of various Morgan
Stanley subsidiaries. President
of the Morgan Stanley Funds since
May 1999. Previously Chief
Executive Officer of Van Kampen
Funds Inc. from December 2002 to
July 2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc. and
Morgan Stanley Services Company
Inc. and Executive Vice President
of Morgan Stanley Distributors
Inc. from April 1997 to June
1998. Chief Executive Officer
from September 2002 to April 2003
and Vice President from May 1997
to April 1999 of the Morgan
Stanley Funds.
Richard F. Powers, III* (59) Trustee Trustee Advisory Director of Morgan 79 Trustee/Director/
1221 Avenue of the Americas since 1999 Stanley. Prior to December 2002, Managing General
New York, NY 10020 Chairman, Director, President, Partner of funds in
Chief Executive Officer and the Fund Complex.
Managing Director of Van Kampen
Investments and its investment
advisory, distribution and other
subsidiaries. Prior to December
2002, President and Chief
Executive Officer of funds in the
Fund Complex. Prior to May 1998,
Executive Vice President and
Director of Marketing at Morgan
Stanley and Director of Dean
Witter, Discover & Co. and Dean
Witter Realty. Prior to 1996,
Director of Dean Witter Reynolds
Inc.
S-7
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm of 79 Trustee/Director/
333 West Wacker Drive since 1993 Skadden, Arps, Slate, Meagher & Managing General
Chicago, IL 60606 Flom LLP, legal counsel to funds Partner of funds in
in the Fund Complex. the Fund Complex.
Director of the
Abraham Lincoln
Presidential
Foundation.
------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Merin and Powers are interested persons of funds in
the Fund Complex and the Adviser by reason of their current or former
positions with Morgan Stanley or its affiliates. Mr. Whalen is an interested
person of certain funds in the Fund Complex by reason of he and his firm
currently providing legal services as legal counsel to such funds in the Fund
Complex.
+ Designated as Preferred Shares Trustee.
S-8
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUNDS SERVED DURING PAST 5 YEARS
Ronald E. Robison (66) Executive Vice Officer Executive Vice President and Principal Executive Officer of
1221 Avenue of the Americas President and since 2003 Funds in the Fund Complex since May 2003. Chief Executive
New York, NY 10020 Principal Officer and Chairman of Investor Services. Managing Director
Executive of Morgan Stanley. Chief Administrative Officer, Managing
Officer Director and Director of Morgan Stanley Investment Advisors
Inc., Morgan Stanley Services Company Inc. and Managing
Director and Director of Morgan Stanley Distributors Inc.
Chief Executive Officer and Director of Morgan Stanley
Trust. Executive Vice President and Principal Executive
Officer of the Institutional and Retail Morgan Stanley
Funds; Director of Morgan Stanley SICAV; previously Chief
Global Operations Officer and Managing Director of Morgan
Stanley Investment Management Inc.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Chief Investment Management Inc. and Morgan Stanley Investments LP and
Officer Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Adviser and Van Kampen
Advisors Inc. since December 2002.
Amy R. Doberman (43) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc from January 1997 to July 2000.
Stefanie V. Chang Yu (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
James W. Garrett (36) Chief Financial Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas Officer and since 2005 Chief Financial Officer and Treasurer of Morgan Stanley
New York, NY 10020 Treasurer Institutional Funds since 2002 and of funds in the Fund
Complex since January 2005.
COMPENSATION
Each trustee/director/managing general partner (hereinafter referred to in
this section as "trustee") who is not an affiliated person (as defined in the
1940 Act) of Van Kampen Investments, the Adviser or the Administrator (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to funds in the Fund Complex. Each fund in the Fund Complex (except
Van Kampen Exchange Fund) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees to
S-9
defer receipt of their compensation until retirement and earn a return on such
deferred amounts. Amounts deferred are retained by the Funds and earn a rate of
return determined by reference to the return on the common shares of the Funds
or other funds in the Fund Complex as selected by the respective Non-Affiliated
Trustee. To the extent permitted by the 1940 Act, the Funds may invest in
securities of those funds selected by the Non-Affiliated Trustees in order to
match the deferred compensation obligation. The deferred compensation plan is
not funded and obligations thereunder represent general unsecured claims against
the general assets of the Funds. Deferring compensation has the same economic
effect as if the Non-Affiliated Trustee reinvested his or her compensation into
the Funds. Each fund in the Fund Complex (except Van Kampen Exchange Fund)
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met. Under the retirement plan, a
Non-Affiliated Trustee who is receiving compensation from the Funds prior to
such Non-Affiliated Trustee's retirement, has at least 10 years of service
(including years of service prior to adoption of the retirement plan) and
retires at or after attaining the age of 60, is eligible to receive a retirement
benefit per year for each of the 10 years following such retirement from the
Funds. Non-Affiliated Trustees retiring prior to the age of 60 or with fewer
than 10 years but more than 5 years of service may receive reduced retirement
benefits from the Funds.
Additional information regarding compensation and benefits for trustees of
each Fund is set forth below for the periods described in the notes accompanying
the table.
COMPENSATION TABLE
Fund Complex
-----------------------------------------------
Aggregate Aggregate
Aggregate Compensation from: Pension or Estimated Total
----------------------------------- Retirement Maximum Annual Compensation
Value Benefits Benefits from the before
Municipal Municipal Accrued as Fund Complex Deferral from
Opportunity Income Acquiring Part of Upon Fund
Name(1) Trust II(2) Trust(3) Fund(4) Expenses(5) Retirement(6) Complex(7)
------- ----------- --------- --------- ----------- ----------------- -------------
INDEPENDENT TRUSTEES
David C. Arch $3,008 $4,864 $2,454 $ 35,277 $147,500 $192,530
Jerry D. Choate 4,030 6,739 3,222 82,527 126,000 200,002
Rod Dammeyer 3,014 4,870 2,460 63,782 147,500 208,000
Linda Hutton Heagy 3,829 6,538 3,021 24,465 142,500 184,784
R. Craig Kennedy 4,030 6,739 3,222 16,911 142,500 200,002
Howard J Kerr 3,214 5,070 2,660 140,743 146,250 208,000
Jack E. Nelson 4,030 6,739 3,222 97,294 109,500 200,002
Hugo F. Sonnenschein 3,214 5,070 2,660 64,476 147,500 208,000
Suzanne H. Woolsey 4,030 6,739 3,222 58,450 142,500 200,002
INTERESTED TRUSTEE
Wayne W. Whalen(1) 3,214 5,070 2,660 72,001 147,500 208,000
------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Whalen is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act) of each Fund and certain other funds in the Fund
Complex. Theodore A. Myers retired as a member of the Board of Trustees of
each Fund and other funds in the Fund Complex on December 31, 2003. J. Miles
Branagan retired as a member of
S-10
the Board of Trustees of each Fund and other funds in the Fund Complex on
December 31, 2004.
(2) The amounts shown in this column represent the aggregate compensation before
deferral with respect to Municipal Opportunity Trust II's fiscal year ended
October 31, 2004. The following trustees deferred compensation from
Municipal Opportunity Trust II during the fiscal year ended October 31,
2004: Mr. Choate, $4,030; Mr. Dammeyer, $3,014; Ms. Heagy, $3,829; Mr.
Nelson, $4,030; Mr. Sonnenschein, $3,214; and Mr. Whalen, $3,214. The
cumulative deferred compensation (including interest) accrued with respect
to each trustee from Municipal Opportunity Trust II as of October 31, 2004
is as follows: Mr. Choate, $5,306; Mr. Dammeyer, $49,488; Ms. Heagy, $5,175;
Mr. Nelson, $5,260; Mr. Sonnenschein, $43,230; and Mr. Whalen, $43,081. The
deferred compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the aggregate compensation before
deferral with respect to Value Municipal Income Trust's fiscal year ended
October 31, 2004. The following trustees deferred compensation from Value
Municipal Income Trust during the fiscal year ended October 31, 2004: Mr.
Choate, $6,739; Mr. Dammeyer, $4,870; Ms. Heagy, $6,538; Mr. Nelson, $6,739;
Mr. Sonnenschein, $5,070; and Mr. Whalen, $5,070. The cumulative deferred
compensation (including interest) accrued with respect to each trustee from
Value Municipal Income Trust as of October 31, 2004 is as follows: Mr.
Choate, $8,835; Mr. Dammeyer, $65,657; Ms. Heagy, $8,748; Mr. Nelson,
$8,757; Mr. Sonnenschein, $57,110; and Mr. Whalen, $58,237. The deferred
compensation plan is described above the Compensation Table.
(4) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Acquiring Fund's fiscal year ended October 31,
2004. The following trustees deferred compensation from the Acquiring Fund
during the fiscal year ended October 31, 2004: Mr. Choate, $3,222; Mr.
Dammeyer, $2,460; Ms. Heagy, $3,021; Mr. Nelson, $3,222; Mr. Sonnenschein,
$2,660; and Mr. Whalen, $2,660. The cumulative deferred compensation
(including interest) accrued with respect to each trustee from the Acquiring
Fund as of October 31, 2004 is as follows: Mr. Choate, $4,255; Mr. Dammeyer,
$44,682; Ms. Heagy, $4,109; Mr. Nelson, $4,218; Mr. Sonnenschein, $39,105;
and Mr. Whalen, $38,576. The deferred compensation plan is described above
the Compensation Table.
(5) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating funds in the Fund Complex for each of the
trustees for the funds' respective fiscal years ended in 2004. The
retirement plan is described above the Compensation Table.
(6) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such person's anticipated retirement. The
retirement plan is described above the Compensation Table.
(7) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 2004 before
deferral by the trustees under the deferred compensation plan. Because the
funds in the Fund
S-11
Complex have different fiscal year ends, the amounts shown in this column
are presented on a calendar year basis.
BOARD COMMITTEES
The Board of Trustees of each Fund has the same three standing committees
(an audit committee, a brokerage and services committee and a governance
committee). Each committee is comprised solely of "Independent Trustees," which
is defined for purposes herein as trustees who: (1) are not "interested persons"
of the Funds as defined by the 1940 Act and (2) are "independent" of the Funds
as defined by the New York Stock Exchange, American Stock Exchange and Chicago
Stock Exchange listing standards.
Each Board's audit committee consists of Jerry D. Choate, Rod Dammeyer and
R. Craig Kennedy. In addition to being Independent Trustees as defined above,
each of these trustees also meets the additional independence requirements for
audit committee members as defined by the New York Stock Exchange, American
Stock Exchange and Chicago Stock Exchange listing standards. Each audit
committee makes recommendations to its Board of Trustees concerning the
selection of its Fund's independent registered public accounting firm, reviews
with such independent registered public accounting firm the scope and results of
its Fund's annual audit and considers any comments which the independent
registered public accounting firm may have regarding its Fund's financial
statements, books of account or internal controls. Each Board of Trustees has
adopted a formal written charter for its audit committee which sets forth the
audit committee's responsibilities. Each audit committee has reviewed and
discussed the financial statements of its Fund with management as well as with
the independent registered public accounting firm of the Fund, and discussed
with the independent registered public accounting firm the matters required to
be discussed under the Statement of Auditing Standards No. 61. Each audit
committee has received the written disclosures and the letter from the
independent registered public accounting firm required under Independence
Standards Board Standard No. 1 and has discussed with the independent registered
public accounting firm its independence. Based on this review, each audit
committee recommended to its Board of Trustees that its Fund's audited financial
statements be included in the Fund's annual report to shareholders for the most
recent fiscal year for filing with the SEC.
Each Board's brokerage and services committee consists of Linda Hutton
Heagy, Hugo F. Sonnenschein and Suzanne H. Woolsey. Each brokerage and services
committee reviews its Fund's allocation of brokerage transactions and
soft-dollar practices.
Each Board's governance committee consists of David C. Arch, Howard J Kerr
and Jack E. Nelson. In addition to being Independent Trustees as defined above,
each of these trustees also meets the additional independence requirements for
nominating committee members as defined by the New York Stock Exchange, American
Stock Exchange and Chicago Stock Exchange listing standards. Each governance
committee identifies individuals qualified to serve as Independent Trustees on
its Board and on committees of the Board, advises its Board with respect to
Board composition, procedures and committees, develops and recommends to its
Board a set of corporate governance principles applicable to the Fund, monitors
corporate governance matters and makes recommendations to its Board, and acts as
the administrative committee with respect to Board policies and procedures,
committee policies and procedures and codes of ethics. The Independent Trustees
of each Fund select and nominate any other nominee Independent Trustees for
S-12
each Fund. While the Independent Trustees of each Fund expect to be able to
continue to identify from their own resources an ample number of qualified
candidates for each Board of Trustees as they deem appropriate, they will
consider nominations from shareholders to each Board. Nominations from
shareholders should be in writing and sent to the Independent Trustees of the
Funds at the Funds' offices at 1221 Avenue of the Americas, New York, New York
10020 or directly to the Independent Trustees at the address specified above for
each trustee.
During each Fund's last fiscal year, each Board of Trustees held 16
meetings. During each Fund's last fiscal year, the audit committee of each Board
held five meetings, the brokerage and services committee of each Board held four
meetings and the governance committee of each Board held five meetings.
SHARE OWNERSHIP
Excluding any deferred compensation balances as described in the
Compensation Table, as of December 31, 2004, the most recently completed
calendar year prior to the date of this Statement of Additional Information,
each trustee of Municipal Opportunity Trust II, Value Municipal Income Trust and
the Acquiring Fund beneficially owned equity securities of each such Fund and of
all of the funds in the Fund Complex overseen by the trustee in the dollar range
amounts specified below.
2004 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
INDEPENDENT TRUSTEES
TRUSTEE
-----------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- ------- -------- -------- -------- ------- ------- ------------ --------
Dollar range of equity securities
in Municipal Opportunity Trust
II................................ none none over none none none none $1- none
$100,000 $10,000
Dollar range of equity securities
in Value Municipal Income Trust... none none over none none none none none none
$100,000
Dollar range of equity securities
in the Acquiring Fund............. $1- none over none none none none $1- none
$10,000 $100,000 $10,000
Aggregate dollar range of equity
securities in all registered
investment companies overseen by
trustee in the Fund Complex....... $50,001- $1- over $50,001- over $1- $1- $10,001- $10,001-
$100,000 $10,000 $100,000 $100,000 $100,000 $10,000 $10,000 $50,000 $50,000
INTERESTED TRUSTEES
TRUSTEE
----------------------------
MERIN POWERS WHALEN
-------- -------- --------
Dollar range of equity securities in Municipal Opportunity
Trust II................................................... none none $1-
$10,000
Dollar range of equity securities in Value Municipal Income
Trust...................................................... none none none
Dollar range of equity securities in the Acquiring Fund..... none none $1-
$10,000
Aggregate dollar range of equity securities in all
registered investment companies overseen by trustee in the
Fund Complex............................................... over over over
$100,000 $100,000 $100,000
S-13
Including deferred compensation balances (which are amounts deferred and
thus retained by the Funds as described in the Compensation Table), as of
December 31, 2004, the most recently completed calendar year prior to the date
of this Statement of Additional Information, each trustee of the Fund had in the
aggregate, combining beneficially owned equity securities and deferred
compensation of the Funds and of all of the funds in the Fund Complex overseen
by the trustee, the dollar range of amounts specified below.
2004 TRUSTEE BENEFICIAL OWNERSHIP AND DEFERRED COMPENSATION
INDEPENDENT TRUSTEES
TRUSTEE
--------------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- -------- -------- -------- -------- -------- -------- ------------ --------
Dollar range of equity
securities and deferred
compensation in Municipal
Opportunity Trust II........... none none over none none over none $1- none
$100,000 $100,000 $10,000
Dollar range of equity
securities and deferred
compensation in Value Municipal
Income Trust................... none none none none none none none none none
Dollar range of equity
securities and deferred
compensation in the Acquiring
Fund........................... $1- none over none none none none $1- none
$10,000 $100,000 $10,000
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in Fund Complex..... $50,001- over over over over over over over $10,000-
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $50,001
INTERESTED TRUSTEES
TRUSTEE
------------------------------
MERIN POWERS WHALEN
----- ------ ------
Dollar range of equity
securities and deferred
compensation in Municipal
Opportunity Trust II........... none none $1-
$10,000
Dollar range of equity
securities and deferred
compensation in Value Municipal
Income Trust................... none none none
Dollar range of equity
securities and deferred
compensation in the Acquiring
Fund........................... none none $1-
$10,000
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in the Fund
Complex........................ over over over
$100,000 $100,000 $100,000
INVESTMENT ADVISORY AGREEMENT
Each Fund and the Adviser are parties to an investment advisory agreement
(each an "Advisory Agreement"). Under each Advisory Agreement, a Fund retains
the Adviser to manage the investment of such Fund's assets, including the
placing of orders for the purchase and sale of portfolio securities. The Adviser
obtains and evaluates economic, statistical and financial information to
formulate strategy and implement such Fund's investment objective. The Adviser
also furnishes offices, necessary facilities and equipment, provides
administrative services to such Fund, renders periodic reports to such Fund's
Board of Trustees and permits its officers and employees to serve without
compensation as trustees or officers of such Fund if elected to such positions.
A Fund, however, bears the costs of its day-to-day operations, including auction
agent fees, fees for broker-dealers participating in auctions of such Fund's
APS, custodian fees, legal and independent
S-14
registered public accounting firm fees, the costs of reports and proxies to
shareholders, compensation of trustees of such Fund (other than those who are
affiliated persons of Van Kampen Investments, the Adviser or the Administrator)
and all other ordinary business expenses not specifically assumed by the
Adviser. Each Advisory Agreement also provides that the Adviser shall not be
liable to a Fund for any actions or omissions in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations and
duties under such Advisory Agreement.
Each Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by a Fund's Board of Trustees or (ii) by a
vote of a majority of a Fund's outstanding voting securities and (b) by a vote
of a majority of the trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. Each Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
In approving each Advisory Agreement, the Board of Trustees of each Fund,
including the non-interested trustees, considered the nature, quality and scope
of the services provided by the Adviser, the performance, fees and expenses of a
Fund compared to other similar investment companies, the Adviser's expenses in
providing the services and the profitability of the Adviser and its affiliated
companies. The Board of Trustees of each Fund also reviewed the benefit to the
Adviser of receiving research paid for by Fund assets and the propriety of such
an arrangement and evaluated other benefits the Adviser derives from its
relationship with a Fund. The Board of Trustees of each Fund considered the
extent to which any economies of scale experienced by the Adviser are shared
with a Fund's shareholders, and the propriety of alternative breakpoints in a
Fund's advisory fee schedule. The Board of Trustees of each Fund considered
comparative advisory fees of a Fund and other investment companies at different
asset levels. The Board of Trustees of each Fund reviewed reports from third
parties about the foregoing factors and considered changes, if any, in such
items since its previous approval. The Board of Trustees of each Fund discussed
the financial strength of the Adviser and its affiliated companies and the
capability of the personnel of the Adviser. The Board of Trustees of each Fund
reviewed the statutory and regulatory requirements for approval of advisory
agreements. The Board of Trustees of each Fund, including the non-interested
trustees, evaluated all of the foregoing and determined, in the exercise of its
business judgment, that approval of each Advisory Agreement was in the best
interests of the respective Fund and its shareholders.
ADVISORY FEES
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
The Adviser received the approximate advisory
fees from each Fund as follows:
Municipal Opportunity Trust II................. $1,743,012 $1,748,973 $1,719,486
Value Municipal Income Trust................... $3,545,870 $3,566,745 $3,524,738
Acquiring Fund................................. $1,202,514 $1,208,379 $1,192,207
S-15
OTHER AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT
Each Fund was a party to an administrative services agreement. The
administrative services provided by the Administrator to each Fund included
record keeping and reporting responsibilities with respect to each Fund's
portfolio and preferred shares and providing certain services to shareholders.
Prior to May 14, 2002, each Fund paid the Administrator a monthly administrative
services fee at the annual rate of 0.20% of the average net assets of each Fund.
Prior to June 1, 2004, each Fund paid the Administrator a monthly administrative
services fee at the annual rate of 0.05% of the average net assets of each Fund.
Effective June 1, 2004, the administrative services fee was reduced from 0.05%
to 0.00%. The administrative services agreement for each Fund was terminated
effective May 26, 2005.
ADMINISTRATIVE SERVICES FEES
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
2004 2003 2002
-------- -------- --------
Van Kampen Funds Inc. received the approximate
administrative services fees from each Fund as
follows:
Municipal Opportunity Trust II...................... $ 84,934 $145,750 $370,936
Value Municipal Income Trust........................ 172,834 297,229 760,602
Acquiring Fund...................................... 58,584 100,699 257,217
ACCOUNTING SERVICES AGREEMENT
Each Fund has entered into an accounting services agreement pursuant to
which the Adviser provides accounting services to each Fund supplementary to
those provided by the custodian. Such services are expected to enable each Fund
to more closely monitor and maintain its accounts and records. Each Fund pays
all costs and expenses related to such services, including all salary and
related benefits of accounting personnel, as well as the overhead and expenses
of office space and the equipment necessary to render such services. Each Fund
shares together with the other Van Kampen funds in the cost of providing such
services with 25% of such costs shared proportionately based on the respective
number of classes of securities issued per fund and the remaining 75% of such
costs based proportionately on the respective net assets per fund.
ACCOUNTING SERVICES FEES
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
2004 2003 2002
-------- -------- --------
The Adviser received the approximate accounting services
fees from each Fund as follows:
Municipal Opportunity Trust II......................... $19,698 $21,576 $23,168
Value Municipal Income Trust........................... 30,315 35,430 36,540
Acquiring Fund......................................... 16,541 17,741 19,257
S-16
LEGAL SERVICES AGREEMENT
Each Fund and certain other Van Kampen funds have entered into legal
services agreements pursuant to which Van Kampen Investments provides legal
services, including without limitation, accurate maintenance of each fund's
minute books and records, preparation and oversight of each fund's regulatory
reports and other information provided to shareholders, as well as responding to
day-to-day legal issues on behalf of the funds. Payment by the funds for such
services is made on a cost basis for the salary and salary-related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel. Of the total costs for legal services provided
to the funds, one half of such costs are allocated equally to each fund and the
remaining one half of such costs are allocated to specific funds based on
monthly time records.
LEGAL SERVICES FEES
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
2004 2003 2002
-------- -------- --------
Van Kampen Investments received the approximate legal
services fees from each Fund as follows:
Municipal Opportunity Trust II......................... $17,192 $16,054 $11,825
Value Municipal Income Trust........................... 21,488 20,301 14,788
Acquiring Fund......................................... 13,986 14,416 11,256
FUND MANAGEMENT
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of October 31, 2004, Robert W. Wimmel managed 36 registered investment
companies with a total of approximately $11.0 billion in assets; 0 pooled
investment vehicles other than registered investment companies; and 0 other
accounts.
As of October 31, 2004, John R. Reynoldson managed 33 registered investment
companies with a total of approximately $7.8 billion in assets; 0 pooled
investment vehicles other than registered investment companies; and 0 other
accounts.
As of October 31, 2004, Robert J. Stryker (who joined the team managing the
Funds in July 2005) managed 0 registered investment companies; 0 pooled
investment vehicles other than registered investment companies; and 0 other
accounts.
Because the portfolio managers manage assets for other investment
companies, pooled investment vehicles, and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals),
there may be an incentive to favor one client over another resulting in
conflicts of interest. For instance, the Adviser may receive fees from certain
accounts that are higher than the fee it receives from the Funds, or it may
receive a performance-based fee on certain accounts. In those instances, the
portfolio managers may have an incentive to favor the higher and/or
performance-based fee accounts over the Funds. The portfolio managers of the
Funds do not currently manage assets for other investment companies, pooled
investment vehicles or other accounts that charge a performance fee. The Adviser
has adopted trade allocation and other policies and
S-17
procedures that it believes are reasonably designed to address these and other
conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base salary compensation and
discretionary compensation, comprised of a cash bonus and several deferred
compensation programs described below. The methodology used to determine
portfolio manager compensation is applied across all accounts managed by the
portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base
salary compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio
managers may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards based on Morgan
Stanley common stock that are subject to vesting and other conditions;
- Investment Management Deferred Compensation Plan (IMDCP) awards -- a
mandatory program that defers a portion of discretionary year-end
compensation and notionally invests it in designated funds advised by the
Adviser or its affiliates. The award is subject to vesting and other
conditions. Portfolio managers must notionally invest a minimum of 25% to
a maximum of 50% of the IMDCP deferral into a combination of the
designated funds they manage that are included in the IMDCP fund menu;
- Select Employees' Capital Accumulation Program (SECAP) awards -- a
voluntary program that permits employees to elect to defer a portion of
their discretionary year-end compensation and notionally invest the
deferred amount across a range of designated investment funds, including
funds advised by the Adviser or its affiliates; and
- Voluntary Equity Incentive Compensation Program (VEICP) awards -- a
voluntary program that permits employees to elect to defer a portion of
their discretionary year-end compensation to invest in Morgan Stanley
stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. A portfolio manager's compensation is linked to
the pre-tax investment performance of the accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured against a fund's primary benchmark (as set
forth in a fund's prospectus),
S-18
indices and/or peer groups. Generally, the greatest weight is placed on the
three-and five-year periods.
- Revenues generated by the investment companies, pooled investment
vehicles and other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management,
and the overall performance of the Global Investor Group, a department
within Morgan Stanley Investment Management that includes all investment
professionals.
Occasionally, to attract new hires or to retain key employees, the total
amount of compensation will be guaranteed in advance of the fiscal year end
based on current market levels. In limited circumstances, the guarantee may
continue for more than one year. The guaranteed compensation is based on the
same factors as those comprising overall compensation described above.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of each Fund's fiscal year end, none of the portfolio managers owned
equity securities in any of the Funds.
CODE OF ETHICS
The Funds and the Adviser have adopted a Code of Ethics (the "Code of
Ethics") that sets forth general and specific standards relating to the
securities trading activities of their employees. The Code of Ethics does not
prohibit employees from acquiring securities that may be purchased or held by
the Funds, but is intended to ensure that all employees conduct their personal
transactions in a manner that does not interfere with the portfolio transactions
of the Funds or other Van Kampen funds, or that such employees take unfair
advantage of their relationship with the Funds. Among other things, the Code of
Ethics prohibits certain types of transactions absent prior approval, imposes
various trading restrictions (such as time periods during which personal
transactions may or may not be made) and requires quarterly reporting of
securities transactions and other reporting matters. All reportable securities
transactions and other required reports are to be reviewed by appropriate
personnel for compliance with the Code of Ethics. Additional restrictions apply
to portfolio managers, traders, research analysts and others who may have access
to nonpublic information about the trading activities of the Funds or other Van
Kampen funds or who otherwise are involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
S-19
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of each Fund's
portfolio business, the policies and practices in this regard are subject to
review by each Fund's Board of Trustees.
As most transactions made by a Fund are principal transactions at net
prices, a Fund generally incurs little or no brokerage costs. The portfolio
securities in which a Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices. A
Fund may also purchase certain money market instruments directly from an issuer,
in which case no commissions or discounts are paid, or may purchase and sell
listed securities on an exchange, which are effected through brokers who charge
a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to each Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker-dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser and still must be analyzed and reviewed
by its staff, the receipt of research information is not expected to reduce its
expenses materially. The investment advisory fee is not reduced as a result of
the Adviser's receipt of such research services. Services provided may include
(a) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; (b) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which a Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with a Fund.
S-20
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with a Fund and the Adviser if it
reasonably believes that the quality of execution and the commission are
comparable to that available from other qualified firms.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for a Fund and another advisory account. In
some cases, this procedure could have an adverse effect on the price or the
amount of securities available to a Fund. In making such allocations among a
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of such Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Certain broker-dealers, through which a Fund may effect securities
transactions, are affiliated persons (as defined in the 1940 Act) of a Fund or
affiliated persons of such affiliates, including Morgan Stanley or its
subsidiaries. Each Fund's Board of Trustees has adopted certain policies
incorporating the standards of Rule 17e-1 issued by the SEC under the 1940 Act
which require that the commissions paid to affiliates of the Fund must be
reasonable and fair compared to the commissions, fees or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time.
The rule and procedures also contain review requirements and require the Adviser
to furnish reports to the trustees and to maintain records in connection with
such reviews. After consideration of all factors deemed relevant, the trustees
will consider from time to time whether the advisory fee for each Fund will be
reduced by all or a portion of the brokerage commission paid to affiliated
brokers.
Unless otherwise disclosed below, the Funds paid no commissions to
affiliated brokers during the last three fiscal years. The Funds paid the
following commissions to brokers during the fiscal years shown:
AFFILIATED BROKERS
ALL BROKERS MORGAN STANLEY DW INC.
----------- ----------------------
MUNICIPAL OPPORTUNITY TRUST II
Commissions Paid:
Fiscal year ended October 31,
2004.............................. $17,882 -0-
Fiscal year ended October 31,
2003.............................. 14,970 -0-
Fiscal year ended October 31,
2002.............................. 1,330 -0-
S-21
AFFILIATED BROKERS
ALL BROKERS MORGAN STANLEY DW INC.
----------- ----------------------
VALUE MUNICIPAL INCOME TRUST
Commissions Paid:
Fiscal year ended October 31,
2004.............................. $38,198 -0-
Fiscal year ended October 31,
2003.............................. 29,326 -0-
Fiscal year ended October 31,
2002.............................. 2,899 -0-
ACQUIRING FUND
Commissions Paid:
Fiscal year ended October 31,
2004.............................. $10,143 -0-
Fiscal year ended October 31,
2003.............................. 12,823 -0-
Fiscal year ended October 31,
2002.............................. 1,084 -0-
During the fiscal year ended October 31, 2004, none of the Funds paid
brokerage commissions to brokers selected primarily on the basis of research
services provided to the Adviser.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Funds and all cash, including proceeds from the
sale of securities in each Fund's investment portfolio, are held by State Street
Bank and Trust Company, 225 West Franklin Street, Boston, Massachusetts 02110,
as custodian. The custodian also provides accounting services to the Funds.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
The Funds' Proxy Voting Policy and Procedures are included as Appendix C to
this Statement of Additional Information. A copy of each Fund's most recent
proxy voting record filed with the SEC is available (i) without charge on our
web site at www.vankampen.com and (ii) on the SEC's web site at www.sec.gov.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
An independent registered public accounting firm for the Funds performs an
annual audit of each Fund's financial statements. Each Fund's Board of Trustees
has engaged Deloitte & Touche LLP, located at 111 South Wacker Drive, Chicago,
Illinois 60606, to be each Fund's independent registered public accounting firm.
FINANCIAL STATEMENTS
Incorporated herein by reference and included in their respective
entireties are (i) the audited financial statements of the Acquiring Fund for
the fiscal year ended October 31, 2004, as included in Appendix D hereto, (ii)
the unaudited financial statements of the Acquiring Fund for the six-month
period ended April 30, 2005, as included in Appendix E hereto, (iii) the audited
financial statements of Municipal Opportunity Trust II for the
S-22
fiscal year ended October 31, 2004, as included in Appendix F hereto, (iv) the
unaudited financial statements of Municipal Opportunity Trust II for the
six-month period ended April 30, 2005, as included in Appendix G hereto, (v) the
audited financial statements of Value Municipal Income Trust for the fiscal year
ended October 31, 2004, as included in Appendix H hereto, and (vi) the unaudited
financial statements of Value Municipal Income Trust for the six-month period
ended April 30, 2005, as included in Appendix I hereto.
PRO FORMA FINANCIAL STATEMENTS
Set forth in Appendix J hereto are unaudited pro forma financial statements
of the Acquiring Fund giving effect to the Reorganization which include: (i) Pro
Forma Condensed Statements of Assets and Liabilities at January 31, 2005, (ii)
Pro Forma Condensed Statement of Operations for the one year period ended
January 31, 2005 and (iii) Pro Forma Portfolio of Investments at January 31,
2005.
S-23
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Van Kampen XXXXXX, a registered closed-end investment
company, File No. 811-XXXX (the "Target Fund") and Van Kampen XXXXXX (the
"Acquiring Fund"), a registered closed-end investment company, File No.
811-XXXX, each hereby agree as follows:
1. Representations and Warranties of the Acquiring Fund.
The Acquiring Fund represents and warrants to, and agrees with, the
Target Fund that:
(a) The Acquiring Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of its jurisdiction of organization, and has the
power to own all of its assets and to carry out this
Agreement. The Acquiring Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) The Acquiring Fund is duly registered under the Investment
Company Act of 1940, as amended (the "1940 Act") as a
[non-]diversified, closed-end management investment company
and such registration has not been revoked or rescinded and is
in full force and effect. The Acquiring Fund has elected and
qualified for the special tax treatment afforded regulated
investment companies ("RICs") under Section 851 of the
Internal Revenue Code (the "Code") at all times since its
inception and intends to continue to so qualify until
consummation of the reorganization contemplated hereby (the
"Reorganization") and thereafter.
(c) The Target Fund has been furnished with the Acquiring Fund's
Annual Report to Shareholders for the fiscal year ended XXXX,
2004, and the audited financial statements appearing therein,
having been audited by Deloitte & Touche LLP, independent
registered public accounting firm, fairly present the
financial position of the Acquiring Fund as of the respective
dates indicated, in conformity with accounting principles
generally accepted in the United States applied on a
consistent basis.
(d) An unaudited statement of assets, liabilities and capital of
the Acquiring Fund and an unaudited schedule of investments of
the Acquiring Fund, each as of the Valuation Time (as defined
in Section 3(e) of this Agreement), will be furnished to the
Target Fund, at or prior to the Closing Date (as defined in
Section 7(a) herein), for the purpose of determining the
number of Acquiring Fund Common Shares and Acquiring Fund APS
to be issued pursuant to Section 3(a) of this Agreement; each
will fairly present the financial position of the Acquiring
Fund as of the Valuation Time in conformity with generally
accepted accounting principles applied on a consistent basis.
(e) The Acquiring Fund has full power and authority to enter into
and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement has been
duly authorized by all necessary action of its Board of
Trustees, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar
A-1
laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(f) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Acquiring
Fund, threatened against it which assert liability on the part
of the Acquiring Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Acquiring Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(g) The Acquiring Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
and is not a party to any contract or other commitment or
obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under
this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or
obligation to cure any potential violation as a condition
precedent to the Reorganization.
(h) There are no material contracts outstanding to which the
Acquiring Fund is a party that have not been disclosed in the
N-14 Registration Statement (as defined in subsection (k)
below) or that will not otherwise be disclosed to the Target
Fund prior to the Valuation Time.
(i) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to in
subsection (c) above, those incurred in the ordinary course of
its business as an investment company, and those incurred in
connection with the Reorganization. As of the Valuation Time,
the Acquiring Fund will advise the Target Fund in writing of
all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or
accrued as of such time, except to the extent disclosed in the
financial statements referred to in subsection (c) above.
(j) No consent, approval, authorization or order of any court or
government authority is required for the consummation by the
Acquiring Fund of the Reorganization, except such as may be
required under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the 1940 Act or state securities laws
(which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(k) The registration statement filed by the Acquiring Fund on Form
N-14, which includes the proxy statement of the Target Fund
and the Acquiring Fund with respect to the transactions
contemplated herein (the "Joint Proxy Statement/Prospectus"),
and any supplement or amendment thereto or to the documents
therein (as amended or supplemented, the "N-14 Registration
Statement"), on its effective date, at the time of the
shareholders' meetings referred to in Section 8(a) and Section
9(a) of this Agreement and at the Closing Date, insofar as it
relates to the Acquiring Fund, (i) complied or will comply in
all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any
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untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; and the Joint
Proxy Statement/Prospectus included therein did not or will
not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall
apply to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with
information furnished by the Acquiring Fund for use in the
N-14 Registration Statement.
(l) The Acquiring Fund is authorized to issue an unlimited number
of common shares of beneficial interest, par value $.01 per
share (the "Acquiring Fund Common Shares"), and XXXX preferred
shares of beneficial interest, par value $.01 per share. The
Board of Trustees of the Acquiring Fund has designated XXXX
preferred shares as Auction Preferred Shares ("Acquiring Fund
APS"). Each outstanding Acquiring Fund Common Share and each
Acquiring Fund APS of the Acquiring Fund is fully paid and,
except as provided in Section 5.1 of the Acquiring Fund's
Declaration of Trust, nonassessable, and has full voting
rights.
(m) The Acquiring Fund Common Shares and the Acquiring Fund APS to
be issued to the Target Fund pursuant to this Agreement will
have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued
and will be fully paid and, except as provided in Section 5.1
of the Acquiring Fund's Declaration of Trust, nonassessable
and will have full voting rights, and no shareholder of the
Acquiring Fund will have any preemptive right of subscription
or purchase in respect thereof.
(n) At or prior to the Closing Date, the Acquiring Fund Common
Shares to be transferred to the Target Fund for distribution
to the shareholders of the Target Fund on the Closing Date
will be duly qualified for offering to the public in all
states of the United States in which the sale of shares of the
Funds presently are qualified, and there will be a sufficient
number of such shares registered under the 1933 Act and, as
may be necessary, with each pertinent state securities
commission to permit the transfers contemplated by this
Agreement to be consummated.
(o) At or prior to the Closing Date, the Acquiring Fund APS to be
transferred to the Target Fund on the Closing Date will be
duly qualified for offering to the public in all states of the
United States in which the sale of APS of the Target Fund
presently are qualified, and there are a sufficient number of
Acquiring Fund APS registered under the 1933 Act and with each
pertinent state securities commission to permit the transfers
contemplated by this Agreement to be consummated.
(p) At or prior to the Closing Date, the Acquiring Fund will have
obtained any and all regulatory, trustee and shareholder
approvals necessary to issue the Acquiring Fund Common Shares
and the Acquiring Fund APS to the Target Fund.
(q) The Acquiring Fund has filed, or intends to file, or has
obtained extensions to file, all federal, state and local tax
returns which are required to be filed by it, and has paid or
has obtained extensions to pay, all federal, state and local
taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable
year in which the Closing Date occurs. All tax liabilities of
the Acquiring Fund have been adequately provided for on its
books, and no tax deficiency or liability of the Acquiring
Fund has been asserted and no question with respect thereto
has been raised by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those
already paid, up to and including the taxable year in which
the Closing Date occurs.
(r) The Acquiring Fund has elected to qualify and has qualified as
a RIC as of and since its inception; has been a RIC under the
Code at all times since the end of its first taxable year when
it so qualified; qualifies and will continue to qualify as a
RIC under the Code; and has satisfied the distribution
requirements imposed by the Code for each of its taxable
years.
2. Representations and Warranties of the Target Fund.
The Target Fund represents and warrants to, and agrees with, the
Acquiring Fund that:
(a) The Target Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of the jurisdiction of its organization, and has
the power to own all of its assets and to carry out this
Agreement. The Target Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
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(b) The Target Fund is duly registered under the 1940 Act as a
[non-]diversified, closed-end management investment company,
and such registration has not been revoked or rescinded and is
in full force and effect. The Target Fund has elected and
qualified for the special tax treatment afforded RICs under
Section 851 of the Code at all times since its inception, and
intends to continue to so qualify through its taxable year
ending upon liquidation.
(c) As used in this Agreement, the term "Target Fund Investments"
shall mean (i) the investments of the Target Fund shown on the
schedule of its investments as of the Valuation Time furnished
to the Acquiring Fund; and (ii) all other assets owned by the
Target Fund or liabilities incurred as of the Valuation Time.
(d) The Target Fund has full power and authority to enter into and
perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly
authorized by all necessary action of its Board of Trustees
and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect
thereto.
(e) The Acquiring Fund has been furnished with the Target Fund's
Annual Report to Shareholders for the fiscal year ended XXXX,
2004, and the audited financial statements appearing therein,
having been audited by Deloitte & Touche LLP, independent
registered public accounting firm, fairly present the
financial position of the Target Fund as of the respective
dates indicated, in conformity with accounting principles
generally accepted in the United States applied on a
consistent basis.
(f) An unaudited statement of assets, liabilities and capital of
the Target Fund and an unaudited schedule of investments of
the Target Fund, each as of the Valuation Time, will be
furnished to the Acquiring Fund at or prior to the Closing
Date for the purpose of determining the number of shares of
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued to the Target Fund pursuant to Section 3 of this
Agreement; each will fairly present the financial position of
the Target Fund as of the Valuation Time in conformity with
generally accepted accounting principles applied on a
consistent basis.
(g) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Target Fund,
threatened against it which assert liability on the part of
the Target Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Target Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(h) There are no material contracts outstanding to which the
Target Fund is a party that have not been disclosed in the
N-14 Registration Statement or will not otherwise be disclosed
to the Acquiring Fund prior to the Valuation Time.
(i) The Target Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
or a party to any contract or other commitment or obligation,
and is not subject to any order or decree which would be
violated by its execution of or performance under this
Agreement, except insofar as the Funds have
A-4
mutually agreed to amend such contract or other commitment or
obligation to cure any potential violation as a condition
precedent to the Reorganization.
(j) The Target Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to
above, those incurred in the ordinary course of its business
as an investment company and those incurred in connection with
the Reorganization. As of the Valuation Time, the Target Fund
will advise the Acquiring Fund in writing of all known
liabilities, contingent or otherwise, whether or not incurred
in the ordinary course of business, existing or accrued as of
such time.
(k) The Target Fund has filed, or intends to file, or has obtained
extensions to file, all federal, state and local tax returns
which are required to be filed by it, and has paid or has
obtained extensions to pay, all federal, state and local taxes
shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which
the Closing Date occurs. All tax liabilities of the Target
Fund have been adequately provided for on its books, and no
tax deficiency or liability of the Target Fund has been
asserted and no question with respect thereto has been raised
by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and
including the taxable year in which the Closing Date occurs.
(l) At both the Valuation Time and the Closing Date, the Target
Fund will have full right, power and authority to sell,
assign, transfer and deliver the Target Fund Investments. At
the Closing Date, subject only to the obligation to deliver
the Target Fund Investments as contemplated by this Agreement,
the Target Fund will have good and marketable title to all of
the Target Fund Investments, and the Acquiring Fund will
acquire all of the Target Fund Investments free and clear of
any encumbrances, liens or security interests and without any
restrictions upon the transfer thereof (except those imposed
by the federal or state securities laws and those
imperfections of title or encumbrances as do not materially
detract from the value or use of the Target Fund Investments
or materially affect title thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Target Fund of the Reorganization, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act or
state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the
time of the shareholders' meetings called to vote on this
Agreement and on the Closing Date, insofar as it relates to
the Target Fund (i) complied or will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading; and the Joint Proxy Statement/Prospectus
included therein did not or will not contain any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by the Target Fund
for use in the N-14 Registration Statement.
A-5
(o) The Target Fund is authorized to issue an unlimited number of
common shares of beneficial interest, par value $.01 per share
(the "Target Fund Common Shares"), and XXXX preferred shares
of beneficial interest, par value $.01 per share. The Board of
Trustees of the Acquiring Fund has designated XXXX preferred
shares as Target Fund Preferred Shares (the "Target Fund
Preferred Shares"). Each outstanding Target Fund Common Share
and each of the outstanding Target Fund Preferred Shares is
fully paid and, except as provided in Section 5.1 of the
Target Fund's Declaration of Trust, nonassessable, and has
full voting rights.
(p) All of the issued and outstanding Target Fund Common Shares
and Target Fund Preferred Shares were offered for sale and
sold in conformity with all applicable federal and state
securities laws.
(q) The books and records of the Target Fund made available to the
Acquiring Fund and/or its counsel are substantially true and
correct and contain no material misstatements or omissions
with respect to the operations of the Target Fund.
(r) The Target Fund will not sell or otherwise dispose of any of
the Acquiring Fund Common Shares or Acquiring Fund APS to be
received in the Reorganization, except in distribution to the
shareholders of the Target Fund, as provided in Section 3 of
this Agreement.
(s) The Target Fund has elected to qualify and has qualified as a
"RIC" under the Code as of and since its inception; has been a
RIC under the Code at all times since the end of its first
taxable year when it so qualified; qualifies and will continue
to qualify as a RIC under the Code for its taxable year ending
upon its liquidation; and has satisfied the distribution
requirements imposed by the Code for each of its taxable
years.
3. The Reorganization.
(a) Subject to receiving the requisite approvals of the
shareholders of the Target Fund, and to the other terms and
conditions contained herein, (i) the Target Fund agrees to
convey, transfer and deliver to the Acquiring Fund and the
Acquiring Fund agrees to acquire from the Target Fund, on the
Closing Date, all of the Target Fund Investments (including
interest accrued as of the Valuation Time on debt
instruments), and assume substantially all of the liabilities
of the Target Fund, in exchange for that number of Target Fund
Common Shares and Target Fund Preferred Shares provided in
Section 4 of this Agreement. Pursuant to this Agreement, as
soon as practicable after the Closing Date, the Target Fund
will distribute all Acquiring Fund Common Shares and Acquiring
Fund APS received by it to its shareholders in exchange for
their Target Fund Common Shares and Target Fund Preferred
Shares. Such distributions shall be accomplished by the
opening of shareholder accounts on the share ledger records of
the Acquiring Fund in the amounts due the shareholders of the
Target Fund based on their respective holdings in the Target
Fund as of the Valuation Time.
(b) If it is determined that the portfolios of the Target Fund and
the Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Target
Fund, if requested by the Acquiring Fund, will dispose of a
sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, (a) nothing herein will require
the Target Fund to dispose of any portfolios, securities or
other investments, if, in the reasonable judgment of the
Target Fund's trustees or investment adviser, such disposition
would adversely affect the tax-free nature of the
Reorganization for federal income tax purposes or would
otherwise not be in the best interests of the Target Fund, and
(b) nothing will permit the Target Fund to dispose of any
portfolio securities or other investments if, in the
reasonable judgment of the Acquiring Fund's trustees or
investment adviser, such disposition would adversely affect
the tax-free nature of the Reorganization for federal income
tax purposes or would otherwise not be in the best interests
of the Acquiring Fund.
(c) Prior to the Closing Date, the Target Fund shall declare a
dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to their
respective shareholders all of their respective net investment
company taxable income to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard and in
connection with the Reorganization, the last dividend period
for the Target Fund Preferred Shares prior to the Closing Date
may be shorter than the dividend period for such Target Fund
Preferred Shares determined as set forth in the applicable
Certificate of Vote pertaining to such Target Fund Preferred
Shares.
(d) The Target Fund will pay or cause to be paid to the Acquiring
Fund any interest the Target Fund receives on or after the
Closing Date with respect to any of the Target Fund
Investments transferred to the Acquiring Fund hereunder.
A-6
(e) The Valuation Time shall be 4:00 p.m., Eastern time, on XXXX,
2005, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
(f) Recourse for liabilities assumed from the Target Fund by the
Acquiring Fund in the Reorganization will be limited to the
net assets acquired by the Acquiring Fund. The known
liabilities of the Target Fund, as of the Valuation Time,
shall be confirmed to the Acquiring Fund pursuant to Section
2(j) of this Agreement.
(g) The Target Fund will be terminated following the Closing Date
by terminating its registration under the 1940 Act and its
organization under Massachusetts law and will withdraw its
authority to do business in any state where it is required to
do so.
(h) The Acquiring Fund will file with the Secretary of State of
The Commonwealth of Massachusetts, as required, any amendment
to its Certificate of Vote establishing the powers, rights and
preferences of the Acquiring Fund APS prior to the closing of
the Reorganization.
4. Issuance and Valuation of Acquiring Fund Common Shares and Acquiring
Fund APS in the Reorganization.
Acquiring Fund Common Shares and Acquiring Fund APS of an aggregate net asset
value or aggregate liquidation preference, as the case may be, equal to the
value of the assets of the Target Fund acquired in the Reorganization determined
as hereinafter provided, reduced by the amount of liabilities of the Target Fund
assumed by the Acquiring Fund in the Reorganization, shall be issued by the
Acquiring Fund to the Target Fund in exchange for such assets of the Target
Fund. The Acquiring Fund will issue to the Target Fund (i) a number of Acquiring
Fund Common Shares, the aggregate net asset value of which will equal the
aggregate net asset value of the Target Fund Common Shares, determined as set
forth below, and (ii) a number of Acquiring Fund APS, the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of the Target Fund Preferred Shares, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of each of the Target Fund Preferred Shares and the Acquiring Fund APS
shall be determined as of the Valuation Time in accordance with the regular
procedures of the investment adviser, and no formula will be used to adjust the
net asset value so determined of any Fund to take into account differences in
realized and unrealized gains and losses. Values in all cases shall be
determined as of the Valuation Time. The value of the Target Fund Investments to
be transferred to the Acquiring Fund shall be determined pursuant to the regular
procedures of the investment adviser.
Such valuation and determination shall be made by the Acquiring Fund in
cooperation with the Target Fund and shall be confirmed in writing by the
Acquiring Fund to the Target Fund. The net asset value per share of the
Acquiring Fund Common Shares and the liquidation preference and value per share
of the Acquiring Fund APS shall be determined in accordance with such procedures
and the Acquiring Fund shall certify the computations involved. For purposes of
determining the net asset value of each of a Target Fund Common Share and an
Acquiring Fund Common Share, the value of the securities held by the applicable
Fund plus any cash or other assets (including interest accrued but not yet
received) minus all liabilities (including accrued expenses) and the aggregate
liquidation value of the outstanding shares of Target Fund Preferred Shares or
Acquiring Fund APS, as the case may be, is divided by the total number of Target
Fund Common Shares or Acquiring Fund Common Shares, as the case may be,
outstanding at such time.
A-7
The Acquiring Fund shall issue to the Target Fund separate certificates or
share deposit receipts for the Acquiring Fund Common Shares and the Acquiring
Fund APS, each registered in the name of the Target Fund. The Target Fund shall
then distribute the Acquiring Fund Common Shares and the Acquiring Fund APS to
the holders of Target Fund Common Shares and Target Fund Preferred Shares by
redelivering the certificates or share deposit receipts evidencing ownership of
(i) the Acquiring Fund Common Shares to EquiServe Trust Company, N.A., as the
transfer agent and registrar for the Acquiring Fund Common Shares, for
distribution to the holders of Target Fund Common Shares on the basis of such
holder's proportionate interest in the aggregate net asset value of the Target
Fund Common Shares and (ii) the Acquiring Fund APS to Deutsche Bank Trust
Company Americas, as the transfer agent and registrar for the Acquiring Fund
APS, for distribution to the holders of Target Fund Preferred Shares on the
basis of such holder's proportionate interest in the aggregate liquidation
preference and value of the Target Fund Preferred Shares. With respect to any
Target Fund shareholder holding certificates evidencing ownership of Target Fund
Common Shares as of the Closing Date, and subject to the Acquiring Fund being
informed thereof in writing by the Target Fund, the Acquiring Fund will not
permit such shareholder to receive new certificates evidencing ownership of the
Acquiring Fund Common Shares or Acquiring Fund APS, exchange Acquiring Fund
Common Shares or Acquiring Fund APS credited to such shareholder's account for
shares of other investment companies managed by the Adviser or any of its
affiliates, or pledge or redeem such Acquiring Fund Common Shares or Acquiring
Fund APS, in any case, until notified by the Target Fund or its agent that such
shareholder has surrendered his or her outstanding certificates evidencing
ownership of Target Fund Common Shares or Target Fund Preferred Shares or, in
the event of lost certificates, posted adequate bond. The Target Fund, at its
own expense, will request its shareholders to surrender their outstanding
certificates evidencing ownership of Target Fund Common Shares or Target Fund
Preferred Shares, as the case may be, or post adequate bond therefor.
No fractional shares of Acquiring Fund Common Shares will be issued to
holders of Target Fund Common Shares unless such shares are held in a Dividend
Reinvestment Plan account. In lieu thereof, the Acquiring Fund's transfer agent,
EquiServe Trust Company, N.A., will aggregate all fractional Acquiring Fund
Common Shares to be issued in connection with the Reorganization (other than
those issued to a Dividend Reinvestment Plan account) and sell the resulting
full shares on the New York Stock Exchange at the current market price for
Acquiring Fund Common Shares for the account of all holders of such fractional
interests, and each such holder will receive such holder's pro rata share of the
proceeds of such sale upon surrender of such holder's certificates representing
Acquiring Fund Common Shares.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, the Target Fund and the Acquiring Fund will
share, in proportion to their respective projected declines in
total operating expenses, all expenses incurred in connection
with the Reorganization, including, but not limited to, all
costs related to the preparation and distribution of materials
distributed to each Fund's Board of Trustees; expenses
incurred in connection with the preparation of the Agreement
and Plan of Reorganization and a registration statement on
Form N-14; SEC and state securities commission filing fees and
legal and audit fees in connection with the Reorganization;
costs of printing and distributing the Joint Proxy Statement/
Prospectus; legal fees incurred preparing each Fund's board
materials, attending each Fund's board meetings and preparing
the minutes; auditing fees associated with each Fund's
financial statements; stock exchange fees, rating agency fees,
portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages
resulting therefrom, including, without limitation,
consequential damages, and the investment adviser shall pay
all expenses incurred by each Fund in connection with the
Reorganization.
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6. Covenants of the Funds.
(a) Each Fund covenants to operate its business as presently
conducted between the date hereof and the Closing Date.
(b) The Target Fund agrees that following the consummation of the
Reorganization, it will terminate in accordance with the laws
of The Commonwealth of Massachusetts and any other applicable
law, it will not make any distributions of any Acquiring Fund
Common Shares or Acquiring Fund APS other than to its
respective shareholders and without first paying or adequately
providing for the payment of all of its respective liabilities
not assumed by the Acquiring Fund, if any, and on and after
the Closing Date it shall not conduct any business except in
connection with its termination.
(c) The Target Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section
8(f) of the 1940 Act for an order declaring that the Target
Fund has ceased to be a registered investment company.
(d) The Acquiring Fund will file the N-14 Registration Statement
with the Securities and Exchange Commission (the "Commission")
and will use its best efforts to provide that the N-14
Registration Statement becomes effective as promptly as
practicable. Each Fund agrees to cooperate fully with the
other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act the 1940
Act, and the rules and regulations thereunder and the state
securities laws.
(e) The Acquiring Fund has no plan or intention to sell or
otherwise dispose of the Target Fund Investments, except for
dispositions made in the ordinary course of business.
(f) Each of the Funds agrees that by the Closing Date all of its
federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes
shown as due on said returns either have been paid or adequate
liability reserves have been provided for the payment of such
taxes.
The intention of the parties is that the transaction
contemplated by this Agreement will qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. Neither the Acquiring Fund nor the
Target Fund shall take any action or cause any action to be
taken (including, without limitation, the filing of any tax
return) that is inconsistent with such treatment or results in
the failure of the transaction to qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code. At or prior to the Closing Date, the Acquiring Fund and
the Target Fund will take such action, or cause such action to
be taken, as is reasonably necessary to enable Skadden, Arps,
Slate, Meagher & Flom LLP ("Skadden"), special counsel to the
Funds, to render the tax opinion required herein (including,
without limitation, each party's execution of representations
reasonably requested by and addressed to Skadden.
In connection with this covenant, the Funds agree to
cooperate with each other in filing any tax return, amended
return or claim for refund, determining a liability for taxes
or a right to a refund of taxes or participating in or
conducting any audit or other proceeding in respect of taxes.
The Acquiring Fund agrees to retain for a period of ten (10)
years following the Closing Date all returns, schedules and
work papers and all material records or other documents
relating to tax matters of the Target Fund for each of such
Fund's taxable period first ending after the Closing Date and
for all prior taxable periods.
After the Closing Date, the Target Fund shall
prepare, or cause its agents to prepare, any federal, state or
local tax returns required to be filed by such fund with
respect to its final taxable year ending with its complete
liquidation and for any prior periods or taxable years and
further shall cause such tax returns to be duly filed with the
appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses
incurred by the Target Fund (other than for payment of taxes)
in connection with the preparation and filing of said tax
returns after the Closing Date shall be borne by such Fund to
the extent such expenses have been accrued by such Fund in the
ordinary course without regard to the Reorganization; any
excess expenses shall be borne by the investment adviser or an
affiliate thereof.
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(g) The Target Fund agrees to mail to its shareholders of record
entitled to vote at the special meeting of shareholders at
which action is to be considered regarding this Agreement, in
sufficient time to comply with requirements as to notice
thereof, a combined proxy statement and prospectus which
complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a)
of the 1940 Act, and the rules and regulations, respectively,
thereunder.
(h) Following the consummation of the Reorganization, the
Acquiring Fund will continue its business as a diversified,
closed-end management investment company registered under the
1940 Act.
7. Closing Date.
(a) Delivery of the assets of the Target Fund to be transferred,
together with any other Target Fund Investments, and the
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued as provided in this Agreement, shall be made at such
place and time as the Funds shall mutually agree on the next
full business day following the Valuation Time, or at such
other time and date agreed to by the Funds, the date and time
upon which such delivery is to take place being referred to
herein as the "Closing Date." To the extent that any Target
Fund Investments, for any reason, are not transferable on the
Closing Date, the Target Fund shall cause such Target Fund
Investments to be transferred to the Acquiring Fund's account
with its custodian at the earliest practicable date
thereafter.
(b) The Target Fund will deliver to the Acquiring Fund on the
Closing Date confirmation or other adequate evidence as to the
tax basis of the Target Fund Investments delivered to the
Acquiring Fund hereunder.
(c) As soon as practicable after the close of business on the
Closing Date, the Target Fund shall deliver to the Acquiring
Fund a list of the names and addresses of all of the
shareholders of record of the Target Fund on the Closing Date
and the number of Target Fund Common Shares and Target Fund
Preferred Shares owned by each such shareholder, certified to
the best of its knowledge and belief by the transfer agent for
the Target Fund or by its President.
8. Conditions of the Target Fund.
The obligations of the Target Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of
Trustees of the Target Fund and by the affirmative vote of the
holders of a majority of each of the outstanding Target Fund
Common Shares and Target Fund Preferred Shares, each voting
separately as a class; and that the Acquiring Fund shall have
delivered to the Target Fund a copy of the resolution
approving this Agreement adopted by the Board of Trustees of
the Acquiring Fund, and a certificate setting forth the vote
of holders of Acquiring Fund Common Shares approving the
issuance of additional Acquiring Fund Common Shares, each
certified by its Secretary.
(b) That the Target Fund shall have received from the Acquiring
Fund a statement of assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
together with a schedule of such Fund's investments, all as of
the Valuation Time, certified on the Target Fund's behalf by
its President (or any Vice President) or its Treasurer, and a
certificate signed by the Fund's President (or any Vice
President) and its Treasurer, dated as of the Closing Date,
certifying that as of the Valuation Time and as of the Closing
Date there has been no material adverse change in the
financial position of the Target Fund since the date of such
Fund's most recent Annual or Semi-Annual Report,
A-10
as applicable, other than changes in its portfolio securities
since that date or changes in the market value of its
portfolio securities.
(c) That the Acquiring Fund shall have furnished to the Target
Fund a certificate signed by the Acquiring Fund's President
(or any Vice President) or its Treasurer, dated as of the
Closing Date, certifying that, as of the Valuation Time and as
of the Closing Date, all representations and warranties of the
Acquiring Fund made in this Agreement are true and correct in
all material respects with the same effect as if made at and
as of such dates, and that the Acquiring Fund has complied
with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each
of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) The Target Fund shall have received the opinion(s) of Skadden,
counsel for the Acquiring Fund, dated as of the Closing Date,
addressed to the Target Fund substantially in the form and to
the effect that:
(i) the Acquiring Fund is duly formed and validly
existing under the laws of its state of organization;
(ii) the Acquiring Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been
duly authorized and approved by all requisite action
of the Acquiring Fund, and this Agreement has been
duly executed and delivered by the Acquiring Fund and
(assuming this Agreement is a valid and binding
obligation of the other party hereto) is a valid and
binding obligation of the Acquiring Fund;
(iv) neither the execution or delivery by the Acquiring
Fund of this Agreement nor the consummation by the
Acquiring Fund of the transactions contemplated
hereby violate any provision of any statute or any
published regulation or any judgment or order
disclosed to counsel by the Acquiring Fund as being
applicable to the Acquiring Fund;
(v) the Acquiring Fund Common Shares and Acquiring Fund
APS have each been duly authorized and, upon issuance
thereof in accordance with this Agreement, each will
be validly issued, fully paid and, except as provided
in Section 5.1 of the Acquiring Fund's Declaration of
Trust, nonassessable; and
(vi) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Acquiring Fund of this Agreement and the consummation
of the transactions herein contemplated do not
require, under the laws of its state of organization
or any state in which the Acquiring Fund is qualified
to do business or the federal laws of the United
States, the consent, approval, authorization,
registration, qualification or order of, or filing
with, any court or governmental agency or body
(except such as have been obtained). Counsel need
express no opinion, however, as to any such consent,
approval, authorization, registration, qualification,
order or filing which may be required as a result of
the involvement of other parties to this Agreement in
the transactions herein contemplated because of their
legal or regulatory status or because of any other
facts specifically pertaining to them;
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(f) The Target Fund shall have obtained an opinion from Skadden,
Arps, dated as of the Closing Date, addressed to the Target
Fund, that the consummation of the transactions set forth in
this Agreement comply with the requirements of a
reorganization as described in Section 368(a) of the Internal
Revenue Code.
(g) That all proceedings taken by each of the Funds and its
counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and
substance to the others.
(h) That the N-14 Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the
knowledge of the Acquiring Fund, be contemplated by the SEC.
9. Acquiring Fund Conditions.
The obligations of the Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of
Trustees of the Acquiring Fund and that the issuance of
additional Acquiring Fund Common Shares shall have been
approved by the affirmative vote of a majority of votes cast,
where total votes cast represented over 50% of all securities
entitled to vote; and the Target Fund shall have delivered to
the Acquiring Fund a copy of the resolution approving this
Agreement adopted by the Target Fund's Board of Trustees, and
a certificate setting forth the vote of the holders of Target
Fund Common Shares and Target Fund Preferred Shares obtained,
each certified by its Secretary.
(b) That the Target Fund shall have furnished to the Acquiring
Fund a statement of its assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
together with a schedule of investments with their respective
dates of acquisition and tax costs, all as of the Valuation
Time, certified on such Fund's behalf by its President (or any
Vice President) or its Treasurer, and a certificate signed by
such Fund's President
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(or any Vice President) or its Treasurer, dated as of the
Closing Date, certifying that as of the Valuation Time and as
of the Closing Date there has been no material adverse change
in the financial position of the Target Fund since the date of
such Fund's most recent Annual Report or Semi-Annual Report,
as applicable, other than changes in the Target Fund
Investments since that date or changes in the market value of
the Target Fund Investments.
(c) That the Target Fund shall have furnished to the Acquiring
Fund a certificate signed by such Fund's President (or any
Vice President) or its Treasurer, dated the Closing Date,
certifying that as of the Valuation Time and as of the Closing
Date all representations and warranties of the Target Fund
made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such
dates and the Target Fund has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That the Acquiring Fund shall have received the opinion of
Skadden, counsel for the Target Fund, dated as of the Closing
Date, addressed to the Acquiring Fund, substantially in the
form and to the effect that:
(i) the Target Fund is duly formed and validly existing
under the laws of its state of organization;
(ii) the Target Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been
duly authorized by all requisite action of the
Target Fund, and this Agreement has been duly
executed and delivered by the Target Fund and
(assuming this Agreement is a valid and binding
obligation of the other party hereto) is a valid and
binding obligation of the Target Fund;
(iv) neither the execution or delivery by the Target Fund
of this Agreement nor the consummation by the Target
Fund of the transactions contemplated hereby violate
any provision of any statute, or any published
regulation or any judgment or order disclosed to
them by the Target Fund as being applicable to the
Target Fund; and
(v) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Target Fund of the Agreement and the consummation of
the transactions herein contemplated do not require,
under the laws of its state of organization or any
state in which the Target Fund is qualified to do
business, or the federal laws of the United States,
the consent, approval, authorization, registration,
qualification or order of, or filing with, any court
or governmental agency or body (except such as have
been obtained under the 1933 Act, 1934 Act, the 1940
Act or the rules and regulations thereunder).
Counsel need express no opinion, however, as to any
such consent, approval, authorization, registration,
qualification, order or filing
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which may be required as a result of the involvement
of other parties to this Agreement in the
transactions herein contemplated because of their
legal or regulatory status or because of any other
facts specifically pertaining to them;
(f) That the Acquiring Fund shall have obtained an opinion from
Skadden, counsel for the Target Fund, dated as of the Closing
Date, addressed to the Acquiring Fund, that the consummation
of the transactions set forth in this Agreement comply with
the requirements of a reorganization as described in Section
368(a) of the Code.
(g) That the N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge
of the Target Fund, be contemplated by the SEC.
(h) That all proceedings taken by the Target Fund and its counsel
in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance
to the Acquiring Fund.
(i) That prior to the Closing Date the Target Fund shall have
declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to
its shareholders all of its net investment company taxable
income for the period to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard, the last
dividend period for the Target Fund Preferred Shares may be
shorter than the dividend period for such APS determined as
set forth in the applicable Certificate of Vote.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the
Reorganization abandoned at any time (whether before or after
adoption thereof by the shareholders of the Funds) prior to
the Closing Date, or the Closing Date may be postponed, (i) by
mutual consent of the Boards of Trustees of the
A-14
Funds, (ii) by the Board of Trustees of the Target Fund if any
condition of the Target Fund's obligations set forth in
Section 8 of this Agreement has not been fulfilled or waived
by such Board; or (iii) by the Board of Trustees of the
Acquiring Fund if any condition of the Acquiring Fund's
obligations set forth in Section 9 of this Agreement have not
been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not
been consummated by December 31, 2005, this Agreement
automatically shall terminate on that date, unless a later
date is mutually agreed to by the Boards of Trustees of the
Funds.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no
further effect, and there shall not be any liability on the
part of any Fund or persons who are their directors, trustees,
officers, agents or shareholders in respect of this Agreement.
(d) At any time prior to the Closing Date, any of the terms or
conditions of this Agreement may be waived by the Board of
Trustees of any Fund (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation
with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this
Agreement to the shareholders of their respective fund, on
behalf of which such action is taken.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be
terminated by, the consummation of the Reorganization, and
neither Fund nor any of its officers, trustees, agents or
shareholders shall have any liability with respect to such
representations or warranties after the Closing Date. This
provision shall not protect any officer, trustee, agent or
shareholder of either Fund against any liability to the entity
for which that officer, trustee, agent or shareholder so acts
or to its shareholders, to which that officer, trustee, agent
or shareholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing Date and shall
impose any terms or conditions which are determined by action
of the Boards of Trustees of the Funds to be acceptable, such
terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the shareholders
of the Funds unless such terms and conditions shall result in
a change in the method of computing the number of Acquiring
Fund Common Shares or Acquiring Fund APS to be issued to the
Acquired Funds, as applicable, in which event, unless such
terms and conditions shall have been included in the proxy
solicitation materials furnished to the shareholders of the
Funds prior to the meetings at which the Reorganization shall
have been approved, this Agreement shall not be consummated
and shall terminate unless the Funds promptly shall call a
special meeting of shareholders at which such conditions so
imposed shall be submitted for approval.
11. Indemnification.
(a) Each party (an "Indemnitor") shall indemnify and hold the
other and its officers, trustees, agents and persons
controlled by or controlling any of them (each an "Indemnified
A-15
Party") harmless from and against any and all losses, damages,
liabilities, claims, demands, judgments, settlements,
deficiencies, taxes, assessments, charges, costs and expenses
of any nature whatsoever (including reasonable attorneys'
fees) including amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
reasonably incurred by such Indemnified Party in connection
with the defense or disposition of any claim, action, suit or
other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which such
Indemnified Party may be or may have been involved as a party
or otherwise or with which such Indemnified Party may be or
may have been threatened (collectively, the "Losses") arising
out of or related to any claim of a breach of any
representation, warranty or covenant made herein by the
Indemnitor, provided, however, that no Indemnified Party shall
be indemnified hereunder against any Losses arising directly
from such Indemnified Party's (i) willful misfeasance, (ii)
bad faith, (iii) gross negligence or (iv) reckless disregard
of the duties involved in the conduct of such Indemnified
Party's position.
(b) The Indemnified Party shall use its best efforts to minimize
any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity
may be sought hereunder. The Indemnified Party shall give
written notice to Indemnitor within the earlier of ten (10)
days of receipt of written notice to Indemnified Party or
thirty (30) days from discovery by Indemnified Party of any
matters which may give rise to a claim for indemnification or
reimbursement under this Agreement. The failure to give such
notice shall not affect the right of Indemnified Party to
indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that
in any event such notice shall have been given prior to the
expiration of the Survival Period. At any time after ten (10)
days from the giving of such notice, Indemnified Party may, at
its option, resist, settle or otherwise compromise, or pay
such claim unless it shall have received notice from
Indemnitor that Indemnitor intends, at Indemnitor's sole cost
and expense, to assume the defense of any such matter, in
which case Indemnified Party shall have the right, at no cost
or expense to Indemnitor, to participate in such defense. If
Indemnitor does not assume the defense of such matter, and in
any event until Indemnitor states in writing that it will
assume the defense, Indemnitor shall pay all costs of
Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall
consult with Indemnitor and obtain indemnitor's prior written
consent to any payment or settlement of any such claim.
Indemnitor shall keep Indemnified Party fully apprised at all
times as to the status of the defense. If Indemnitor does not
assume the defense, Indemnified Party shall keep Indemnitor
apprised at all times as to the status of the defense.
Following indemnification as provided for hereunder,
Indemnitor shall be subrogated to all rights of Indemnified
Party with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been
made.
12. Other Matters.
A-16
(a) All covenants, agreements, representations and warranties made
under this Agreement and any certificates delivered pursuant
to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any
investigation made by them or on their behalf.
(b) All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally or
sent by registered mail or certified mail, postage prepaid.
Notice to the Target Fund shall be addressed to the Target
Fund c/o Van Kampen Asset Management, 1221 Avenue of the
Americas, New York, New York 10020, Attention: General
Counsel, or at such other address as the Target Fund may
designate by written notice to the Acquiring Fund. Notice to
the Acquiring Fund shall be addressed to the Acquiring Fund
c/o Van Kampen Asset Management, 1221 Avenue of the Americas,
New York, New York 10020, Attention: General Counsel, or at
such other address and to the attention of such other person
as the Acquiring Fund may designate by written notice to the
Target Fund. Any notice shall be deemed to have been served or
given as of the date such notice is delivered personally or
mailed.
(c) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the
Reorganization, constitutes the only understanding with
respect to the Reorganization, may not be changed except by a
letter of agreement signed by each party and shall be governed
by and construed in accordance with the laws of the State of
Illinois applicable to agreements made and to be performed in
said state.
(d) It is expressly agreed that the obligations of the Funds
hereunder shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents, or
employees personally, but shall bind only the trust property
of the respective Fund as provided in such Fund's Declaration
of Trust. The execution and delivery of this Agreement has
been authorized by the trustees of each Fund and signed by
authorized officers of each Fund, acting as such, and neither
such authorization by such trustees, nor such execution and
delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of
each Fund as provided in such Funds' Declaration of Trust.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first written above.
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VAN KAMPEN XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXX
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
VAN KAMPEN XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
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APPENDIX B
CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING PREFERRED SHARES
B-1
Federal Identification No. 36-7041986
THE COMMONWEALTH OF MASSACHUSETTS
Office of the Massachusetts Secretary of State
Michael J. Connolly, Secretary
One Ashburton Place, Boston, Mass. 02108
CERTIFICATE OF VOTE OF TRUSTEES ESTABLISHING
TWO SERIES OF PREFERRED SHARES
I, Ronald A. Nyberg, Vice President and Secretary, of Van
Kampen Merritt Advantage Municipal Income Trust II (the "Fund") located at One
Parkview Plaza, Oakbrook Terrace, IL 60181, do hereby certify that at a meeting
of the trustees of the Fund held on October 13, 1993, the following vote
establishing and designating two series of preferred shares of beneficial
interest and determining the relative rights and preferences thereof was duly
adopted:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Fund by Article VI of its Declaration of Trust (which, as
amended or restated from time to time, is, together with this Certificate of
Vote, herein called the "Declaration of Trust"), the Board of Trustees hereby
authorizes the issuance of two series of 1,600 shares of its authorized
preferred shares of beneficial interest, par value $.01 per share ("Preferred
Shares"), liquidation preference of $50,000 per share, designated, respectively,
Auction Preferred Shares, Series A ("APS Series A") and Auction Preferred
Shares, Series B ("APS Series B") (collectively the APS Series A APS Series B
are referred to herein as "APS").
Second: The preferences, voting powers, qualifications, and
special or relative rights or privileges of each such series of preferred shares
of beneficial interest are as follows:
DESIGNATION
APS SERIES A: A series of 800 preferred shares of beneficial
interest, $.01 par value, liquidation preference $50,000 per share, is hereby
designated "Auction Preferred Shares, Series A" (hereinafter, "APS Series A").
Each share of APS Series A shall be issued on Wednesday, November 10, 1993; have
an Applicable Rate for its Initial Dividend Period (which period shall continue
to and include Monday, November 15, 1993) equal to 2.40% per annum; have an
initial Dividend Payment Date of Tuesday,
B-2
November 16, 1993; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration of Trust applicable to preferred shares of beneficial interest
of the Fund, as are set forth in Part I and Part II of this Certificate of Vote.
The APS Series A shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series A shall be
identical except as provided in Section 3 of Part I of this Certificate of Vote.
APS SERIES B: A series of 800 preferred shares of beneficial
interest, $.01 par value, liquidation preference $50,000 per share, is hereby
designated "Auction Preferred Shares, Series B" (hereinafter, "APS Series B").
Each share of APS Series B shall be issued on Wednesday, November 10, 1993; have
an Applicable Rate for its Initial Dividend Period (which period shall continue
to and include Tuesday, November 16, 1993) equal to 2.40% per annum; have an
initial Dividend Payment Date of Wednesday, November 17, 1993; and have such
other preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series B shall constitute a
separate series of Preferred Shares of beneficial interest of the Fund, and each
share of APS Series B shall be identical except as provided in Section 3 of Part
I of this Certificate of Vote.
No holder of any series of APS shall have, solely by reason of
being such a holder of any series of APS, any right to acquire, purchase or
subscribe for any APS, common shares of beneficial interest, par value $.01 per
share, of the Fund or other securities of the Fund which it may hereafter issue
or sell (whether out of the number of shares authorized by the Declaration of
Trust, or out of any shares acquired by the Fund after the issuance thereof, or
otherwise).
PART I
1. Number of Shares; Ranking. (a) No fractional APS shall be
issued.
(b) APS which at any time have been redeemed or purchased by
the Fund shall, after such redemption or purchase, have the status of authorized
but unissued Preferred Shares, without designation as to series.
(c) The shares of each series of APS shall rank on a parity
with shares of any other series of Preferred Shares (including any other series
of APS) as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund.
2. Dividends. (a) The Holder of shares of any series of APS
shall be entitled to receive, when, as and if declared by the Board of Trustees,
out of funds legally available therefor, cumulative cash dividends at the
Applicable Rate per annum thereof, determined as set forth in paragraph (c) of
this Section 2, and no more (except to the extent set forth in Section 12 of
this Part I), payable on the respective dates (each a
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"Dividend Payment Date") determined as set forth in paragraph (b) of this
Section 2. Dividends on shares of any series of APS shall accumulate at the
Applicable Rate per annum from the Date of Original Issue thereof.
(b) (i) Dividends shall be payable subject to subparagraph
(b)(ii) of this Section 2, on shares of:
(A) APS Series A, on Tuesday, November 16,
1993 and each Tuesday thereafter, and
(B) APS Series B, on Wednesday, November 17,
1993 and each Wednesday thereafter;
provided that if the Fund, subject to the conditions set forth in Section 4 of
this Part I, designates any Subsequent Dividend Period as a Special Dividend
Period, dividends will be payable: (1) with respect to a Special Dividend Period
of less than 35 days, the day after the last day thereof and (2) with respect to
a Special Dividend Period of 35 days or more, the first Business Day of each
calendar month thereafter provided that, in any calendar month in which an
Auction Date is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date.
After any Special Dividend Period, dividends on shares of such
series of APS shall be payable, subject to subparagraph (b)(ii) of this Section
2, on each fourth succeeding Tuesday for APS Series A and on each fourth
succeeding Wednesday for APS Series B, subject in each case to the options of
the Fund to further designate from time to time any Subsequent Dividend Period
of any series as a Special Dividend Period.
(ii) In the case of dividends that would otherwise be
payable on a Monday, Tuesday, Wednesday, Thursday or Friday as determined by
subparagraph (b)(i) of this Section 2, including clause (1), (2) or (3) of the
proviso thereto, if (i) the Monday or Tuesday that would otherwise be the
Dividend Payment Date is not a Business Day, then dividends shall be payable on
the first Business Day that falls after such Monday or Tuesday, or (ii) the
Wednesday, Thursday or Friday that would otherwise be the Dividend Payment Date
is not a Business Day, then dividends shall be payable on the first Business Day
that falls prior to such Wednesday, Thursday or Friday.
(iii) The Fund shall pay to the Auction Agent not
later than 12:00 noon, New York City time, on the Business Day next preceding
each Dividend Payment Date for shares of such series, an aggregate amount of
funds available on the next Business Day in The City of New York, New York,
equal to the dividends to be paid to all Holders of shares of such series on
such Dividend Payment Date.
(iv) All moneys paid to the Auction Agent for the
payment of dividends (or for the payment of any late charges pursuant to
subparagraph (c)(i) of this Section 2) shall be held in trust for the payment of
such dividends (and any such late charge) by the Auction Agent for the benefit
of the Holders specified in
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subparagraph (b)(v) of this Section 2. Any moneys paid to the Auction Agent in
accordance with the foregoing but not applied by the Auction Agent to the
payment of dividends (and any late charge) will, to the extent permitted by law,
be repaid to the Fund at the end of 90 days from the date on which such moneys
were so to have been applied.
(v) Each dividend on the APS shall be paid on the
Dividend Payment Date therefor to the Holders as their names appear on the share
books of the Fund on the Business Day next preceding such Dividend Payment Date.
Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the Holders
as their names appear on the share books of the Fund on such date, not exceeding
15 days preceding the payment date thereof, as may be fixed by the Board of
Trustees.
(c) (i) The dividend rate on shares of any series of APS
during the period from and after the Date of Original Issue thereof to and
including the last day of the Initial Dividend Period therefor shall be equal to
the rate per annum set forth with respect to such series under "Designation,"
above. For each Subsequent Dividend Period of any series of APS outstanding
thereafter, the dividend rate on shares of such series shall be equal to the
rate per annum that results from an Auction for such series on the Auction Date
next preceding such Subsequent Dividend Period; provided, however, that if an
Auction for any Subsequent Dividend Period of any series of APS is not held for
any reason or if a Failure to Deposit occurs with respect to the Initial
Dividend Period or any Subsequent Dividend Period and such failure has not been
cured as set forth below prior to any succeeding Subsequent Dividend Period
thereof, then, subject to the next succeeding provision, the dividend rate on
the shares of such series for the Initial Dividend Period or any such Subsequent
Dividend Period shall be the Maximum Rate (as defined herein) for such series on
the Auction Date for such Subsequent Dividend Period; provided, further,
however, that if any Failure to Deposit shall have occurred with respect to
shares of any series of APS during any Rate Period thereof, and prior to 12:00
noon, New York City time, on the third Business Day next succeeding the date on
which such Failure to Deposit occurred, such Failure to Deposit shall not have
been cured in accordance with the next succeeding sentence or the Fund shall not
have paid to the Auction Agent a late charge equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to the Auction Agent
the full amount of dividends with respect to any Dividend Period on the shares
of such series, an amount computed by multiplying (x) 200% of the Reference Rate
(or Treasury Rate, if applicable) for the Rate Period during which such Failure
to Deposit occurs on the Dividend Payment Date for such Dividend Period by (y) a
fraction, the numerator of which shall be the number of days for which such
Failure to Deposit has not been cured in accordance with the next succeeding
sentence (including the day such Failure to Deposit occurs and excluding the day
such Failure to Deposit is cured) and the denominator of which shall be 365, and
applying the rate obtained against the aggregate liquidation preference of the
outstanding shares of such series of APS and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the Redemption Price
of the shares of such series of APS, if any, for which Notice of Redemption has
been given by the Fund pursuant to paragraph (b) of Section 3 of this Part I, an
amount computed by multiplying (x) 200% of the Reference Rate (or Treasury Rate,
if applicable) for the Rate Period during which
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such Failure to Deposit occurs on the redemption date by (y) a fraction, the
numerator of which shall be the number of days for which such failure is not
cured in accordance with the next succeeding sentence (including the day such
Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 365, and applying the rate obtained
against the aggregate liquidation preference of the Outstanding APS to be
redeemed, and such failure shall not have been cured as described herein,
Auctions will be suspended until such failure is so cured and the dividend rate
for shares of such series of APS for each Subsequent Dividend Period thereof
commencing after such failure to and including the Subsequent Dividend Period,
if any, during which such Failure to Deposit is so cured shall be a rate per
annum equal to the Maximum Rate on the Auction Date for such Subsequent Dividend
Period (but with the prevailing rating for such shares, for purposes of
determining such Maximum Rate, being deemed to be "Below "ba3"/BB-") (the rate
per annum at which dividends are payable on the APS for any Rate Period for such
shares being herein referred to as the "Applicable Rate" for such shares). A
Failure to Deposit with respect to shares of any series of APS shall have been
cured (if such Failure to Deposit is not solely due to the willful failure of
the Fund to make the required payment to the Auction Agent) with respect to any
Rate Period if, not later than 12:00 noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period subsequent to such
Rate Period the Fund shall have paid to the Auction Agent (A) all accumulated
and unpaid dividends on the shares of such series of APS and (B) without
duplication, the Redemption Price for the APS, if any, for which Notice of
Redemption has been given by the Fund pursuant to paragraph (b) of Section 3 of
this Part I.
(ii) The amount of dividends per share
payable on shares of any series of APS on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the respective
Applicable Rate for such series in effect for such Dividend Period or Dividend
Periods or part thereof for which dividends have not been paid by a fraction,
the numerator of which shall be the number of days in such Dividend Period or
Dividend Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period is a Rate Period, or is contained in a Rate Period, of less
than one year and 360 for all other Dividend Periods, and applying the rate
obtained against $50,000.
(d) Any dividend payment made on the APS shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such APS.
(e) Except as set forth in the next sentence, no dividends
shall be declared or paid or set apart for payment on the shares of any class or
series of shares ranking, as to the payment of dividends, on a parity with the
APS for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of APS
through the most recent Dividend Payment Date for each such series. When
dividends are not paid in full upon the APS through their most recent respective
Dividend Payment Dates or upon the shares for any other class or series of
shares ranking on a parity as to the payment of dividends with the APS through
their most recent respective dividend payment dates, all dividends declared upon
the APS and
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any other such class or series of shares ranking on a parity as to the payment
of dividends with the APS shall be declared pro rata so that the amount of
dividends declared per share on the APS and such other class or series of shares
shall in all cases bear to each other the same ratio that accumulated dividends
per share on the APS and such other class or series of shares bear to each other
(for purposes of this sentence, the amount of dividends declared per share shall
be based on the Applicable Rate for such shares for the Dividend Periods during
which dividends were not paid in full). Holders of the APS shall not be entitled
to any dividend, whether payable in cash, property or shares, in excess of full
cumulative dividends, as herein provided, on the APS. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the APS which may be in arrears, and, except to the extent set
forth in subsection (c)(i) of this Section 2, no additional sum of money shall
be payable in respect of any such arrearage.
(f) Dividends on the APS shall be designated as
exempt-interest dividends up to the amount of tax-exempt income of the Fund, to
the extent permitted by, and for purposes of, Section 852 of the Internal
Revenue Code of 1986, as amended from time to time.
(g) The Board of Trustees shall not declare any dividend
(except a dividend payable in Common Shares), or declare any other distribution,
upon the Common Shares, or purchase Common Shares, unless in every such case the
APS have, at the time of any such declaration or purchase, an asset coverage (as
defined in and determined pursuant to the 1940 Act) of at least 200% (or such
other asset coverage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities which are stock of a
closed-end investment company as a condition of declaring dividends on its
common stock) after deducting the amount of such dividend, distribution or
purchase price, as the case may be.
3. Redemption. (a) (i) After the Initial Dividend Period with respect
to any series of APS and upon giving a Notice of Redemption, as provided below,
the Fund at its option may redeem shares of any series of APS, in whole or in
part, on the second Business Day next preceding any Dividend Payment Date
applicable to those shares of APS called for redemption, out of funds legally
available therefor, at the Optional Redemption Price; provided that during a
Special Dividend Period of 365 days or more no share of APS will be subject to
optional redemption during any Non-Call Period; provided, that shares of any
series of APS may not be redeemed in part if after such partial redemption fewer
than 250 shares of such series remain outstanding.
(ii) If fewer than all of the outstanding shares of any series
of APS are to be redeemed pursuant to subparagraph (a)(i) of this Section 3, the
number of shares of such series to be redeemed shall be determined by the Board
of Trustees, and such shares shall be redeemed pro rata from the Holders of such
series in proportion to the number of such shares held by such Holders.
(iii) No APS shall be redeemed pursuant to subparagraphs
(a)(i) or (a)(ii) of this Section 3 unless, on the date on which the Fund
intends to give
B-7
notice of such redemption pursuant to paragraph (b) of this Section 3, (a) the
Fund has available Deposit Securities with maturity or tender dates not later
than the day preceding the applicable redemption date and having a value not
less than the amount (including the applicable premium, if any) due to Holders
of the APS by reason of the redemption of such shares on such redemption date
and (b) a Discounted Value of Moody's Eligible Assets (if Moody's is then rating
the APS) and S&P Eligible Assets (if S&P is then rating the APS) each at least
equal the APS Basic Maintenance Amount immediately subsequent to such
redemption, if such redemption were to occur on such date, and on the date of
redemption.
(iv) Subject to Section 3(g), the Fund shall redeem at the
Mandatory Redemption Price certain of the APS if the Fund fails to maintain a
Discounted Value of Moody's Eligible Assets or S&P Eligible Assets in an amount
greater than or equal to the APS Basic Maintenance Amount or fails to maintain
1940 Act APS Asset Coverage in accordance with the requirements of the rating
agency or agencies when rating the APS and such failure is not cured on or
before the APS Basic Maintenance Cure Date or the 1940 Act Cure Date, as the
case may be. The number of APS to be redeemed shall be equal to the lesser of
(i) the minimum number of APS the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date, together
with all other Preferred Shares subject to redemption or retirement, would
result in the satisfaction of the APS Basic Maintenance Amount or the 1940 Act
APS Asset Coverage, as the case may be, on such Cure Date (provided that, if
there is no such minimum number of APS and other Preferred Shares the redemption
of which would have such result, all the APS and preferred then outstanding
shall be redeemed), and (ii) the maximum number of APS, together with all other
Preferred Shares subject to redemption or retirement, that can be redeemed out
of funds expected to be legally available therefor. In determining the APS
required to be redeemed in accordance with the foregoing, the Fund shall
allocate the number required to be redeemed to satisfy the APS Basic Maintenance
Amount or the 1940 Act APS Asset Coverage, as the case may be, pro rata among
each series of APS and other Preferred Shares subject to redemption provisions
similar to those contained in this subparagraph (a)(iv) of this Section 3. The
Fund shall effect such redemption not earlier than 20 days and not later than 40
days after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of APS and other
Preferred Shares which are subject to redemption provisions similar to those
contained in this subparagraph (a)(iv) of this Section 3 or the Fund otherwise
is unable to effect such redemption on or prior to 40 days after such Cure Date,
the Fund shall redeem those APS and other Preferred Shares which it was unable
to redeem on the earliest practicable date on which it is able to effect such
redemption. If fewer than all of the outstanding shares of any series of APS are
to be redeemed pursuant to this Section 3(a)(iv), the number of shares of such
series to be redeemed shall be redeemed pro rata from the Holders of such shares
in proportion to the number of shares held by such Holders.
(b) The Fund is required to give 30 days Notice of Redemption. In the
event the Fund obtains appropriate exemptive or no-action relief from the
Securities and Exchange Commission, the number of days' notice required for a
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mandatory redemption may be reduced by the Board of Trustees of the Fund to as
few as two Business Days if Moody's and S&P each has agreed in writing that the
revised notice provision would not adversely affect its then-current ratings of
the APS. The Auction Agent will use its reasonable efforts to provide telephonic
notice to each holder of APS called for redemption not later than the close of
business on the Business Day on which the Auction Agent determines the shares to
be redeemed (as described above) (or, during the occurrence of a Failure to
Deposit with respect to such shares, not later than the close of business on the
Business Day immediately following the day on which the Auction Agent receives
Notice of Redemption from the Fund). Such telephonic notice will be confirmed
promptly in writing not later than the close of business on the third Business
Day preceding the redemption date by notice sent by the Auction Agent to each
holder of record of APS called for redemption, the Broker-Dealers and the
Securities Depository. Every Notice of Redemption and other redemption notice
with respect to APS will state: (1) the redemption date, (2) the number of APS
to be redeemed, (3) the redemption price, (4) that dividends on the APS to be
redeemed will cease to accumulate as of such redemption date and (5) the
provision of the APS Provisions pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or other redemption notice or in
the transmittal or the mailing thereof will affect the validity of the
redemption proceedings, except as required by applicable law. If fewer than all
shares of any series held by any Holder are to be redeemed, the Notice of
Redemption mailed to such Holder shall also specify the number of shares of such
series to be redeemed from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3,
if any dividends on shares of any series of APS are in arrears, no shares of
such series of APS shall be redeemed unless all outstanding shares of such
series of APS are simultaneously redeemed, and the Fund shall not purchase or
otherwise acquire any shares of such series of APS; provided, however, that the
foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series of APS pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series of APS.
(d) Upon the deposit of funds sufficient to redeem the APS with the
Auction Agent and the giving of Notice of Redemption under Paragraph (b) of this
Section 3, dividends on such shares shall cease to accumulate and such shares
shall no longer be deemed to be outstanding for any purpose, and all rights of
the Holders of the shares so called for redemption shall cease and terminate,
except the right of such Holders to receive the Optional Redemption Price or
Mandatory Redemption Price, as the case may be, but without any interest or
other additional amount, except as provided in Section 2(c)(i) and in Section
12. Upon surrender in accordance with the Notice of Redemption of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Trustees shall so require and the Notice of Redemption
shall so state), the Optional Redemption Price or Mandatory Redemption Price, as
the case may be, shall be paid by the Auction Agent to the Holders of the APS
subject to redemption. In the case that fewer than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued,
representing the unredeemed shares, without cost to the Holder thereof. The Fund
shall be entitled to receive from the Auction Agent, promptly after the date
fixed for redemption, any cash deposited with the
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Auction Agent in excess of (i) the aggregate Optional Redemption Price of the
APS called for redemption on such date and (ii) all other amounts to which
Holders of the APS called for redemption may be entitled. Any funds so deposited
that are unclaimed at the end of 90 days from such redemption date shall, to the
extent permitted by law, be repaid to the Fund, after which time the Holders of
the APS so called for redemption may look only to the Fund for payment of the
Optional Redemption Price or Mandatory Redemption Price, as the case may be, and
all other amounts to which they may be entitled. The Fund shall be entitled to
receive, from time to time after the date fixed for redemption, any interest on
the funds so deposited.
(e) To the extent that any redemption for which Notice of
Redemption has been given is not made by reason of the absence of legally
available funds therefor, such redemption shall be made as soon as practicable
to the extent such funds become available. Failure to redeem the APS shall be
deemed to exist at any time after the date specified for redemption in a Notice
of Redemption when the Fund shall have failed, for any reason whatsoever, to
deposit in trust with the Auction Agent the Redemption Price with respect to any
shares for which such Notice of Redemption has been given. Notwithstanding the
fact that the Fund may not have redeemed the APS for which a Notice of
Redemption has been given, dividends may be declared and paid on the APS and
shall include those APS for which a Notice of Redemption has been given.
(f) All moneys paid to the Auction Agent for payment of the
Optional Redemption Price or Mandatory Redemption Price, as the case may be, of
the APS called for redemption shall be held in trust by the Auction Agent for
the benefit of Holders of shares so to be redeemed.
(g) In effecting any redemption pursuant to this Section 3,
the Fund shall use its best efforts to comply with all applicable procedural
conditions precedent to effecting such redemption under the 1940 Act and
Massachusetts law, but shall effect no redemption except to the extent permitted
by the 1940 Act and Massachusetts law.
(h) In the case of any redemption pursuant to this Section 3,
only whole APS shall be redeemed, and in the event that any provision of the
Declaration of Trust would require redemption of a fractional share, the Auction
Agent shall be authorized to round up so that only whole shares are redeemed.
4. Designation of Special Dividend Periods. (a) The Fund, at its
option, may designate any succeeding Subsequent Dividend Period of any series of
APS as a Special Dividend Period; provided, however, that such designation shall
be effective only if (A) notice thereof shall have been given in accordance with
paragraph (b) and clause (i) of paragraph (c) of this Section 4, (B) any Failure
to Deposit that shall have occurred with respect to shares of such series during
any Dividend Period shall have been cured in accordance with the provisions of
the third sentence of paragraph (c)(i) of Section 2 of this Part I, (C)
Sufficient Clearing Bids (as defined in Section 1 of Part II hereof) for such
series shall have existed in an Auction held on the Auction Date immediately
preceding the first day of such proposed Special Dividend Period, (D) if any
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Notice of Redemption shall have been mailed by the Fund pursuant to paragraph
(b) of Section 3 of this Part I with respect to any shares of such series of
APS, the Redemption Price with respect to such shares shall have been deposited
with the Auction Agent and (E) in the event the Fund wishes to designate any
succeeding Subsequent Dividend Period for such series as a Special Dividend
Period consisting of more than 28 Rate Period Days, the Fund has provided notice
and an APS Basic Maintenance Report that states that the Discounted Value of S&P
Eligible Assets or Moody's Eligible Assets, as the case may be is greater than
or equal to the APS Basic Maintenance Amount to S&P (if S&P is then rating the
APS) and Moody's (if Moody's is then rating the APS).
(b) If the Fund proposes to designate any succeeding
Subsequent Dividend Period of any series of APS as a Special Dividend Period of
more than 28 Rate Period Days pursuant to paragraph (a) of this Section 4, not
less than 20 nor more than 30 days prior to the date the Fund proposes to
designate as the first day of such Special Dividend Period (which shall be such
day that would otherwise be the first day of a Minimum Dividend Period), notice
shall be (i) published or caused to be published by the Fund in a newspaper of
general circulation to the financial community in The City of New York, New
York, which carries financial news, and (ii) communicated by the Fund by
telephonic or other means to the Auction Agent and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Fund may exercise its
option to designate a succeeding Subsequent Dividend Period of such series of
APS as a Special Dividend Period, specifying the first day thereof and (B) that
the Fund will by 11:00 a.m., New York City time, on the second Business Day next
preceding such date notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Fund
shall specify the Special Dividend Period designated and the terms of the
Specific Redemption Provisions, if any, or (y) its determination not to exercise
such option.
(c) No later than 11:00 a.m., New York City time, on the
second Business Day next preceding the first day of any proposed Special
Dividend Period the Fund shall delivery to the Auction Agent either:
(i) a notice stating (A) that the Fund has determined
to designate the next succeeding Dividend Period of such series as a Special
Dividend Period, specifying the same and the first day thereof, (B) the Auction
Date immediately prior to the first day of such Special Dividend Period, (C) the
terms of the Specific Redemption Provisions, if any, for such series, (D) that
such Special Dividend Period shall not commence if (1) on such Auction Date
Sufficient Clearing Bids for such series shall not exist (in which case the
succeeding Rate Period shall be a Minimum Dividend Period) or (2) a Failure to
Deposit shall have occurred prior to the first day of such Special Dividend
Period with respect to shares of such series and (E) the scheduled Dividend
Payment Dates for such series of APS during such Special Dividend Period;
provided that, if such Special Dividend Period consists of more than 28 Rate
Period Days, such notice will be accompanied by an APS Basic Maintenance Report
showing that, as of the third Business Day next preceding such proposed Special
Dividend Period, (1) a Discounted Value of Moody's Eligible Assets, assuming for
the purposes of calculating Moody's Eligible Assets, in connection with an APS
Basic Maintenance
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Report required to be prepared pursuant to this Section 4(c)(i), a Moody's
Exposure Period of "eight weeks or less but greater than seven weeks" (if
Moody's is then rating such series) and (2) a Discounted Value of S&P Eligible
Assets (if S&P is then rating such series) each at least equal to the APS Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that the Maximum Rate is the Maximum Rate on such Business
Day as if such Business Day were the Auction Date for the proposed Special
Dividend Period); or
(ii) a notice stating that the Fund has determined
not to exercise its option to designate a Special Dividend Period for such
series of APS and that the next succeeding Dividend Period of such series shall
be a Minimum Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation
of any proposed Special Dividend Period to the Auction Agent by 11:00 a.m., New
York City time, on the second Business Day next preceding the first day of such
proposed Special Dividend Period, the Fund shall be deemed to have delivered a
notice to the Auction Agent with respect to such Special Dividend Period of the
effect such forth in clause (ii) of the preceding sentence.
5. Voting Rights. (a) Except as otherwise provided in the Declaration
of Trust or as otherwise required by law, (i) each holder of APS shall be
entitled to one vote for each of the APS held on each matter submitted to a vote
of shareholders of the Fund, and (ii) the holders of outstanding Preferred
Shares, including APS, and of Common Shares shall vote together as a single
class; provided that, at a meeting of the shareholders of the Fund held for the
election of the trustees, the holders of outstanding Preferred Shares, including
APS, represented in person or by proxy at said meeting, shall elect two trustees
of the Fund, each Preferred Share, including each of the APS, entitling the
holder thereof to one vote. Subject to paragraph (b) of this Section 5, the
holders of outstanding Common Shares shall elect the balance of the trustees.
(b) During any period in which any one or more of the
conditions described below shall exist (such period being referred to herein as
a "Voting Period"), the number of trustees constituting the Board of Trustees
shall be automatically increased by the smallest number that, when added to the
two trustees elected exclusively by the holders of Preferred Shares, including
APS, would constitute a majority of the Board of Trustees as so increased by
such smallest number, and the holders of Preferred Shares, including APS, shall
be entitled, voting as a class on a one-vote-per-share basis (to the exclusion
of the holders of all other securities and class of capital shares of the Fund),
to elect such smallest number of additional trustees, together with the two
trustees that such holders are in any event entitled to elect. A Voting Period
shall commence:
(i) if at the close of business on any Dividend
Payment Date accumulated dividends (whether or not earned or declared) on
Preferred Shares, including any outstanding APS, equal to at least two full
years' dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the payment
of such accumulated dividends; or
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(ii) if at any time holders of any other Preferred
Shares are entitled under the 1940 Act to elect a majority of the trustees of
the Fund.
Such Voting Period shall terminate if (i) the Fund thereafter shall pay, or
declare a dividend and deposit cash or securities with the Auction Agent equal
to, accumulated dividends payable on outstanding Preferred Shares; or (ii) such
voting right to the holders of any other Preferred Shares to elect a majority of
the trustees of the Fund shall cease. Upon the termination of a Voting Period,
the voting rights described in this paragraph (b) of Section 5 shall cease,
subject always, however, to the revesting of such voting rights in the Holders
upon the further occurrence of any of the events described in this paragraph (b)
of Section 5.
(c) (i) As soon as practicable after the accrual of any right
of the holders of Preferred Shares to elect additional trustees as described in
paragraph (b) of this Section 5, the Fund shall notify the Auction Agent and the
Auction Agent shall call a special meeting of such holders, by mailing a notice
of such special meeting to such holders, such meeting to be held not less than
10 nor more than 20 days after the date of mailing of such notice. If the Fund
fails to send such notice to the Auction Agent or if the Auction Agent does not
call such a special meeting, it may be called by any such holder on like notice.
The record date for determining the holders entitled to notice of and to vote at
such special meeting shall be the close of business on the fifth Business Day
preceding the day on which such notice is mailed. At any such special meeting
and at each meeting of holders of Preferred Shares held during a Voting Period
at which trustees are to be elected, such holders, voting together as a class
(to the exclusion of the holders of all other securities and classes of capital
shares of the Fund), shall be entitled to elect the number of trustees
prescribed in paragraph (b) of this Section 5 on a one-vote-per-share basis.
(ii) For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Certificate
of Vote, by the other provisions of the Declaration of Trust, by statute or
otherwise, no Holder shall be entitled to vote and no APS shall be deemed to be
"outstanding" for the purpose of voting or determining the number of shares
required to constitute a quorum if, prior to or concurrently with the time of
determination of shares entitled to vote or shares deemed outstanding for quorum
purposes, as the case may be, the Redemption Price for the redemption of such
shares has been deposited in trust with the Auction Agent for that purpose and
the requisite Notice of Redemption with respect to such shares shall have been
given as provided in Section 3 of this Part I. None of the APS held by the Fund
or any affiliate of the Fund shall have any voting rights or be deemed to be
outstanding for voting or other purposes.
(iii) The terms of office of all persons who are
Trustees of the Fund at the time of a special meeting of Holders and holders of
other Preferred Shares to elect trustees shall continue, notwithstanding the
election at such meeting by the Holders and such other holders of the number of
trustees that they are entitled to elect, and the persons so elected by the
Holders and such other holders, together with the two incumbent trustees elected
by the Holders and such other holders of Preferred Shares
B-13
and the remaining incumbent trustees elected by the holders of the Common
Shares, shall constitute the duly elected trustees of the Fund.
(iv) Simultaneously with the termination of a Voting
Period, the terms of office of the additional trustees elected by the Holders
and holders of other Preferred Shares pursuant to paragraph (b) of this Section
5 shall terminate, the remaining trustees shall constitute the trustees of the
Fund and the voting rights of the Holders and such other holders to elect
additional trustees pursuant to paragraph (b) of this Section 5 shall cease,
subject to the provisions of the last sentence of paragraph (b) of this Section
5.
(d) (i) So long as any of the APS are Outstanding, the Fund
shall not, without the affirmative vote of the Holders of the Outstanding APS
determined with reference to a "majority of outstanding voting securities" as
that term is defined in Section 2(a)(42) of the 1940 Act (voting separately as
one class): (a) authorize, create or issue any class or series of shares of
beneficial interest ranking prior to or on a parity with the APS with respect to
the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund, or increase the authorized
amount of any series of APS (except that, notwithstanding the foregoing, but
subject to the provisions of Section 13, the Board of Trustees, without the vote
or consent of the Holders of APS, may from time to time authorize and create,
and the Fund may from time to time issue, classes or series of Preferred Shares,
including APS, ranking on a parity with the APS with respect to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund, subject to continuing compliance by the
Fund with 1940 Act APS Asset Coverage and APS Basic Maintenance Amount
requirements, provided that the Fund obtains written confirmation from Moody's
(if Moody's is then rating APS) and S&P (if S&P is then rating APS) that the
issuance of such class or series would not impair the rating then assigned by
such rating agency to the APS), (b) amend, alter or repeal the provisions of the
Declaration of Trust, including this Certificate of Vote, whether by merger,
consolidation or otherwise, so as to affect any preferences, right or power of
such APS or the Holders thereof; provided that (i) none of the actions permitted
by the exception to (a) above will be deemed to affect such preferences, rights
or powers and (ii) the authorization, creation and issuance of classes or series
of shares ranking junior to the APS with respect to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, will be deemed to affect such preferences, rights or powers
only if Moody's or S&P is then rating the APS and such issuance would, at the
time thereof, cause the Fund not to satisfy the 1940 Act APS Asset Coverage or
the APS Basic Maintenance Amount, or (c) file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.
(ii) The Board of Trustees, without the vote or
consent of the Holders of APS, may from time to time amend, alter or repeal any
or all of the definitions of the terms listed below, and any such amendment,
alteration or repeal will not be deemed to affect the preferences, rights or
powers of the APS or the Holders thereof, provided the Board of Trustees
receives written confirmation from Moody's
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(such confirmation being required to be obtained only in the event Moody's is
rating the APS and in no event being required to be obtained in the case of the
definitions of Deposit Securities, Discounted Value and Receivables for
Municipal Securities Sold as such terms apply to S&P Eligible Assets, Dividend
Coverage Amount, Dividend Coverage Assets, Minimum Liquidity Level, S&P Discount
Factor, S&P Eligible Assets, S&P Exposure Period and Valuation Date as such term
applies to the definitions of Dividend Coverage Amount, Dividend Coverage Assets
and Minimum Liquidity Level) and S&P (such confirmation being required to be
obtained only in the event S&P is rating the APS and in no event being required
to be obtained in the case of the definitions of Discounted Value and
Receivables for Municipal Securities Sold as such terms apply to Moody's
Eligible Assets, Moody's Discount Factor, Moody's Eligible Asset and Moody's
Exposure Period) that any such amendment, alteration or repeal would not impair
the ratings then assigned by Moody's or S&P, as the case may be, to the APS
(provided that, with respect to the Maximum Rate, such amendment or alteration
shall not, in any event, cause the Maximum Rate to fall below the Maximum Rate
that would have resulted absent such amendment or alteration):
APS Basic
Maintenance Amount
APS Basic
Maintenance Cure Date
APS Basic
Maintenance Report
Deposit Securities
Discounted Value
Dividend Coverage Amount
Dividend Coverage Assets
Market Value
Maximum Potential
Additional Dividends
Liability
Maximum Rate
Minimum Liquidity Level
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
1940 Act Cure Date
1940 Act APS
Asset Coverage
Quarterly Valuation Date
Receivables for Municipal
Securities Sold
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
Valuation Date
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(e) Unless otherwise required by law, the Holders of the APS
shall not have any relative rights or preferences or other special rights other
than those specifically set forth herein. The Holders of the APS shall have no
preemptive rights or rights to cumulative voting. In the event that the Fund
fails to pay any dividends on the APS, the exclusive remedy of the Holders shall
be the right to vote for trustees pursuant to the provisions of this Section 5.
(f) Unless a higher percentage is provided for in the
Declaration of Trust, the affirmative vote of the Holders of a majority of the
outstanding APS, voting as a separate class, shall be required to approve any
plan of reorganization (as such term is used in the 1940 Act) adversely
affecting such shares or any action requiring a vote of security holders of the
Fund under Section 13(a) of the 1940 Act. In the event a vote of Holders of APS
is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Fund shall, not later than ten Business Days prior to the date on which such
vote is to be taken, notify Moody's (if Moody's is then rating the APS) and S&P
(if S&P is then rating the APS) that such vote is to be taken and the nature of
the action with respect to which such vote is to be taken. In addition, the Fund
shall notify Moody's (if Moody's is then rating the APS) and S&P (if S&P is then
rating the APS) of the results of any vote described in the proceeding sentence.
(g) Right to Vote with Respect to Certain Other Matters. The
affirmative vote of the holders of a majority (unless a higher percentage vote
is required under the Declaration of Trust or under this Certificate of Vote) of
the outstanding shares of each series of APS, each voting as a separate class,
is required with respect to any matter that materially affects the series in a
manner different from that of other series of classes of the Fund's shares,
including without limitation any proposal to do the following: (1) increase or
decrease the aggregate number of authorized shares of the series; (2) effect an
exchange, reclassification, or cancellation of all or part of the shares of the
series; (3) effect an exchange, or create a right of exchange, of all or any
part of the shares of the series; (4) change the rights or preferences of the
shares of the series; (5) change the shares of the series, whether with or
without par value, into the same or a different number of shares, either with or
without par value, of the same or another class or series; (6) create a new
class or series of shares having rights and preferences prior and superior to
the shares of the series, or increase the rights and preferences or the number
of authorized shares of a series having rights and preferences prior or superior
to the shares of the series; or (7) cancel or otherwise affect distributions on
the shares of the series that have accrued but have not been declared. To the
extent that the interests of a series of APS affected by a matter are
substantially identical to the interests of another series of APS affected by
such matter (e.g., a vote of shareholders required under Section 13(a) of the
1940 Act), each such series shall vote together collectively as one class. The
vote of holders of APS described above will in each case be in addition to a
separate vote of the requisite percentage of Common Shares and APS necessary to
authorize the action in question.
6. Liquidation Rights. (a) Upon the dissolution, liquidation or winding
up of the affairs of the Fund, whether voluntary or involuntary, the Holders of
the APS then outstanding shall be entitled to receive and to be paid out of the
assets of
B-16
the Fund available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares or on any other class of shares
of the Fund ranking junior to the APS upon dissolution, liquidation or winding
up, an amount equal to the liquidation preference with respect to such shares.
The liquidation preference for the APS shall be $50,000 per share, plus an
amount equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
(b) Neither the sale of all or substantially all the property
or business of the Fund, nor the merger or consolidation of the Fund into or
with any other corporation nor the merger or consolidation of any other
corporation into or with the Fund shall be a dissolution, liquidation or winding
up, whether voluntary or involuntary, for the purposes of this Section 6.
(c) After the payment to the Holders of the APS of the full
preferential amounts provided for in this Section 6, the Holders of the APS as
such shall have no right or claim to any of the remaining assets of the Fund.
(d) In the event the assets of the Fund available for
distribution to the Holders of the APS upon any dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, shall
be insufficient to pay in full all amounts to which such Holders are entitled
pursuant to paragraph (a) of this Section 6, no such distribution shall be made
on account of any shares of any other class or series of Preferred Shares
ranking on a parity with the APS with respect to the distribution of assets upon
such dissolution, liquidation or winding up unless proportionate distributive
amounts shall be paid on account of the APS, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(e) Subject to the rights of the holders of shares of any
series or class or classes of shares ranking on a parity with the APS with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund, after payment shall have been made in full to the
Holders of the APS as provided in paragraph (a) of this Section 6, but not prior
thereto, any other series or class or classes of shares ranking junior to the
APS with respect to the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the APS shall not be
entitled to share therein.
7. Auction Agent. For so long as any of the APS is outstanding, the
Auction Agent, duly appointed by the Fund to so act, shall be in each case a
commercial bank, trust company or other financial institution independent of the
Fund and its affiliates (which, however, may engage or have engaged in business
transactions with the Fund or its affiliates) and at no time shall the Fund or
any of its affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns
B-17
or for any reason its appointment is terminated during any period that any of
the APS is outstanding, the Board of Trustees shall use its best efforts
promptly thereafter to appoint another qualified commercial bank, trust company
or financial institution to act as the Auction Agent.
8. 1940 Act APS Asset Coverage. The Fund shall maintain, as of the last
Business Day of each month in which any of the APS is outstanding, the 1940 Act
APS Asset Coverage.
9. APS Basic Maintenance Amount. (a) So long as APS are Outstanding,
the Fund shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the APS
Basic Maintenance Amount (if S&P is then rating the APS) and (ii) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater than
the APS Basic Maintenance Amount (if Moody's is then rating the APS). In
managing the Fund's portfolio, the Adviser will not alter the composition of the
Fund's portfolio if, in the reasonable belief of the Adviser, the effect of any
such alteration would be to cause the Fund to have Eligible Assets with an
aggregate Discounted Value, as of the immediately preceding Valuation Date, less
than the APS Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately preceding Valuation Date,
the aggregate Discounted Value of the Fund's Eligible Assets exceeded the APS
Basic Maintenance Amount by five percent of less, the Adviser will not alter the
composition of the Fund's portfolio in a manner reasonably expected to reduce
the aggregate Discounted Value of the Fund's Eligible Assets unless the Fund
shall have confirmed that, after giving effect to such alteration, the aggregate
Discounted Value of the Fund's Eligible Assets would exceed the APS Basic
Maintenance Amount.
(b) On or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Fund fails to maintain a
Discounted Value of Moody's Eligible Assets or S&P Eligible Assets in an amount
greater than or equal to the APS Basic Maintenance Amount, and on the third
Business Day after the APS Basic Maintenance Cure Date with respect to such
Valuation Date, the Fund shall complete and deliver to S&P (if S&P is then
rating the APS), Moody's (if Moody's is then rating the APS) and the Auction
Agent (if either S&P or Moody's is then rating the APS) an APS Basic Maintenance
Report as of the date of such failure or such APS Basic Maintenance Cure Date,
as the case may be, which will be deemed to have been delivered to the Auction
Agent if the Auction Agent receives a copy or telecopy, telex or other
electronic transcription thereof and on the same day the Fund mails to the
Auction Agent for delivery on the next Business Day the full APS Basic
Maintenance Report. The Fund will also deliver an APS Basic Maintenance Report
to Moody's and S&P on any Valuation Date that (i) the Discounted Value of
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, is greater
than the APS Basic Maintenance Amount by 5% or less or (ii) on any date which
the Fund redeems Common Shares. The Fund will also deliver an APS Basic
Maintenance Report to S&P upon its request. A failure by the Fund to deliver an
APS Basic Maintenance Report under subparagraph (b) of this Section 9 shall be
deemed to be delivery of an APS Basic Maintenance Report indicating
B-18
the Discounted Value for all assets of the Fund is less than the APS Basic
Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after a Quarterly Valuation Date,
the Fund shall cause the Independent Accountant to confirm in writing to S&P (if
S&P is then rating the APS), Moody's (if Moody's is then rating the APS) and the
Auction Agent (if either S&P or Moody's is then rating the APS) (i) the
mathematical accuracy of the calculations reflected in the APS Basic Maintenance
Report prepared by the Fund on such date (and in any other APS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Fund during the quarter ending on such Quarterly Valuation Date) and (ii)
that, in such Report (and in such randomly selected Report), the Fund determined
in accordance with this Certificate of Vote whether the Fund had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), S&P Eligible Assets (if S&P is then rating the APS)
of an aggregate Discounted Value at least equal to the APS Basic Maintenance
Amount and Moody's Eligible Assets (if Moody's is then rating the APS) of an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount
(such confirmation being herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of an
APS Basic Maintenance Report in accordance with paragraph (b) of this Section 9
relating to any Valuation Date on which the Fund failed to maintain a Discounted
Value of Moody's Eligible Assets or S&P Eligible Assets in an amount greater
than or equal to the APS Basic Maintenance Amount, and relating to the APS Basic
Maintenance Cure Date with respect to such failure to exceed or equal the APS
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the APS), Moody's (if Moody's is then
rating the APS) and the Auction Agent (if either S&P or Moody's is then rating
the APS) an Accountant's Confirmation as to such APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to
subparagraph (c) or (d) of this Section 9 shows that an error was made in the
APS Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all S&P Eligible Assets (if S&P
is then rating the APS) or Moody's Eligible Assets (if Moody's is then rating
the APS), as the case may be, of the Fund was determined by the Independent
Accountant, the calculation or determination made by such Independent Accountant
shall be final and conclusive and shall be binding on the Fund, and the Fund
shall accordingly amend and deliver the APS Basic Maintenance Report to S&P (if
S&P is then rating the APS), Moody's (if Moody's is then rating the APS) and the
Auction Agent (if either S&P or Moody's is then rating the APS) promptly
following receipt by the Fund of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first
Business Day after the Date of Original Issue of the APS, the Fund shall
complete and deliver to S&P (if S&P is then rating the APS) and to Moody's (if
Moody's is then rating the APS), an APS Basic Maintenance Report as of the close
of business of such Date of Original Issue. Within five Business Days of such
Date of
B-19
Original Issue, the Fund shall cause the Independent Accountant to confirm in
writing to S&P (if S&P is then rating the APS) and to Moody's (if Moody's is
then rating the APS) (i) the mathematical accuracy of the calculations reflected
in such Report and (ii) that the Discounted Value of S&P Eligible Assets or
Moody's Eligible Assets, as the case may be, reflected thereon equals or exceeds
the APS Basic Maintenance Amount reflected thereon.
10. Minimum Liquidity Level. So long as S&P is rating the APS, the Fund
shall have, as of each Valuation Date, Dividend Coverage Assets, with respect to
each then Outstanding share of each series of APS, having a value not less than
the Dividend Coverage Amount with respect to such share (the "Minimum Liquidity
Level"). If, as of each Valuation Date, the Fund does not have the required
Dividend Coverage Assets, the Fund shall, as soon as practicable, adjust its
portfolio in order to meet the Minimum Liquidity Level, but only so long as S&P
is rating the APS. So long as S&P is rating the APS, the Fund shall notify S&P
on any Valuation Date which the Fund does not have the required Dividend
Coverage Assets and does not adjust its portfolio as described in the
immediately preceding sentence.
11. Restrictions on Certain Distributions. For as long as any of the
APS is Outstanding, and except as set forth in Sections 2(e) and 6(d) of this
Part I, (A) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Fund
ranking junior to or on a parity with the APS as to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
Common Shares or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), or any such parity shares (except by conversion into or exchange
for shares of the Fund ranking junior to or on a parity with APS as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless (i) full cumulative dividends on shares of
each series of APS through its most recently ended Dividend Period shall have
been paid or shall have been declared and sufficient funds for the payment
thereof deposited with the Auction Agent and (ii) the Fund has redeemed the full
number of shares of each series of APS required to be redeemed by any provision
for mandatory redemption pertaining thereto, and (B) if either Moody's or S&P is
rating the APS, the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of Common Shares or any other shares of the Fund ranking
junior to the APS as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Shares or any other
such junior shares (except by conversion
B-20
into or exchange for shares of the Fund ranking junior to the APS as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of Moody's Eligible Assets and S&P Eligible Assets would each
at least equal the APS Basic Maintenance Amount.
12. Additional Dividends. If the Fund retroactively allocates any net
capital gains or other income taxable for federal income tax purposes to the APS
by reason of the fact that such allocation is made as a result of (i) the
realization of net capital gains or other income taxable for federal income tax
purposes, (ii) the redemption of all or a portion of the outstanding APS or
(iii) the liquidation of the Fund (such allocation being referred to herein as a
"Retroactive Taxable Allocation"), the Fund will simultaneously, if practicable,
with such allocation but in no event later than 270 days after the end of the
Fund's taxable year in which a Retroactive Taxable Allocation is made, provide
notice thereof to the Auction Agent and to each Holder of such shares during
such taxable year at such Holder's address as the same appears or last appeared
on the share books of the Fund. Such Holders of such shares shall be entitled to
receive, when, as and if declared by the Board of Trustees, out of funds legally
available therefor, dividends in an amount equal to the aggregate Additional
Dividends with respect to all Retroactive Taxable Allocations made to such
shares during the taxable year in question, such dividends to be payable by the
Fund to the Auction Agent, for distribution to such Holders, within 30 days
after the notice described above is given to the Auction Agent.
13. Certain Other Restrictions. (a) For so long as any of the APS is
outstanding and Moody's is then rating such shares, the Fund will not, unless it
has received written confirmation from Moody's that any such action would not
impair the ratings then assigned by Moody's to the APS, engage in any one or
more of the following transactions:
(i) transactions in options on securities, futures contracts
or options on futures contracts except as necessary to effect Closing
Transactions and except that in connection with Moody's Hedging Transactions:
(A) the Fund may buy call or put option contracts on securities; (B) the Fund
may write covered call options on securities; (C) the Fund may write put options
on securities; (D) the Fund may enter into positions in futures contracts based
on the Municipal Index provided that the Fund shall not engage in any such
transaction which would cause the Fund at the time of such transaction to own or
have sold (1) outstanding futures contracts based on the Municipal Index
exceeding in number 10% of the rolling average number of daily traded futures
contracts based on the Municipal Index in the 30 calendar days prior to the time
of effecting such transaction as reported by The Wall Street Journal or (2)
outstanding futures contracts based on the Municipal Index and options on such
futures contracts having an aggregate fair market value (taking into account the
fair market value of futures contracts based on Treasury Bonds) exceeding the
fair market value of Moody's Eligible Assets owned by the Fund; (E) the Fund may
enter into futures contracts on Treasury Bonds provided that the Fund shall not
engage in any such transaction which would cause the Fund at the time of such
transaction to own or have sold (1) outstanding futures contracts based on
Treasury Bonds and options on such futures contracts having
B-21
an aggregate fair market value (taking into account the fair market value of
futures contracts based on the Municipal Index) exceeding 40% of the aggregate
fair market value of Moody's Eligible Assets owned by the Fund and rated Aa by
Moody's (or, if not rated by Moody's but rated by S&P rated AAA by S&P) or (2)
outstanding futures contracts based on Treasury Bonds and options on such
futures contracts having an aggregate fair market value (taking into account the
fair market value of futures contracts based on the Municipal Index) exceeding
80% of the aggregate fair market value of Moody's Eligible Assets owned by the
Fund and rated Baa or A by Moody's (or, if not rated by Moody's but rated by
S&P, rated A or AA by S&P); for purposes of the foregoing clauses (D) and (E),
the Fund shall be deemed to own the number of futures contracts that underlie
any outstanding option written by the Fund; and (F) the Fund may buy call or put
options on futures contracts on the Municipal Index or Treasury Bonds, may write
put options on such futures contracts (provided, that if the contract would
require delivery of a security, that security must be held by the Fund) and may
write call options on such futures if it owns the futures contract subject to
the option. For so long as the APS are rated by Moody's, the Fund will engage in
Closing Transactions to close out any outstanding futures contract based on the
Municipal Index if the open interest with respect to such futures contracts
based on the Municipal Index as reported by The Wall Street Journal is less than
5,000. For so long as the APS are rated by Moody's, the Fund will engage in a
Closing Transaction to close out any outstanding futures contract by no later
than the fifth Business Day of the month in which such contract expires and will
engage in a Closing Transaction to close out any outstanding option on a futures
contract by no later than the first Business Day of the Month in which such
option expires. For so long as the APS are rated by Moody's, the Fund will
engage in transactions with respect to futures contracts or options thereon
having only the next settlement date or the settlement date immediately
thereafter. For purposes of valuation of Moody's Eligible Assets: (A) if the
Fund writes a call option, the underlying asset will be valued as follows: (1)
if the option is exchange-traded and may be offset readily or if the option
expires within the Moody's Exposure Period, at the lower of the Discounted Value
of the underlying security of the option and the exercise price of the option or
(2) otherwise, it has no value; (B) if the Fund writes a put option, the
underlying asset will be valued as follows: the lesser of (1) exercise price and
(2) the Discounted Value of the underlying security; (C) if the Fund is a seller
under a futures contract, the underlying security will be valued at the lower of
(1) settlement price and (2) the Discounted Value of the underlying security; if
a contract matures within the Moody's Exposure Period, the security may be
valued at the settlement price; (D) if the Fund is the buyer under a futures
contract, the underlying security will be valued at the lower of (1) the
settlement price and (2) the Discounted Value of the underlying security; if the
contract matures within the Moody's Exposure Period, the security may be valued
at its Discounted Value and (E) call or put option contracts which the Fund buys
have no value. For so long as APS are rated by Moody's: (A) the Fund will not
engage in options and futures transactions for leveraging or speculative
purposes; (B) the Fund will not write or sell any anticipatory contracts
pursuant to which the Fund hedges the anticipated purchase of an asset prior to
completion of such purchase; (C) the Fund will not enter into an option or
futures transaction unless, after giving effect thereto, the Fund would continue
to have Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the
B-22
APS Basic Maintenance Amount; (D) for purposes of the APS Basic Maintenance
Amount (1) assets in margin accounts are not Moody's Eligible Assets, (2) 10% of
the settlement price of assets sold under a futures contract, the settlement
price of assets purchased under a futures contract and the settlement price of
an underlying futures contract if the Fund writes put options on futures
contracts will constitute liabilities of the Fund and (3) if the Fund writes
call options on futures contracts and does not own the underlying futures
contract, 105% of the Market Value of the underlying futures contract will
constitute a liability of the Fund; (E) the Fund shall enter into only
exchange-traded futures and shall write only exchange-traded options on
exchanges approved by Moody's; (F) where delivery may be made to the Fund with
any of a class of securities, the Fund shall assume for purposes of the APS
Basic Maintenance Amount that it takes delivery of that security which yields it
the least value; (G) the Fund will not engage in forward contracts; (H) the Fund
will enter into futures contracts as seller only if it owns the underlying
security; and (I) there shall be a quarterly audit made of the Fund's futures
and options transactions by the Fund's independent accountants to confirm that
the Fund is in compliance with these standards; or
(ii) incur any indebtedness, without prior written approval of
Moody's that such indebtedness would not adversely affect the then current
rating by Moody's of the APS except that the Fund may, without obtaining the
written confirmation described above, incur indebtedness for the purpose of
clearing securities transactions if the Discounted Value of Moody's Eligible
Assets would equal or exceed the APS Basic Maintenance Amount after giving
effect to such indebtedness; provided, however, that any such indebtedness shall
be repaid within 60 days and will not be extended or renewed; or
(iii) issue any class or series of shares ranking prior to or
on a parity with the APS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Fund,
or reissue any APS previously purchased or redeemed by the Fund; or
(iv) engage in short sale transactions.
(b) For so long as any of the APS is Outstanding and S&P is rating such
shares, the Fund will not, unless the Fund has received written confirmation
from S&P that any such action would not impair the rating then assigned by S&P
to the APS, engage in any one or more of the following transactions:
(i) transactions in any reverse repurchase agreements; or
(ii) lend portfolio securities; or
(iii) borrow money, except that the Fund may, without
obtaining the written confirmation described above, borrow money for the
purposes of clearing securities transactions if the Discounted Value of S&P
Eligible Assets would
B-23
equal or exceed the APS Basic Maintenance Amount after giving effect to such
borrowing; or
(iv) issue any class or series of shares ranking prior to or
on a parity with the APS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Fund,
or reissue any APS previously purchased or redeemed by the Fund, or merge or
consolidate with any corporation; or
(v) engage in repurchase agreement transactions in which the
term of such repurchase obligation is longer than 90 days, in which the
underlying security is a security other than United States Treasury securities
(not inclusive of zero-coupon securities), demand deposits, certificates of
deposits or bankers acceptances and in which the counter-party or its affiliates
have unsecured debt rated A-1+ by S&P; or
(vi) engage in short sale transactions; or
(vii) purchase or sell futures contracts or options thereon or
write uncovered put or uncovered call options on portfolio securities except
that (A) the Fund may engage in any S&P Hedging Transactions based on the
Municipal Index, provided that the Fund shall not engage in any S&P Hedging
Transaction based on the Municipal Index (other than Closing Transactions) which
would cause the Fund at the time of such transaction to own or have sold the
least of (1) more than 1,000 outstanding futures contracts based on the
Municipal Index, (2) outstanding futures contracts based on the Municipal Index
and on the Treasury Bonds exceeding in number 25% of the quotient of the fair
market value of the Fund's total assets divided by 100,000 or (3) outstanding
futures contracts based on the Municipal Index exceeding in number 10% of the
average number of daily traded futures contracts based on the Municipal Index in
the month prior to the time of effecting such transaction as reported by The
Wall Street Journal and (B) the Fund may engage in S&P Hedging Transactions
based on Treasury Bonds, provided that the Fund shall not engage in any S&P
Hedging Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Fund at the time of such transaction to own or have sold
the lesser of (1) outstanding futures contracts based on Treasury Bonds and on
the Municipal Index exceeding in number 25% of the quotient of the fair market
value of the Fund's total assets divided by 100,000 or (2) outstanding futures
contracts based on Treasury Bonds exceeding in number 10% of the average number
of daily traded futures contracts based on Treasury Bonds in the month prior to
the time of effecting such transaction as reported by The Wall Street Journal.
For so long as the APS are rated by S&P, the Fund will engage in Closing
Transactions to close out any outstanding futures contracts which the Fund owns
or has sold or any outstanding option thereon owned by the Fund in the event (A)
the Fund does not have S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Fund is required to pay Variation Margin on the
second such Valuation Date. For so long as the APS are rated by S&P, the Fund
will engage in a Closing Transaction to close out any outstanding futures
contract or option thereon in the month prior to the delivery
B-24
month under the terms of such futures contract or option thereon unless the Fund
holds securities deliverable under such terms. For purposes of determining S&P
Eligible Assets to determine compliance with the APS Basic Maintenance Amount,
no amounts on deposit with the Fund's custodian or broker representing Initial
Margin or Variation Margin shall constitute S&P Eligible Assets. For so long as
the APS are rated by S&P, when the Fund writes a futures contract or option
thereon, it will maintain an amount of cash, cash equivalents or short-term,
money market securities in a segregated account with the Fund's custodian, so
that the amount so segregated plus the amount of Initial Margin and Variation
Margin held in the account of the Fund's broker equals the fair market value of
the futures contract, except that in the event the Fund writes a futures
contract or option thereon which requires delivery of an underlying security,
the Fund shall hold such underlying security.
14. Notice. All notices or communications, unless otherwise specified
in the By-Laws of the Fund or this Certificate of Vote, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date seven days after which such notice is mailed.
15. Definitions. As used in Parts I and II hereof, the following terms
shall have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
"'AA' Composite Commercial Paper Rate," on any date for any Rate
Period, shall mean (i) (A) in the case of any Minimum Dividend Period or any
Rate Period between 7 and 28 Rate Period Days, the interest equivalent of the
30-day rate; provided, however, in the case of any Minimum Dividend Period of 7
days or any Rate Period with 7 Rate Period Days and the "AA" Composite
Commercial Paper Rate is being used to determine the Applicable Rate when all of
the Outstanding APS are subject to Submitted Hold Orders, then the interest
equivalent of the 7-day rate, and (B) in the case of any Rate Period with more
than 28 Rate Period Days, the interest equivalent of the 180-day rate, on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day immediately preceding such date; or (ii) in the
event that the Federal Reserve Bank of New York does not make available any such
rate, then the arithmetic average of such rates, as quoted on a discount basis
or otherwise, by the Commercial Paper Dealers to the Auction Agent for the close
of business on the Business Day next preceding such date. If any Commercial
Paper Dealer does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the
Fund to provide such rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For
B-25
purposes of this definition, the "interest equivalent" of a rate stated on a
discount basis (a "discount rate") for commercial paper of a given days'
maturity shall be equal to the quotient (rounded upwards to the next higher
one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction the numerator of which shall be
the product of the discount rate times the number of days in which such
commercial paper matures and the denominator of which shall be 360.
"Accountant's Confirmation" shall have the meaning set forth in
paragraph (c) of Section 9 of this Part I.
"Additional Dividends" means payment to a Holder of APS of an amount
which, when taken together with the aggregate amount of Retroactive Taxable
Allocations made to such Holder with respect to the taxable year in question,
would cause such Holder's dividends in dollars (after federal income tax
consequences) from the aggregate of both the Retroactive Taxable Allocations and
the Additional Dividends to be equal to the dollar amount of the dividends which
would have been received by such Holder if the amount of the aggregate
Retroactive Taxable Allocations would have been excludable from the gross income
of such Holder. Such Additional Dividends shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
Holder of APS is subject to the federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each Holder of APS at the
maximum marginal regular federal individual income tax rate applicable to
ordinary income or net capital gains, as applicable, or the maximum marginal
regular federal corporate income tax rate, whichever is greater, in effect
during the taxable year in question.
"Anticipation Notes" means the following municipal securities: tax
anticipation notes, revenue anticipation notes and tax and revenue anticipation
notes.
"Applicable Rate" shall have the meaning specified in subparagraph
(c)(i) of Section 2 of this Part I.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean
the dollar amount equal to the sum of (i) (A) the product of the number of APS
outstanding on such date multiplied by $50,000; (B) the aggregate amount of
dividends that will have accumulated at the Applicable Rate (whether or not
earned or declared) to (but not including) the first respective Dividend Payment
Dates for each of the APS outstanding that follow such Valuation Date (or to the
47th day after such Valuation Date, if such 47th day is earlier than the first
following Dividend Payment Date); (C) the amount equal to the Projected Dividend
Amount (based on the number of APS Outstanding on such date); (D) the amount of
anticipated expenses of the Fund for the 90 days subsequent to such Valuation
Date; (E) the amount of the Fund's Maximum Potential Additional Dividend
Liability as of such Valuation Date; (F) the amount of any premium payable
pursuant to a Premium Call Period; and (G) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(F)
(including, without limitation, any amounts described in Section 13 of Part I as
required to be treated
B-26
as liabilities in connection with the Fund's transactions in futures and options
and including any payables for municipal securities purchased as of such
Valuation Date) less (ii) either (A) the face value of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of (i)(A) through
(i)(G) if such assets mature prior to or on the date of payment of the liability
for which such assets are deposited and are either securities issued or
guaranteed by the United States Government or have a rating assigned by Moody's
of P-1, VMIG-1 or MIG-1 (or, with respect to S&P, SP-1+ or A-1+) or (B) the
Discounted Value of such assets. For purposes of the APS Basic Maintenance
Amount in connection with S&P's ratings of the APS, with respect to any
transactions by the Fund in futures contracts, the Fund shall include as
liabilities (i) 30% of the aggregate settlement value, as marked to market, of
any outstanding futures contracts based on the Municipal Index which are owned
by the Fund plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Fund. For purposes of the APS Basic Maintenance
Amount in connection with Moody's rating of the APS, with respect to any
transactions by the Fund in securities options, the Fund shall include as
liabilities (i) 10% of the exercise price of a call option written by the Fund
and (ii) the exercise price of any written put option.
"APS Basic Maintenance Cure Date," with respect to the failure by the
Fund to satisfy the APS Basic Maintenance Amount (as required by paragraph (a)
of Section 9 of this Part I) as of a given Valuation Date, shall mean the third
Business Day following such Valuation Date.
"APS Basic Maintenance Report" shall mean a report signed by the
President, Treasurer or any Senior Vice President or Vice President of the Fund
which sets forth, as of the related Valuation Date, the assets of the Fund, the
Market Value and the Discounted Value thereof (seriatim and in aggregate), and
the APS Basic Maintenance Amount.
"Auction" shall mean each periodic implementation of the Auction
Procedures.
"Auction Agency Agreement" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for each series of APS so long as the Applicable Rate for such series is to
be based on the results of an Auction.
"Auction Agent" shall mean the entity appointed as such by a resolution
of the Board of Trustees in accordance with Section 7 of this Part I.
"Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period; initially Monday,
November 15, 1993, for APS Series A; Tuesday, November 16, 1993 for APS Series
B; and each
B-27
Monday thereafter for APS Series A and each Tuesday thereafter for APS Series B,
subject to change as set forth herein.
"Auction Procedures" shall mean the procedures for conducting Auctions
set forth in Part II hereof.
"Board of Trustees" shall mean the Board of Trustees of the Fund or any
duly authorized committee thereof.
"Business Day" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in the City of New York, New York, are authorized by law to close.
"Closing Transactions" means the termination of a futures contract or
option position by taking an equal position opposite thereto in the same
delivery month as such initial position being terminated.
"Commercial Paper Dealers" shall mean Goldman Sachs Money Markets,
L.P., Smith Barney Shearson Inc., Lehman Commercial Paper Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated or, in lieu of any thereof,
their respective affiliates or successors, if such entity is a commercial paper
dealer.
"Common Shares" shall mean the common shares of beneficial interest,
par value $.01 per share, of the Fund.
"Cure Date" shall mean the APS Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be.
"Date of Original Issue," with respect to any series of APS, shall mean
the date on which the Fund initially issued shares of such series of APS.
"Deposit Securities" shall mean cash and municipal securities rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of Section 3(a)(iii) of
this Part I, such municipal securities shall be considered "Deposit Securities"
only if they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
"Discounted Value" shall mean (i) with respect to an S&P Eligible
Asset, the quotient of the Market Value thereof divided by the applicable S&P
Discount Factor and (ii) with respect to a Moody's Eligible Asset, the quotient
of the Market Value thereof divided by the applicable Moody's Discount Factor,
provided that with respect to a Moody's Eligible Asset, Discounted Value shall
not exceed the par value of such Asset at any time.
"Dividend Coverage Amount," as of any Valuation Date, shall mean, with
respect to each of the APS, (i) the aggregate amount of dividends that will
accumulate on such APS to (but not including) the first Dividend Payment Date
for such share that
B-28
follows such Valuation Date plus any liabilities that will become payable prior
to or on such payment date, less (ii) the combined value of Deposit Securities
irrevocably deposited for the payment of dividends on such APS and Receivables
for Municipal Securities Sold which become due prior to the Dividend Payment
Date and interest with respect to municipal securities which is payable to the
Fund prior to the Dividend Payment Date.
"Dividend Coverage Assets," as of any Valuation Date, shall mean, with
respect to each of the APS, Deposit Securities with maturity or tender dates not
later than the day preceding the first Dividend Payment Date for such share that
follows such Valuation Date and having a value not less than the Dividend
Coverage Amount with respect to such share.
"Dividend Payment Date," with respect to any series of APS, shall mean
any date on which dividends on shares of such series of APS are payable pursuant
to the provisions of paragraph (b) of Section 2 of this Part I.
"Dividend Period," with respect to any series of APS, shall mean the
period from and including the Date of Original Issue of such series to but
excluding the initial Dividend Payment Date for such series and any period
thereafter from and including one Dividend Payment Date for such series to but
excluding the next succeeding Dividend Payment Date for such series.
"Failure to Deposit," with respect to any series of APS, shall mean a
failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, New
York City time, (A) on the Business Day next preceding any Dividend Payment Date
for such series, in funds available on such Dividend Payment Date in The City of
New York, New York, the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any share of such series
or (B) on the Business Day next preceding any redemption date in funds available
on such redemption date for such series in The City of New York, New York, the
Redemption Price to be paid on such redemption date for any share of such series
after notice of redemption is given pursuant to paragraph (b) of Section 3 of
this Part I.
"Fund" shall mean Van Kampen Merritt Advantage Municipal Income Trust
II, a Massachusetts business trust, which is the issuer of the APS.
"Holder," with respect to any series of APS, shall mean the registered
holder of shares of such series of APS as the same appears on the share books of
the Fund.
"Independent Accountant" shall mean a nationally recognized accountant,
or firm of accountants, that is with respect to the Fund an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended from time to time.
B-29
"Initial Dividend Period," with respect to any series of APS, shall
mean the period from and including the Date of Original Issue thereof to but
excluding the initial Dividend Payment Date which occurs in a month which
contains the first scheduled Auction Date for such series of APS.
"Initial Margin" means the amount of cash or securities deposited with
a custodian for the benefit of a futures commission merchant as a good-faith
deposit at the time of the initiation of a purchase or sale position with
respect to a futures contract or a sale position with respect to an option
position thereon.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Mandatory Redemption Price" means $50,000 per share of APS plus an
amount equal to accumulated but unpaid dividends thereon to the date fixed for
redemption (whether or not earned or declared).
"Marginal Tax Rate" means the marginal regular federal income tax rate
applicable to ordinary income or the maximum marginal regular federal corporate
income tax rate, whichever is greater.
"Market Value" of any asset of the Fund shall mean the market value
thereof determined by the Pricing Service designated from time to time by the
Board of Trustees. Market Value of any asset shall include any interest accrued
thereon. The Pricing Service values portfolio securities at the mean between the
quoted bid and asked price or the yield equivalent when quotations are readily
available. Securities for which quotations are not readily available are valued
at fair value as determined by the Pricing Service using methods which include
consideration of yields or prices or municipal bonds of comparable quality, type
of issue, coupon, maturity and rating; indications as to value from dealers; and
general market conditions. The Pricing Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. In the
event that the Pricing Service is unable to value a security, the security shall
be valued at the lower of two dealer bids, at least one of which shall be in
writing, obtained by the Fund from dealers who are members of the National
Association of Securities Dealers, Inc. and make a market in the security.
"Master Purchaser's Letter" has the meaning specified in Section 1 of
Part II hereof.
"Maximum Potential Additional Dividends Liability," as of any Valuation
Date, shall mean the aggregate amount of Additional Dividends that would be due
if the Fund were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Additional Dividends are fully taxable.
B-30
"Minimum Dividend Period" shall mean with respect to APS Series A and
APS Series B, any Rate Period consisting of 28 Rate Period Days.
"Minimum Liquidity Level" shall have meaning set forth in Section 10 of
this Part I.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"Moody's Discount Factor" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
MOODY'S EXPOSURE PERIOD Aa(1) Aaa(1) A(1) BAA(1) OTHER(2) VMIG-1(1),(3),(4) SP-1+(3),(4)
----------------------- ----- ------ ---- ------ -------- ----------------- ------------
7 weeks............................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than
seven weeks........................... 154 164 173 205 235 137 149
9 weeks or less but greater than
eight weeks........................... 158 169 179 209 242 138 150
----------
1 Moody's rating.
2 California municipal securities not rated by Moody's but rated BBB-,
BBB or BBB+ by S&P.
3 California municipal securities rated MIG-1 or VMIG-1 or, if not rated
by Moody's, rated SP-1+ by S&P which do not mature or have a demand
feature at par exercisable within the Moody's Exposure Period and which
do not have a long-term rating.
4 For the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of "A" by Moody's.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term municipal securities so long as such municipal securities
are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand
feature at par exercisable within the Moody's Exposure Period and the Moody's
Discount Factor for such municipal securities will be 125% as long as such
municipal securities are rated at least A-1-/AA or SP-1+/AA by S&P and mature or
have a demand feature at par exercisable within the Moody's Exposure Period and
(ii) no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Securities Sold.
"Moody's Eligible Asset" shall mean cash, Receivables for Municipal
Securities Sold or a municipal security that (i) pays interest in cash, (ii) is
publicly rated
B-31
Baa or higher by Moody's or, if not rated by Moody's but rated by S&P, is rated
at least BBB by S&P (provided that, for purposes of determining the Moody's
Discount Factor applicable to any such S&P-rated municipal security, such
municipal security (excluding any short-term municipal security) shall be deemed
to have a Moody's rating which is one full rating category lower than its S&P
rating), (iii) does not have its Moody's rating suspended by Moody's; and (iv)
is part of an issue of municipal securities of at least $10,000,000. Municipal
securities issued by any one issuer and rated BBB by S&P may comprise no more
than 4% of total Moody's Eligible Assets; such BBB-rated municipal securities,
if any, together with any municipal securities issued by the same issuer and
rated Baa by Moody's or A by S&P, may comprise no more than 6% of total Moody's
Eligible Assets; such BBB, Baa and A-rated municipal securities, if any,
together with any municipal securities issued by the same issuer and rated A by
Moody's or AA by S&P, may comprise no more than 10% of total Moody's Eligible
Assets; and such BBB, Baa, A and AA-rated municipal securities, if any, together
with any municipal securities issued by the same issuer and rated Aa by Moody's
or AAA by S&P, may comprise no more than 20% of total Moody's Eligible Assets.
For purposes of the foregoing sentence, any municipal security backed by the
guaranty, letter of credit or insurance issued by a third party shall be deemed
to be issued by such third party if the issuance of such third party credit is
the sole determinant of the rating on such municipal security. Municipal
securities issued by issuers located within a single state or territory and
rated BBB by S&P may comprise no more than 12% of total Moody's Eligible Assets;
such BBB-rated municipal securities, if any, together with any municipal
securities issued by issuers located within the same state or territory and
rated Baa by Moody's or A by S&P may comprise no more than 20% of total Moody's
Eligible Assets; such BBB, Baa and A-rated municipal securities, if any,
together with any municipal securities issued by issuers located within the same
state or territory and rated A by Moody's or AA by S&P, may comprise no more
than 40% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
municipal securities, if any, together with any municipal securities issued by
issuers located within the same state or territory and rated Aa by Moody's or
AAA by S&P, may comprise no more than 60% of total Moody's Eligible Assets. For
purposes of applying the foregoing requirements, a municipal security shall be
deemed to be rated BBB by S&P if rated BBB, BBB- or BBB+ by S&P. For purposes of
Minimum Issue Size, Maximum Underlying Obligor and Maximum State or Territory
Concentration, Moody's Eligible Assets shall be calculated without including
cash and municipal securities rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rated SP-1+ by S&P, which either mature or have a demand feature at par
exercisable within the Moody's Exposure Period. Where the Fund sells an asset
and agrees to repurchase such asset in the future, the Discounted Value of such
asset will constitute a Moody's Eligible Asset and the amount the Fund is
required to pay upon repurchase of such asset will count as a liability for the
purposes of the APS Basic Maintenance Amount. Where the Fund purchases an asset
and agrees to sell it to a third party in the future, cash receivable by the
Fund thereby will constitute a Moody's Eligible Asset if the long-term debt of
such other party is rated at least A2 by Moody's and such agreement has a term
of 30 days or less; otherwise the Discounted Value of such asset will constitute
a Moody's Eligible Asset. For the purposes of calculation of Moody's Eligible
Assets, municipal securities which have been called for redemption by the issuer
thereof shall be valued at the lower of
B-32
Market Value or the call price of such municipal securities. The Discounted
Value of municipal securities of territories other than Puerto Rico is limited
to no more than 10% of Moody's Eligible Assets.
Notwithstanding the foregoing, an asset will not be considered
a Moody's Eligible Asset to the extent that it has been irrevocably deposited
for the payment of (i)(A) through (i)(G) under the definition of APS Basic
Maintenance Amount or it is subject to any material lien, mortgage, pledge,
security interest or security agreement of any kind (collectively, "Liens"),
except for (a) Liens which are being contested in good faith by appropriate
proceedings and which Moody's has indicated to the Fund will not affect the
status of such asset as a Moody's Eligible Asset, (b) Liens for taxes that are
not then due and payable or that can be paid thereafter without penalty, (c)
Liens to secure payment for services rendered or cash advanced to the Fund by
Van Kampen Merritt Investment Advisory Corp., the Administrator, State Street
Bank and Trust Company or the Auction Agent and (d) Liens by virtue of any
repurchase agreement.
"Moody's Exposure Period" shall mean the period commencing on
a given Valuation Date and ending 46 days thereafter.
"Moody's Hedging Transactions" shall mean transactions in
options on securities, futures contracts based on the Municipal Index or
Treasury Bonds and options on such futures contracts.
"Moody's Volatility Factor" means 272% (or 302% where notice
of a Special Dividend Period of greater than 28 days but less than 50 days has
been given but not yet exercised), as long as there has been no increase enacted
to the Marginal Tax Rate. If such an increase is enacted but not yet
implemented, the Moody's Volatility Factor shall be as follows:
Moody's Moody's
% Change in Volatility Volatility
Marginal Tax Rate Factor Factor*
----------------- ------ ------
Less than or equal to 5%............................ 292% 323%
Greater than 5% but less than 10%................... 313 347
Greater than 10% but less than 15%.................. 338 373
Greater than 15% but less than 20%.................. 364 402
Greater than 20% but less than 25%.................. 396 436
Greater than 25% but less than 30%.................. 432 474
Greater than 30% but less than 35%.................. 472 518
Greater than 35% but less than 40%.................. 520 570
* Applicable where a notice of Special Dividend Period of greater than 28
days but less than 50 days has been given but not yet exercised.
"Municipal Index" shall mean The Bond Buyer Municipal Bond
Index.
B-33
"1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time.
"1940 Act APS Asset Coverage" shall mean asset coverage, as
defined in Section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Fund which are stock, including all
outstanding APS (or such other asset coverage as may in the future be specified
in or under the 1940 Act as the minimum asset coverage for senior securities
which are stock of a closed-end investment company as a condition of declaring
dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Fund
to maintain the 1940 Act APS Asset Coverage (as required by Section 8 of this
Part I) as of the last Business Day of each month, shall mean the last Business
Day of the following month.
"Non-Call Period" shall have the meaning set forth below under
"Specific Redemption Provisions."
"Notice of Redemption" shall mean any notice with respect to
the redemption of the APS pursuant to Section 3 of this Part I.
"Optional Redemption Price" shall mean (i) $50,000 per share
of APS in the case of a Rate Period less than one year, including any Special
Dividend Period of less than 365 days or (ii) with respect to a Special Dividend
Period of 365 days or more the Optional Redemption Price set forth in the
Specific Redemption Provisions in connection therewith; in each case plus an
amount equal to accumulated but unpaid dividends thereon to the date of
redemption (whether or not earned or declared).
"Preferred Shares" shall mean the authorized preferred shares
of beneficial interest, par value $.01 per share, of the Fund, and includes the
APS.
"Premium Call Period" shall have the meaning set forth below
under "Specific Redemption Provisions."
"Pricing Service" means Van Kampen Merritt Investment Advisory
Corp. and any successor pricing service approved in writing by Moody's (if
Moody's is then rating the APS) and S&P (if S&P is then rating the APS).
"Projected Dividend Amount" means, with respect to the shares
of any series of APS, on any Valuation Date, an amount equal to (i) the number
of days, if any, from and after the last day of the then current Rate Period,
until 48 calendar days from such Valuation Date, multiplied by (ii) a rate equal
to the Maximum Rate for a Minimum Dividend Period multiplied by the larger of
(A) the applicable Moody's Volatility Factor or (B) the applicable S&P
Volatility Factor.
B-34
"Quarterly Valuation Date" shall mean the last Business Day of
each calendar quarter, commencing [September 30], 1993.
"Rate Period," with respect to any series of APS, shall mean
the Initial Dividend Period thereof and any Subsequent Dividend Period,
including any Special Dividend Period, for such series.
"Rate Period Days," for any Rate Period, if such Rate Period
is less than one year, shall mean the number of days (without giving effect to
subparagraph (b)(ii) of Section 2 of this Part I) in such Rate Period.
"Receivables for Municipal Securities Sold" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no
more than the aggregate of the following: (i) the book value of receivables for
municipal securities sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date, and if the
trades which generated such receivables are (x) settled through clearing house
firms with respect to which the Fund has received prior written authorization
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of municipal securities
sold as of or prior to such Valuation Date which generated receivables, if such
receivables are due within the Moody's Exposure Period but do not comply with
either of the conditions specified in (i) above, and (B) for purposes of
calculation of S&P Eligible Assets as of any Valuation Date, the book value of
receivables for municipal securities sold as of or prior to such Valuation Date
if such receivables are due within five business of such Valuation Date.
"Redemption Price" shall mean the Optional Redemption Price or
the Mandatory Redemption Price, as applicable.
"Reference Rate" is, with respect to any Rate Period of less
than one year, the higher of (i) the "AA" Composite Commercial Paper Rate and
(ii) the Taxable Equivalent of the Short-Term Municipal Bond Rate.
"Retroactive Taxable Allocation" shall have the meaning set
forth in Section 12 hereof.
"S&P" shall mean Standard & Poor's Ratings Group and its
successors.
"S&P Discount Factor" shall mean, for purposes of determining
the Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
RATING CATEGORY
---------------------------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
--------------- ---- --- --- ----
40 Business Days......................................... 190% 195% 210% 250%
22 Business Days......................................... 170 175 190 230
10 Business Days......................................... 155 160 175 215
7 Business Days.......................................... 150 155 170 210
3 Business Days.......................................... 130 135 150 190
----------
* S&P rating.
B-35
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term municipal securities will be 115%, so long as such municipal
securities are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, or 125% if such municipal securities are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however,
that any such Moody's rated short-term municipal securities which have demand
features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and further
provided that such Moody's-rated short-term municipal securities may comprise no
more than 50% of short-term municipal securities that qualify as S&P Eligible
Assets and (ii) no S&P Discount Factor will be applied to cash or to Receivables
for Municipal Securities Sold. For purposes of the foregoing, Anticipation Notes
rated SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do
not mature or have a demand feature at par exercisable in 30 days and which do
not have a long-term rating, shall be considered to be short-term municipal
securities.
"S&P Eligible Asset" shall mean cash (excluding any cash
irrevocably deposited by the Fund for the payment of any liabilities within the
meaning of APS Basic Maintenance Amount), Receivables for Municipal Securities
Sold or a municipal security owned by the Fund that (i) is interest bearing and
pays interest at least semi-annually; (ii) is payable with respect to principal
and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by S&P or,
if not rated by S&P but rated by Moody's, is rated by least A by Moody's
(provided that such Moody's-rated municipal securities will be included in S&P
Eligible Assets only to the extent the Market Value of such municipal securities
does not exceed 50% of the aggregate Market Value of S&P Eligible Assets; and
further provided that, for purposes of determining the S&P Discount Factor
applicable to any such Moody's-rated municipal security, such municipal security
will be deemed to have an S&P rating which is one full rating category lower
than its Moody's rating); (iv) is not part of a private placement of municipal
securities; and (v) is part of an issue of municipal securities with an original
issue size of at least $20 million or, if an issue with an original issue size
below $20 million (but in no event below $10 million), is issued by an issuer
with a total of at least $50 million of securities outstanding. Solely for
purposes of this definition, the term "municipal securities" means any
obligation the interest on which is exempt from regular Federal income taxation
and which is issued by any of the fifty United States, the District of Columbia
or any of the territories of the United States, their subdivisions, counties,
cities, towns, villages, school districts and agencies (including authorities
and special districts created by the states), and federally sponsored agencies
such as local housing authorities. Notwithstanding the foregoing limitations:
B-36
1. Municipal securities of any one issuer or guarantor
(excluding bond issuers) shall be considered S&P Eligible Assets only to the
extent the Market Value of such municipal securities does not exceed 10% of the
aggregate Market Value of S&P Eligible Assets provided that 2% is added to the
applicable S&P Discount Factor for every 1% by which the Market Value of such
municipal securities exceeds 5% of the aggregate Market Value of S&P Eligible
Assets;
2. Municipal securities guaranteed or insured by any one bond
issuer shall be considered S&P Eligible Assets only to the extent the Market
Value of such municipal securities does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets; and
3. Municipal securities issued by issuers in any one state or
territory shall be considered S&P Eligible Assets only to the extent the Market
Value of such municipal securities does not exceed 20% of the aggregate Market
Value of S&P Eligible Assets.
"S&P Exposure Period" shall mean the maximum period of time
following a Valuation Date (currently, three Business Days) that the Fund has
under this Certificate of Vote to cure any failure to maintain, as of such
Valuation Date, the Discounted Value for its portfolio at least equal to the APS
Basic Maintenance Amount (as described in paragraph (a) of Section 9 of this
Part I).
"S&P Hedging Transactions" means futures contracts based on
the Municipal Index or Treasury Bonds, put and call options on such contracts
purchased by the Fund and covered call options and secured put options on
portfolio securities written by the Fund.
"S&P Volatility Factor" shall mean, for each series of APS,
(i) during the Initial Dividend Period, 277%; and (ii) thereafter, depending on
the applicable Reference Rate or Treasury Rate, the following percentages:
Rate Percentage
------------------------------------------------------------------- ----------
Taxable Equivalent of the Short-Term
Municipal Bond Rate............................................... 277%
30-day "AA" Composite Commercial Paper Rate....................... 228%
180-day "AA" Composite Commercial Paper Rate...................... 217%
1-year U.S. Treasury Bill Rate.................................... 198%
2-year U.S. Treasury Note Rate.................................... 185%
3-year U.S. Treasury Note Rate.................................... 178%
4-year U.S. Treasury Note Rate.................................... 171%
5-year U.S. Treasury Note Rate.................................... 169%
B-37
Notwithstanding the foregoing, the S&P Volatility Factor may
mean such other potential dividend rate increase factor as S&P advises the Fund
in writing is applicable.
"Special Dividend Period," with respect to any series of APS,
shall mean any Subsequent Dividend Period commencing on the date designated by
the Fund in accordance with Section 4 of this Part I and ending on the last day
of the last Dividend Period thereof, with such number of consecutive days or
whole years as the Board of Trustees shall specify, including the terms of any
Specific Redemption Provisions, if any.
"Specific Redemption Provisions" means, with respect to any
Special Dividend Period of 365 or more days, either, or any combination of, (i)
a period (a "Non-Call Period") determined by the Board of Trustees, after
consultation with the Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the option of the Fund
and (ii) a period (a "Premium Call Period"), consisting of a number of whole
years and determined by the Board of Trustees, after consultation with the
Broker-Dealers, during each year of which the shares subject to such Special
Dividend Period shall be redeemable at the Fund's option at a price per share
equal to $50,000 plus accumulated but unpaid dividends plus a premium expressed
as a percentage of $50,000 as determined by the Board of Trustees after
consultation with the Broker-Dealers; provided that during any Special Dividend
Period of 365 or more days if on the date of determination of the Applicable
Rate for such series, such Applicable Rate equaled or exceeded the Treasury
Rate, the Fund may redeem APS without regard to any Non-Call Period or Premium
Call Period at the Mandatory Redemption Price.
"Subsequent Dividend Period," with respect to any series of
APS, shall mean the period from and including the first day following the
Initial Dividend Period thereof to but excluding the next Dividend Payment Date
which follows a scheduled Auction for such series and any period thereafter from
and including one Dividend Payment Date which follows a scheduled Auction for
such series to but excluding the next succeeding Dividend Payment Date which
follows a scheduled Auction for such series; provided, however, that if any
Subsequent Dividend Period is also a Special Dividend Period, such term shall
mean the period commencing on the first day of such Special Dividend Period and
ending on the last day of the last Dividend Period thereof.
"Substitute Commercial Paper Dealer" shall mean The First
Boston Company or Morgan Stanley & Co. Incorporated or their respective
affiliates or successors, if such entity is a Commercial Paper Dealer; provided
that none of such entities shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean The
First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided that none of such entities shall be a U.S.
Government Securities Dealer.
B-38
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on
any date means 90% of the quotient of (a) the per annum rate expressed on an
Interest Equivalent basis equal to the Kenney S&P 30-day High Grade Index or any
successor index (the "Kenney Index"), made available for the Business Day
immediately preceding such date but in any event not later than 8:30 a.m., New
York City time, on such date by Kenney Information Systems Inc. or any successor
thereto (provided that the use of such successor will not result in a reduction
or withdrawal of the rating of the APS by Moody's, if Moody's is then rating the
APS, or by S&P, if S&P is then rating the APS), based on 30-day yield
evaluations at par of bonds, the interest on which is excludable for regular
federal income tax purposes, of "high grade" component issuers selected by
Kenney Information Systems Inc. or any such successor from time to time in its
discretion, which component issuers shall include, without limitation, issuers
of general obligations bonds but shall exclude any bonds the interest on which
constitutes an item of tax preference under section 57(a)(5) of the Internal
Revenue Code or successor provisions, for purposes of the AMT, divided by (b)
1.00 minus the Marginal Tax Rate (expressed as a decimal); provided, however
that if the Kenney Index is not made so available by 8:30 a.m., New York City
time, on such date by Kenney Information Systems Inc. or any successor, the
Taxable Equivalent of the Short-Term Municipal Bond Rate shall mean the quotient
of (i) the per annum rate expressed on an Interest Equivalent basis equal to the
most recent Kenney Index so made available for any preceding Business Day,
divided by (ii) 1.00 minus the Marginal Tax Rate (expressed as a decimal). For
purposes of the foregoing, for so long as the APS are rated by S&P, the Fund
will obtain written confirmation from S&P that the appointment of a successor to
Kenney Information Systems Inc. would not impair the rating assigned to the APS
by S&P.
"Treasury Bonds" shall mean United States Treasury Bonds
backed by the full faith and credit of the United States government with
remaining maturities of 10 years or more.
"Treasury Rate," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned non-callable direct obligations of
the U.S. Government (excluding "flower" bonds) with a remaining maturity within
three months of the duration of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published by The Wall Street Journal, then
the arithmetic average of the yields (expressed as an interest equivalent in the
case of a Rate Period which is one year or less and expressed as a bond
equivalent in the case of any longer Rate Period) on the most recently auctioned
non-callable direct obligations of the U.S. Government (excluding "flower"
bonds) with a remaining maturity within three months of the duration of such
Rate Period as quoted on a discount basis or otherwise by the U.S. Government
Securities Dealers to the Auction Agent for the close of business on the
Business Day immediately preceding such date. If any U.S. Government Securities
Dealer does not quote a rate required to determine the Treasury Rate, the
Treasury Rate shall be determined on the basis of the quotation or quotations
furnished by the remaining U.S. Government Securities Dealer or U.S. Government
Securities Dealers and any Substitute U.S. Government Securities Dealers
selected by the Fund to provide such rate or rates not being supplied by any
U.S.
B-39
Government Securities Dealer or U.S. Government Securities Dealers, as the case
may be, or, if the Fund does not select any such Substitute U.S. Government
Securities Dealer or Substitute U.S. Government Securities Dealers, by the
remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
"U.S. Government Securities Dealer" shall mean Goldman, Sachs
& Co., Smith Barney Shearson Inc. and Morgan Guaranty Trust Company of New York
or their respective affiliates or successors, if such entity is a U.S.
Government securities dealer.
"Valuation Date" shall mean, for purposes of determining
whether the Fund is maintaining the APS Basic Maintenance Amount and the Minimum
Liquidity Level, each Business Day.
"Variation Margin" shall mean, in connection with outstanding
purchase or sale positions in futures contracts and outstanding sales positions
with respect to options thereon, the amount of cash and securities paid to and
received from a futures commission merchant (subsequent to the Initial Margin
payment) from time to time as the value of such position fluctuates.
"Voting Period" shall have the meaning set forth in paragraph
(b) of Section 5 of this Part I.
PART II
1. Certain Definitions. Capitalized terms not defined in
Section 1 of this Part II shall have the respective meaning specified in Part I
hereof. As used in this Part II, the following terms shall have the following
meanings, unless the context otherwise requires:
"Affiliate" shall mean any Person known to the Auction Agent
to be controlled by, in control of or under common control with the Fund;
provided that no Broker-Dealer controlled by, in control of or under common
control with the Fund shall be deemed to be an Affiliate nor shall any fund or
any Person controlled by, in control of or under common control with such fund,
one of the trustees or executive officers of which is also a trustee of the Fund
be deemed to be an Affiliate solely because such trustee or executive officer is
also a trustee of the Fund.
"Agent Member" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder and is identified as
such in such Bidder's Master Purchaser's letter.
"Applicable Percentage" for any series of APS on any Auction
Date shall mean the percentage, determined as set forth below, based on the
prevailing rating of such series in effect at the close of business on the
Business Day next preceding such Auction Date.
B-40
Prevailing Rating Percentage
----------------- ----------
"aa3"/AA- or higher..................................... 110%
"a3"/A-................................................. 125%
"baa3"/BBB-............................................. 150%
"ba3"/BB-............................................... 200%
Below "ba3"/BB-......................................... 250%
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for federal income tax purposes to the APS
prior to the Auction establishing the Applicable Rate for such shares the
applicable percentage in the foregoing table shall be divided by the quantity 1
minus the maximum marginal regular federal individual income tax rate applicable
to ordinary income or the maximum marginal regular federal corporate income tax
rate, whichever is greater, provided further, however, that the Applicable
Percentage shall be divided in the foregoing manner only to the extent of the
portion of the dividend on the APS for such Rate Period that represents the
allocation of taxable income to the APS.
For purposes of this definition, the "prevailing rating" of
shares of a series of APS shall be (i) "aa3"/AA- or higher if shares of such
series of APS have a rating of "aa3" or better by Moody's and AA- or better by
S&P or the equivalent of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, (ii) if not
"aa3"/AA- or higher, then "a3"/A- if the shares of such series of APS have a
rating of "a3" or better by Moody's and A- or better by S&P or the equivalent of
such ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iii) if not "aa3"/AA- or higher or
"a3"/A-, then "baa3"/BBB- if the shares of such series of APS have a rating of
"baa3" or better by Moody's and BBB- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if the shares of such series of APS have a rating of
"ba3" or better by Moody's and BB- or better by S&P or the equivalent of such
ratings by such agencies or substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB- or "ba3"/BB-, then Below "ba3"/BB-, provided, however, that
if the APS are rated by only one rating agency, the prevailing rating will be
determined without reference to the rating of any other rating agency. The Fund
shall take all reasonable action necessary to enable either S&P or Moody's to
provide a rating for each series of APS. If neither S&P nor Moody's shall make
such a rating available, Goldman, Sachs & Co. or Smith Barney Shearson Inc. or
their successors as Broker-Dealers shall select a nationally recognized
statistical rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time to time) to act as a substitute
rating agency in respect of the APS and the Fund shall take all reasonable
action to enable such rating agency or agencies to provide a rating for shares
of such series.
"Available APS" shall have the meaning specified in paragraph
(a) of Section 4 of this Part II.
B-41
"Bid" and "Bids" shall have the respective meanings specified
in paragraph (a) of Section 2 of this Part II.
"Bidder" and "Bidders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Broker-Dealer" shall mean any broker-dealer, commercial bank
or other entity permitted by law to perform the functions required of a
Broker-Dealer in this Part II, that is a member of, or a participant in, the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Fund and has entered into a Broker-Dealer Agreement that remains
effective.
"Broker-Dealer Agreement" shall mean an agreement between the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in this Part II.
"Existing Holder" when used with respect to shares of any
series of APS, shall mean a Person who has signed a Master Purchaser's Letter
and is listed as a beneficial owner of such APS in the records of the Auction
Agent.
"Hold Order" and "Hold Orders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this Part II.
"Master Purchaser's Letter" shall mean a letter, addressed to
the Fund, the Auction Agent, a Broker-Dealer and an Agent Member in which a
Person agrees, among other things, to offer to purchase, to purchase, to offer
to sell and/or to sell APS as set forth in this Part II.
"Maximum Rate," for any series of APS on any Auction Date,
shall mean:
(i) in the case of any Auction Date which is not the
Auction Date immediately prior to the first day of any proposed Special Dividend
Period of more than 28 days designated by the Fund pursuant to Section 4 of Part
I of the Certificate of Vote, the product of (A) the Reference Rate on such
Auction Date for the next Rate Period of such series and (B) the Applicable
Percentage on such Auction Date, unless such series has or had a Special
Dividend Period (other than a Special Dividend Period of 28 Rate Period Days or
less) and an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Dividend Period of such series after such Special
Dividend Period, in which case the higher of:
(A) the dividend rate on shares of such
series for the then-ending Rate Period, and
(B) the product of (1) the higher of (x) the
"AA" Composite Commercial Paper Rate on such Auction Date for
the then-ending Rate Period of such series, if such Rate
Period is
B-42
less than one year, or the Treasury Rate on such Auction Date
for such Rate Period, if such Rate Period is one year or
greater, and (y) the "AA" Composite Commercial Paper Rate on
such Auction Date for such Special Dividend Period of such
series, if such Special Dividend Period is less than one year,
or the Treasury Rate on such Auction Date for such Special
Dividend Period, if such Special Dividend Period is one year
or greater and (2) the Applicable Percentage on such Auction
Date; or
(ii) in the case of any Auction Date which is the
Auction Date immediately prior to the first day of any proposed Special Dividend
Period of more than 28 Rate Period Days designated by the Fund pursuant to
Section 4 of Part I of the Certificate of Vote, the product of (A) the highest
of (1) the Reference Rate on such Auction Date for the then-ending Rate Period
of such series, if such Rate Period is less than one year, or the Treasury Rate
on such Auction Date for such Rate Period, if such Rate Period is one year or
greater, (2) the Reference Rate on such Auction Date for the Special Dividend
Period for which the Auction is being held if such Special Dividend Period is
less than one year or the Treasury Rate on such Auction Date for the Special
Dividend Period for which the Auction is being held if such Special Dividend
Period is one year or greater, and (3) the Reference Rate on such Auction Date
for Minimum Dividend Periods and (B) the Applicable Percentage on such Auction
Date.
"Order" and "Orders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Outstanding" shall mean, as of any Auction Date with respect
to shares of any series of APS, the number of shares of such series theretofore
issued by the Fund except, without duplication, (i) any shares of such series of
APS theretofore cancelled or delivered to the Auction Agent for cancellation or
redeemed by the Fund or as to which a notice of redemption shall have been given
by the Fund, (ii) any shares of such series of APS as to which the Fund or any
Affiliate thereof shall be an Existing Holder and (iii) any shares of such
series of APS represented by any certificate in lieu of which a new certificate
has been executed and delivered by the Fund.
"Person" shall mean and include an individual, a partnership,
a fund, a trust, an unincorporated association, a joint venture or other entity
or a government or any agency or political subdivision thereof.
"Potential Holder," when used with respect to shares of any
series of APS, shall mean any Person, including any Existing Holder of shares of
such series of APS, (i) who shall have executed a Master Purchaser's Letter and
(ii) who may be interested in acquiring shares of such series of APS (or, in the
case of an Existing Holder of shares of such series of APS, additional shares of
such series of APS).
"Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Fund which agrees to follow the procedures required to be
followed by such securities depository in connection with the APS.
B-43
"Sell Order" and "Sell Orders" shall have the respective
meanings specified in paragraph (a) of Section 2 of this Part II.
"Service" means the Internal Revenue Service of the United
States.
"Submission Deadline" shall mean 1:30 p.m., New York City
time, on any Auction Date or such other time on any Auction Date by which
Brokers-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time.
"Submitted Bid" and "Submitted Bids" shall have the respective
meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Hold Order" and "Submitted Hold Orders" shall have
the respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Order" and "Submitted Orders" shall have the
respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Sell Order" and "Submitted Sell Orders" shall have
the respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Sufficient Clearing Bids" shall have the meaning specified in
paragraph (a) of Section 4 of this Part II.
"Winning Bid Rate" shall have the meaning specified in
paragraph (a) of Section 4 of this Part II.
2. Orders by Existing Holders and Potential Holders. (a) Prior
to the Submission Deadline on each Auction Date:
(i) each Existing Holder of shares of any series of APS
subject to an Auction on such Auction Date may submit to a Broker-Dealer by
telephone or otherwise information as to:
(A) the number of Outstanding shares, if
any, of such series of APS held by such Existing Holder which
such Existing Holder desires to continue to hold without
regard to the Applicable Rate for such series for the next
succeeding Rate Period of such series;
(B) the number of Outstanding shares, if
any, of such series of APS which such Existing Holder offers
to sell if the Applicable Rate for such series for the next
succeeding Rate Period of such series shall be less than the
rate per annum specified by such Existing Holder; and/or
(C) the number of Outstanding shares, if
any, of such series of APS held by such Existing Holder which
such Existing Holder
B-44
offers to sell without regard to the Applicable Rate for such
series for the next succeeding Rate Period of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential
Holders, shall in good faith for the purpose of conducting a competitive Auction
in a commercially reasonable manner, contact Potential Holders (by telephone or
otherwise), including Persons that are not Existing Holders, on such lists to
determine the number of shares, if any, of such series of APS which each such
Potential Holder offers to purchase if the Applicable Rate for such series for
the next succeeding Rate Period of such series shall not be less than the rate
per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph (a) is
hereinafter referred to as an "Order" and collectively as "Orders" and each
Existing Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this paragraph (a) is hereinafter
referred to as a "Hold Order" and collectively as "Hold Orders"; an Order
containing the information referred to in clause (i)(B) or (ii) of this
paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids";
and an Order containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as
"Sell Orders."
(b) (i) A bid by an Existing Holder of shares of any series of APS
subject to an Auction on any Auction Date shall constitute an irrevocable offer
to sell:
(A) the number of Outstanding shares of such series of APS
specified in such Bid if the Applicable Rate for such series determined
on such Auction Date shall be less than the rate specified therein:
(B) such number or a lesser number of Outstanding shares of
such series of APS to be determined as set forth in clause (iv) of
paragraph (a) of Section 5 of this Part II if the Applicable Rate for
such series determined on such Auction Date shall be equal to the rate
specified therein; or
(C) the number of Outstanding shares of such series of APS
specified in such Bid if the rate specified therein shall be higher
than the Maximum Rate for such series, or such number or a lesser
number of Outstanding shares of such series of APS to be determined as
set forth in clause (iii) of paragraph (b) of Section 5 of this Part II
if the rate specified therein shall be higher than the Maximum Rate for
such series and Sufficient Clearing Bids for such series do not exist.
B-45
(ii) A Sell Order by an Existing Holder of shares of any
series of APS subject to an Auction on any Auction Date shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares of such series of APS
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series of APS as set forth in clause (iii) of paragraph (b) of
Section 5 of this Part II if Sufficient Clearing Bids for such series
do not exist.
(iii) A Bid by a Potential Holder of shares of any series of
APS subject to an Auction on any Auction Date shall constitute an irrevocable
offer to purchase:
(A) the number of Outstanding shares of such series of APS
specified in such Bid if the Applicable Rate for such series determined
on such Auction Date shall be higher than the rate specified therein;
or
(B) such number or a lesser number of Outstanding shares of
such series of APS as set forth in clause (v) of paragraph (a) of
Section 5 of this Part II if the Applicable Rate for such series
determined on such Auction Date shall be equal to the rate specified
therein.
(c) No Order for any number of shares of any series of APS
other than whole shares shall be valid.
3. Submission of Orders by Broker-Dealers to Auction Agent. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of any series of
APS subject to an Auction on such Auction Date obtained by such Broker-Dealer
and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order;
(ii) the aggregate number of shares of such series of APS that
are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series of APS:
(A) the number of shares, if any, of such series of APS
subject to any Hold Order placed by such Existing Holder;
B-46
(B) the number of shares, if any, of such series of APS
subject to any Bid placed by such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of such series of APS
subject to any Sell Order placed by such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares
of such series of APS, the rate and number of shares of such series of APS
specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of any
series of APS held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted on behalf of such Existing Holder covering the number of
Outstanding shares of such series of APS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If any Existing Holder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the number
of Outstanding shares of any series of APS subject to an Auction held by such
Existing Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series of APS shall be
considered valid, but only up to and including in the aggregate the number of
Outstanding shares of such series of APS held by such Existing Holder, and if
the number of shares of such series of APS subject to such Hold Orders exceeds
the number of Outstanding shares of such series of APS held by such Existing
Holder, the number of shares subject to each such Hold Order shall be reduced
pro rata to cover the number of Outstanding shares of such series of APS held by
such Existing Holder;
(ii) (A) any Bid for shares of such series of APS shall be
considered valid up to and including the excess of the number of Outstanding
shares of such series of APS held by such Existing Holder over the number of
shares of such series of APS subject to any Hold Orders referred to in clause
(i) above;
(B) subject to subclause (A), if more than one Bid
for shares of such series of APS with the same rate is
submitted on behalf of such Existing Holder and the number of
Outstanding shares of such series of APS subject to such Bids
is greater than such excess, such Bids shall be considered
valid up to and including the amount of such excess, and the
number of shares of such series of APS subject to each Bid
with the same rate shall be reduced pro rata to cover the
number of shares of such series of APS equal to such excess;
B-47
(C) subject to subclauses (A) and (B), if more than
one Bid for shares of such series of APS with different rates
is submitted on behalf of such Existing Holder, such Bids
shall be considered valid in the ascending order of their
respective rates up to and including the amount of such
excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series of APS subject to any
portion of Bids considered not valid in whole or in part under
the clause (ii) shall be treated as the subject of a Bid for
shares of such series of APS by a Potential Holder at the rate
therein specified; and
(iii) all Sell Orders for shares of such series of APS shall
be considered valid up to and including the excess of the number of Outstanding
shares of such series of APS held by such Existing Holder over the sum of the
APS subject to valid Hold Orders referred to in clause (i) above and valid Bids
by such Existing Holder referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of any series of
APS is submitted on behalf of any Potential Holder, each such Bid submitted
shall be a separate Bid with the rate and number of shares therein specified.
(f) An Order submitted by a Broker-Dealer to the Auction Agent
prior to the Submission Deadline on any Auction Date shall be irrevocable.
4. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (a) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all valid Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders" and shall for each series of APS for which an Auction is
being held determine:
(i) the excess of the number of Outstanding shares of
such series of APS over the number of Outstanding shares of
such series of APS subject to Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS" of
such series);
(ii) from the Submitted Orders for such series
whether:
(A) the number of Outstanding shares of such
series of APS subject to Submitted Bids by Potential Holders specifying one or
more rates equal to or lower than the Maximum Rate for such series
exceeds or is equal to the sum of
B-48
(B) the number of Outstanding shares of such
series of APS subject to Submitted Bids by Existing Holders
specifying one or more rates higher than the Maximum Rate for
such series; and
(C) the number of Outstanding shares of such
series of APS subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than because the number
of shares of such series of APS in subclauses (B) and (C) above is zero because
all of the Outstanding shares of such series of APS are subject to Submitted
Hold Orders), such Submitted Bids in subclause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids" for such series); and
(iii) if Sufficient Clearing Bids for such
series exist, the lowest rate specified in such Submitted Bids (the "Winning Bid
Rate" for such series) which if:
(A) (I) each such Submitted Bid from
Existing Holders specifying such lowest rate and (II) all
other such Submitted Bids from Existing Holders specifying
lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series of APS
that are subject to such Submitted Bids; and
(B) (I) each such Submitted Bid from
Potential Holders specifying such lowest rate and (II) all
other such Submitted Bids from Potential Holders specifying
lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series of
APS which, when added to the number of Outstanding shares of such series of APS
to be purchased by such Potential Holders described in subclause (B) above,
would equal not less than the Available APS of such series.
(b) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (a) of this Section 4, the Auction Agent
shall advise the Fund of the Maximum Rate for each series of APS for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for each such series for the next succeeding Rate Period thereof
as follows:
(i) if Sufficient Clearing Bids for such series exist, that
the Applicable Rate for such series for the next succeeding Rate Period thereof
shall be equal to the Winning Bid Rate for such series to be determined;
(ii) if Sufficient Clearing Bids for such series do not exist
(other than because all of the Outstanding shares of such series of APS are
subject to Submitted Hold Orders), that the Applicable Rate for such series for
the next
B-49
succeeding Rate Period, which shall be a Minimum Dividend Period, thereof shall
be equal to the Maximum Rate for such series; or
(iii) if all of the Outstanding shares of such series of APS
are subject to Submitted Hold Orders, that the Applicable Rate for such series
for the next succeeding Rate Period thereof shall be equal to the product of (A)
(I) the "AA" Composite Commercial Paper Rate on such Auction Date for such Rate
Period, if such Rate Period is less than one year or (II) the Treasury Rate on
such Auction Date for such Rate Period, if such Rate Period is one year or
greater and (B) 1 minus the maximum marginal regular federal individual income
tax rate applicable to ordinary income or the maximum marginal regular federal
corporate income tax rate, whichever is greater; provided, however, that if the
Fund has notified the Auction Agent of its intent to allocate to the APS in such
Rate Period any net capital gains or other income taxable for federal income tax
purposes, the Applicable Rate in respect of that portion of the dividend on the
APS for such Rate Period that represents the allocation of net capital gains or
other income taxable for federal income tax purposes shall be the rate described
in the preceding clause (A)(I) or (II), as applicable, without being multiplied
by the factor set forth in the preceding clause (B).
5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares. Existing Holders shall continue to hold the APS that
are subject to Submitted Hold Orders, and, based on the determinations made
pursuant to paragraph (a) of Section 4 of this Part II, the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall
take such other action as set forth below:
(a) If Sufficient Clearing Bids for any series of APS have
been made, all Submitted Sell Orders shall be accepted and, subject to the
provisions of paragraphs (d) and (e) of this Section 5, Submitted Bids shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids for such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
of APS specifying any rate that is higher than the Winning Bid Rate for such
series shall be accepted, thus requiring each such Existing Holder to sell the
APS subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such
series of APS specifying any rate that is lower than the Winning Bid Rate for
such series shall be rejected, thus entitling each such Existing Holder to
continue to hold the APS subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such
series of APS specifying any rate that is lower than the Winning Bid Rate shall
be accepted;
B-50
(iv) each Existing Holder's Submitted Bid for shares of such
series of APS specifying a rate that is equal to the Winning Bid Rate for such
series shall be rejected, thus entitling such Existing Holder to continue to
hold the APS subject to such Submitted Bid, unless the number of Outstanding
shares of such series of APS subject to all such Submitted Bids shall be greater
than the number of shares of such series of APS ("remaining shares") in the
excess of the Available APS of such series over the number of the APS subject to
Submitted Bids described in clauses (ii) and (iii) of this paragraph (a), in
which event such Submitted Bid of such Existing Holder shall be rejected in
part, and such Existing Holder shall be entitled to continue to hold the APS
subject to such Submitted Bid, but only in an amount equal to the number of
shares of such series of APS obtained by multiplying the number of remaining
shares by a fraction, the numerator of which shall be the number of Outstanding
shares of such series of APS held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding shares of such series of APS subject to such Submitted Bids made by
all such Existing Holders that specified a rate equal to the Winning Bid Rate
for such series; and
(v) each Potential Holder's Submitted Bid for shares of such
series of APS specifying a rate that is equal to the Winning Bid Rate for such
series shall be accepted but only in an amount equal to the number of shares of
such series of APS obtained by multiplying the number of shares in the excess of
the Available APS of such series over the number of the APS subject to Submitted
Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction,
the numerator of which shall be the number of Outstanding shares of such series
of APS subject to such Submitted Bid and the denominator of which shall be the
aggregate number of Outstanding shares of such series of APS subject to such
Submitted Bids made by all such Potential Holders that specified a rate equal to
the Winning Bid Rate for such series.
(b) If Sufficient Clearing Bids for any series of APS have not
been made (other than because all of the Outstanding shares of such series of
APS are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 5, Submitted Orders for such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids for such series shall be rejected: (i) Existing Holders'
Submitted Bids for shares of such series of APS specifying any rate that is
equal to or lower than the Maximum Rate for such series shall be rejected, thus
entitling such Existing Holders to continue to hold the APS subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such
series of APS specifying any rate that is equal to or lower than the Maximum
Rate for such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series of APS specifying any rate that is higher than the Maximum Rate of such
series and the Submitted Sell Orders for shares of such series of APS of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted any such
B-51
Submitted Bid or Submitted Sell Order to sell the shares of such series of APS
subject to such Submitted Bid or Submitted Sell Order, but in both cases only in
an amount equal to the number of shares of such series of APS obtained by
multiplying the number of shares of such series of APS subject to Submitted Bids
described in clause (ii) of this paragraph (b) by a fraction, the numerator of
which shall be the number of Outstanding shares of such series of APS held by
such Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding shares of
such series of APS subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of any series of APS are
subject to Submitted Hold Orders, all Submitted Bids for such series shall be
rejected.
(d) If, as a result of the procedures described in clause (iv)
or (v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share of APS of any
series on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, round up or down the number of shares of such
series of APS to be purchased or sold by any Existing Holder or Potential Holder
on such Auction Date as a result of such procedures so that the number of shares
of such series so purchased or sold by each Existing Holder or Potential Holder
on such Auction Date shall be whole shares of APS.
(e) If, as a result of the procedures described in clause (v)
of paragraph (a) of this Section 5, any Potential Holder would be entitled or
required to purchase less than a whole share of any series of APS on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate shares of such series of APS for purchase among Potential
Holders so that only whole shares of such series of APS are purchased on such
Auction Date as a result of such procedures by any Potential Holder, even if
such allocation results in one or more Potential Holders not purchasing the APS
on such Auction Date.
(f) Based on the results of each Auction for a series of APS,
the Auction Agent shall determine the aggregate number of shares of such series
of APS to be purchased and the aggregate number of shares of such series of APS
to be sold by Potential Holders and Existing Holders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate number of shares to be
purchased and such aggregate number of shares to be sold differ, determine to
which other Broker-Dealer or Broker-Dealers acting for one or more purchasers or
shares of such series of APS such Broker-Dealer shall deliver, or from which
other Broker-Dealer or Broker-Dealers acting for one or more sellers of shares
of such series of APS such Broker-Dealer shall receive, as the case may be,
shares of such series of APS.
6. Notification of Allocations. In normal circumstances,
whenever the Fund intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on the APS, the Fund may
notify the Auction Agent
B-52
of the amount to be so included 15 days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, it will in turn notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Existing Holders and Potential Holders
believed by it to be interested in submitting an Order in the Auction to be held
on such Auction Date.
7. Miscellaneous.
(a) To the extent permitted by applicable law, the Board of
Trustees may interpret or adjust the provisions of this Certificate of Vote to
resolve any inconsistency or ambiguity or to remedy any formal defect, and may
amend this Certificate of Vote with respect to any series of APS prior to the
issuance of such series.
(b) An Existing Holder may sell, transfer or otherwise dispose
of the APS only in whole shares and only pursuant to a Bid or Sell Order in
accordance with the procedures described in this Part II or to or through a
Broker-Dealer or to a Person that has delivered a signed copy of a Master
Purchaser's Letter to the Auction Agent; provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such transfer.
(c) All of the shares of each series of APS outstanding from
time to time shall be represented by one global certificate registered in the
name of the Securities Depository or its nominee.
(d) Neither the Fund nor any affiliate thereof may submit an
Order in any Auction, except that any Broker-Dealer that is an affiliate of the
Fund may submit Orders in an Auction, but only if such Orders are not for its
own account.
B-53
IN WITNESS WHEREOF, the undersigned has caused this
Certificate of Vote to be executed as of November 4, 1993.
----------------------------
Ronald A. Nyberg
Vice President and Secretary
State of )
) ss
County of )
Then personally appeared before me Ronald A. Nyberg, who
acknowledged the foregoing instrument to be his free act and deed and the free
act and deed in his capacity as Vice President and Secretary of Van Kampen
Merritt Advantage Municipal Income Trust II.
Before me,
---------------------------
Notary Public
My commission expires:
-----------------------------
B-54
ARTICLES OF AMENDMENT TO THE
CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING TWO SERIES OF PREFERRED SHARES OF
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
Van Kampen Advantage Municipal Income Trust II, a Massachusetts
business trust (the "Fund"), certifies to the Secretary of State of the
Commonwealth of Massachusetts as follows:
FIRST: On October 8, 1998, the Board of Trustees, pursuant to the
provisions of Article VI of the Amended and Restated Declaration of Trust (the
"Declaration of Trust") of the Fund and Section 5 of Part I and Section 7 of
Part II of the Certificate of Vote of Trustees Establishing Two Series of
Preferred Shares (the "Certificate of Vote") of the Fund, authorized and
declared a 2-for-1 split of the preferred shares of beneficial interest of the
Fund, par value $.01 per share, liquidation preference $50,000 per share,
designated respectively, Auction Preferred Shares, Series A ("APS Series A")
and Auction Preferred Shares, Series B ("APS Series B")(collectively the APS
Series A and APS Series B are referred to herein as "APS"). The stock split is
to be effected by means of a division of each outstanding share of APS into two
preferred shares of beneficial interest, par value $.01 per share, liquidation
preference $25,000 per share.
SECOND: Pursuant to the provisions of Article VI of the Declaration of
Trust and Section 5 of Part I and Section 7 of Part II of the Certificate of
Vote, the following amendments to the Certificate of Vote have been duly adopted
and approved by a majority of the Trustees of the Fund.
a. The first paragraph of the vote establishing two series of preferred
shares of beneficial interest is hereby amended by replacing such paragraph with
the following:
First: Pursuant to authority expressly vested in the Board of Trustees
of the Fund by Article VI of its Declaration of Trust (which, as amended or
restated from time to time is, together with this Certificate of Vote, herein
called the "Declaration of Trust"), the Board of Trustees hereby authorizes the
issuance of two series of 3,200 shares of its authorized preferred shares of
beneficial interest, par value $.01 per share ("Preferred Shares"), liquidation
preference of $25,000 per share, designated, respectively, Auction Preferred
Shares, Series A ("APS Series A") and Auction Preferred Shares, Series B ("APS
Series B")(collectively the APS Series A and APS Series B are referred to herein
as "APS").
b. The first two paragraphs under the heading "DESIGNATION" of the
Certificate of Vote are hereby amended by replacing such paragraphs with the
following:
APS SERIES A: A series of 1,600 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per share, is hereby
designated "Auction Preferred Shares, Series A" (hereinafter, "APS Series A").
Each share of APS Series A
shall be issued on Wednesday, November 10, 1993; have an Applicable Rate for its
Initial Dividend Period (which period shall continue to and include Monday,
November 15, 1993) equal to 2.40% per annum; have an Initial Dividend Payment
Date of Tuesday, November 16, 1993; and have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Declaration of Trust applicable to preferred shares of
beneficial interest of the Fund, as are set forth in Part I and Part II of this
Certificate of Vote. The APS Series A shall constitute a separate series of
Preferred Shares of beneficial interest of the Fund, and each share of APS
Series A shall be identical except as provided in Section 3 of Part I of this
Certificate of Vote.
APS SERIES B: A series of 1,600 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per share, is hereby
designated "Auction Preferred Shares, Series B" (hereinafter, "APS Series B").
Each share of APS Series B shall be issued on Wednesday, November 10, 1993; have
an Applicable Rate for its Initial Dividend Period (which period shall continue
to and include Tuesday, November 16, 1993) equal to 2.40% per annum; have an
Initial Dividend Payment Date of Tuesday, November 16, 1993; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series B shall constitute a
separate series of Preferred Shares of beneficial interest of the Fund, and each
share of APS Series B shall be identical except as provided in Section 3 of Part
I of this Certificate of Vote.
c. Section 2(c)(ii) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
The amount of dividends per share payable on shares of any series of
APS on any date on which dividends shall be payable on the APS shall be computed
by multiplying the respective Applicable Rate for such series in effect for such
Dividend Period or Dividend Periods or part thereof for which dividends have not
been paid by a fraction, the numerator of which shall be the number of days in
such Dividend Period or Dividend Periods or part thereof and the denominator of
which shall be 365 if such Dividend Period is a Rate Period, or is contained in
a Rate Period, of less that one year and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
d. Section 3(a)(i) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
After the Initial Dividend Period with respect to any series of APS and
upon giving a Notice of Redemption, as provided below, the Fund at its option
may redeem shares of any series of APS, in whole or in part, on the second
Business Day next preceding any Dividend Payment Date applicable to those shares
of APS called for redemption, out of funds legally available therefor, at the
Optional Redemption Price; provided that during a Special Dividend Period of 365
days or more no share of APS will be subject to optional redemption during any
Non-Call Period; provided, that shares of any series of APS may not be redeemed
in part of any such partial redemption fewer than 500 shares of such series
remain outstanding.
e. Section 5(g) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
Right to Vote with Respect to Certain Other Matters. If the Fund has
more than one series of APS outstanding, the affirmative vote of the holders of
a majority (unless a higher percentage vote is required under the Declaration of
Trust or under this Certificate of Vote) of the outstanding shares of each
series of APS, each voting as a separate class, is required with respect to any
matter that materially affects the series in a manner different from that of
other series of classes of the Fund's shares, including without limitation any
proposal to do the following: (1) increase or decrease the aggregate number of
authorized shares of the series; (2) effect any exchange, reclassification, or
cancellation of all or part of the shares of the series; (3) effect an exchange,
or create a right of exchange, of all or any part of the shares of the series;
(4) change the rights or preferences of the shares of the series; (5) change the
shares of the series, whether with or without par value, of the same or another
class or series; (6) create a new class or series of shares having rights and
preferences prior and superior to the shares of the series, or increase the
rights and preferences or the number of authorized shares of a series having
rights and preferences prior or superior to the shares of the series; or (7)
cancel or otherwise affect distributions on the shares of the series that have
accrued but have not been declared. To the extent that the interest of a series
of APS affected by a matter are substantially identical to the interests of
another series of APS affected by such matter (e.g., a vote of shareholders
required under Section 13(a) of the 1940 Act), each such series shall vote
together collectively as one class. The vote of holders of each series of APS
described above will in each case be in addition to a separate vote of the
requisite percentage of Common Shares and APS necessary to authorize the action
in question.
f. Section 6(a) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
Upon the dissolution, liquidation or winding up of the affairs of the
Fund, whether voluntary or involuntary, the Holders of the APS then outstanding
shall be entitled to receive and to be paid out of the assets of the Fund
available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares or on any other class of shares
of the Fund ranking junior to the APS upon dissolution, liquidation or winding
up, an amount equal to the liquidation preference with respect to such shares.
The liquidation preference for the APS shall be $25,000 per share, plus an
amount equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
g. Section 15 of Part I of the Certificate of Vote is hereby amended to
replace the definition of "APS Basic Maintenance Amount" with the following:
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean
the dollar amount equal to the sum of (i)(A) the product of the number of APS
Outstanding on such date multiplied by $25,000; (B) the aggregate amount of
dividends that will have accumulated at the Applicable Rate (whether or not
earned or declared) to
(but not including) the first respective Dividend Payment Dates for each of the
APS Outstanding that follow such Valuation Date (or to the 47th day after such
Valuation Date, if such 47th day is earlier than the first following Dividend
Payment Date); (C) the amount equal to the Projected Dividend Amount (based on
the number of APS Outstanding on such date); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such Valuation Date; (E) the
amount of the Fund's Maximum Potential Additional Dividend Liability as of such
Valuation Date; (F) the amount of any premium payable pursuant to a Premium Call
Period; and (G) any current liabilities as of such Valuation Date to the extent
not reflected in any of (i)(A) through (i)(F) (including, without limitation,
any amounts described in Section 13 of Part I as required to be treated as
liabilities in connection with the Fund's transactions in futures and options
and including any payables for municipal securities purchased as of such
Valuation Date) less (ii) either (A) the face value of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of (i)(A) through
(i)(G) if such assets mature prior to or on the date of payment of the liability
for which such assets are deposited and are either securities issued or
guaranteed by the United States Government or have a rating assigned by Moody's
of P-1, VMIG-1 or MIG-1 (or, with respect to S&P, SP-1+ or A-1+) or (B) the
Discounted Value of such assets. For purposes of the APS Basic Maintenance
Amount in connection with S&P's ratings of the APS, with respect to any
transactions by the Fund in futures contracts, the Fund shall include as
liabilities (i) 30% of the aggregate settlement value, as marked to market, of
any outstanding futures contracts based on the Municipal Index which are owned
by the Fund plus (ii) 25% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Fund. For purposes of the APS Basic Maintenance
Amount in connection with Moody's rating of the APS, with respect to any
transactions by the Fund in securities options, the Fund shall include as
liabilities (i) 10% of the exercise price of a call option written by the Fund
and (ii) the exercise price of any written put option.
h. Section 15 of Part I of the Certificate of Vote is hereby amended to
replace the definition of "Mandatory Redemption Price" with the following:
"Mandatory Redemption Price" means $25,000 per share of APS plus an
amount equal to accumulated but unpaid dividends thereon to the date fixed for
redemption (whether or not earned or declared).
i. Section 15 of Part I of the Certificate of Vote is hereby amended to
replace the definition of "Optional Redemption Price" with the following:
"Optional Redemption Price" shall mean (i) $25,000 per share of APS in
the case of a Rate Period less than one year, including any Special Dividend
Period of less than 365 days or (ii) with respect to a Special Dividend Period
of 365 days or more the Optional Redemption Price set forth in the Specific
Redemption Provisions in connection therewith; in each case plus an amount equal
to accumulated but unpaid dividends thereon to the date of redemption (whether
or not earned or declared).
j. Section 15 of Part I of the Certificate of Vote is hereby amended to
replace the definition of "Specific Redemption Provisions" with the following:
"Specific Redemption Provisions" means, with respect to any
Special Dividend Period of 365 or more days, either, or any
combination of, (i) a period (a "Non-Call Period") determined
by the Board of Trustees, after consultation with the
Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the
option of the Fund, and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined
by the Board of Trustees, after consultation within the
Broker-Dealers, during each year of which the shares subject
to such Special Dividend Period shall be redeemable at the
Fund's option at a price per share equal to $25,000 plus
accumulated but unpaid dividends plus a premium expressed as a
percentage of $25,000 as determined by the Board of Trustees
after consultation with the Broker-Dealers; provided, that
during any Special Dividend Period of 365 or more days if, on
the date of determination of the Applicable Rate for such
series, such Applicable Rate equaled or exceeded the Treasury
Rate, the Fund may redeem APS without regard to any Non-Call
Period or Premium Call Period at the Mandatory Redemption
Price.
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
CHANGING THE TIMING OF CERTAIN REPORTS TO RATING
AGENCIES
Van Kampen Advantage Municipal Income Trust II, a Massachusetts
business trust (the "Fund"), certifies to the Secretary of State of the
Commonwealth of Massachusetts as follows:
FIRST: On September 25, 2003, the Board of Trustees of the Fund,
pursuant to the provisions of Article VI of the Amended and Restated Declaration
of Trust (the "Declaration of Trust") of the Fund and Section 5 of Part I of the
Certificate of Vote of Trustees Establishing a Class of Preferred Shares (the
"Certificate of Vote") of the Fund, authorized an amendment to the Certificate
of Vote to change the timing of filing certain reports with rating agencies from
quarterly to annually and to make conforming changes to the Certificate of Vote.
SECOND: Pursuant to the provisions of Article VI of the Declaration of
Trust and Section 5 of Part I of the Certificate of Vote of the Fund, the
following amendments to the Certificate of Vote have been duly adopted and
approved by a majority of the Trustees of the Fund.
A. Section 5 (d) (ii) of Part I of the Certificate of Vote is
hereby amended to replace the term "Quarterly Valuation Date"
with the term "Annual Valuation Date."
B. The second and third sentences of Section 9(b) of Part I of
the Certificate of Vote are hereby amended to replace such
sentences with the following:
The Fund shall also deliver to S&P (if S&P is then rating the
APS), Moody's (if Moody's is then rating the APS) and the
Auction Agent (if either S&P or Moody's is then rating the
APS) an APS Basic Maintenance Report as of the last Valuation
Date of each month on or before the third Business Day after
such day. The Fund shall also deliver to S&P (if S&P is then
rating the APS) and Moody's (if Moody's is then rating the
APS) an APS Basic Maintenance Report whenever (i) the Fund
shall have redeemed APS or Common Shares, (ii) the Fund shall
fail to have S&P Eligible Assets or Moody's Eligible Assets
with an aggregate Discounted Value at least equal to 105% of
the APS Basic Maintenance Amount, or (iii) whenever requested
by Moody's or S&P, in each case on or before the third
Business Day after such day.
C. Section 9 (c) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
Within ten Business Days after the date of delivery of an APS
Basic Maintenance Report in accordance with paragraph (b) of
this Section 9 relating to an Annual Valuation Date, the Fund
shall cause the Independent Accountant to confirm in writing
to S&P (if S&P is then rating the APS), Moody's (if Moody's is
then rating the APS) and the Auction Agent (if either S&P or
Moody's is then rating the APS) (i) the mathematical accuracy
of the calculations reflected in such Report and (ii) that, in
such Report, the Fund determined in accordance with this
Certificate of Vote whether the Fund had, at such Annual
Valuation Date, S&P Eligible Assets (if S&P is then rating the
APS) of an aggregate Discounted Value at least equal to the
APS Basic Maintenance Amount and Moody's Eligible Assets (if
Moody's is then rating the APS) of an aggregate Discounted
Value at least equal to the APS Basic Maintenance Amount (such
confirmation being herein called the "Accountant's
Confirmation").
D. The final clause of Section 13 (a) (i) of Part I of the
Certificate of Vote, which read "there shall be a quarterly
audit made of the Fund's futures and options transactions by
the Fund's independent accountants to confirm that the Fund is
in compliance with these standards; or" is hereby amended to
replace such clause with the following:
there shall be an annual audit made of the Fund's futures and
options transactions by the Fund's independent accountants to
confirm that the Fund is in compliance with these standards;
or
E. The defined term "APS Basic Maintenance Report" in Section 15
of Part I of the Certificate of Vote is hereby amended to
replace such definition with the following:
"APS Basic Maintenance Report" shall mean a report signed by
any of the President, Treasurer, any Senior Vice President or
any Vice President of the Fund which sets forth, as of the
related Valuation Date, the assets of the Fund, the Market
Value and the Discounted Value thereof (seriatim and in
aggregate), the APS Basic Maintenance Amount, the net asset
value and market trading price per Common Share, and the total
return percentage for the relevant valuation period.
F. The defined term "Quarterly Valuation Date" in Section 15 of
Part I of the Certificate of Vote is hereby amended to replace
such definition with the following:
"Annual Valuation Date" shall mean the last Business Day of
each fiscal year of the Fund.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Vote
to be executed as of March 8, 2004.
/s/ A. Thomas Smith III
-------------------------------
A. Thomas Smith III
Vice President and Secretary
State of New York )
) ss
County of New York )
Then personally appeared before me A. Thomas Smith III, who
acknowledged the foregoing instrument to be his free act and deed and the free
act and deed in his capacity as Vice President and Secretary of Van Kampen
Advantage Municipal Income Trust II.
Before me,
/s/ Rosemarie Costagliola
-------------------------------
Notary Public
My commission expires: Nov. 9, 2006
-------------------
APPENDIX C
PROXY VOTING POLICY AND PROCEDURES
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MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
IV. POLICY STATEMENT
Introduction -- Morgan Stanley Investment Management's ("MSIM") policy
and procedures for voting proxies ("Proxy Voting Policy and Procedures") with
respect to securities held in the accounts of clients apply to those MSIM
entities that provide discretionary investment management services and for which
a MSIM entity has authority to vote proxies. The policies and procedures and
general guidelines in this section will be reviewed and updated, as necessary,
to address new or revised proxy voting issues. The MSIM entities covered by
these policies and procedures currently include the following: Morgan Stanley
Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley Investment
Management Inc., Morgan Stanley Investment Management Limited, Morgan Stanley
Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each a "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates").
Each MSIM Affiliate will use its best efforts to vote proxies as part
of its authority to manage, acquire and dispose of account assets. With respect
to the MSIM registered management investment companies (Van Kampen,
Institutional and Advisor Funds) (collectively referred to as the "MSIM Funds"),
each MSIM Affiliate will vote proxies pursuant to authority granted under its
applicable investment advisory agreement or, in the absence of such authority,
as authorized by the Boards of Directors or Trustees of the MSIM Funds. A MSIM
Affiliate will not vote proxies if the "named fiduciary" for an ERISA account
has reserved the authority for itself, or in the case of an account not governed
by ERISA, the Investment Management or Investment Advisory Agreement does not
authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent
and diligent manner, vote proxies in the best interests of clients, including
beneficiaries of and participants in a client's benefit plan(s) for which the
MSIM Affiliates manage assets, consistent with the objective of maximizing
long-term investment returns ("Client Proxy Standard"). In certain situations, a
client or its fiduciary may provide a MSIM Affiliate with a proxy voting policy.
In these situations, the MSIM Affiliate will comply with the client's policy
unless to do so would be inconsistent with applicable laws or regulations or the
MSIM Affiliate's fiduciary responsibility.
Proxy Research Services -- To assist the MSIM Affiliates in their
responsibility for voting proxies and the overall global proxy voting process,
Institutional Shareholder Services ("ISS") and the Investor Responsibility
Research Center ("IRRC") have been retained as experts in the proxy voting and
corporate governance area. ISS and IRRC are independent advisers that specialize
in providing a variety of fiduciary-level proxy-related services to
institutional investment managers, plan sponsors, custodians, consultants, and
other institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. While the
MSIM Affiliates may review and utilize the ISS and IRRC recommendations in
making proxy voting decisions, they are in no way obligated to follow the ISS
and IRRC recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A.
below) will carefully monitor and supervise the services provided by the proxy
research services.
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Voting Proxies for Certain Non-US Companies -- While the proxy voting
process is well established in the United States and other developed markets
with a number of tools and services available to assist an investment manager,
voting proxies of non-US companies located in certain jurisdictions,
particularly emerging markets, may involve a number of problems that may
restrict or prevent a MSIM Affiliate's ability to vote such proxies. These
problems include, but are not limited to: (i) proxy statements and ballots being
written in a language other than English; (ii) untimely and/or inadequate notice
of shareholder meetings; (iii) restrictions on the ability of holders outside
the issuer's jurisdiction of organization to exercise votes; (iv) requirements
to vote proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies
will be voted on a best efforts basis only, after weighing the costs and
benefits of voting such proxies, consistent with the Client Proxy Standard. ISS
has been retained to provide assistance to the MSIM Affiliates in connection
with voting their clients' non-US proxies.
III. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may, pursuant to the procedures set forth in Section IV. below, vote in a manner
that is not in accordance with the following general guidelines, provided the
vote is approved by the Proxy Review Committee and is consistent with the Client
Proxy Standard.
VI. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items, unless otherwise
determined by the Proxy Review Committee, the following
proposals will be voted in support of management.
o Selection or ratification of auditors.
o Approval of financial statements, director and auditor
reports.
o General updating/corrective amendments to the chatter.
o Approval of the payment of a dividend.
o Proposals to limit Directors' liability and/or broaden
indemnification of Directors.
o Proposals requiring that a certain percentage (up to
66%) of the company's Board members be independent
Directors.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
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o Proposals recommending set retirement ages or requiring
specific levels of stock ownership by Directors.
o Proposals to eliminate cumulative voting.
o Proposals to eliminate preemptive rights.
o Proposals for confidential voting and independent
tabulation of voting results.
o Proposals related to the conduct of the annual meeting
except those proposals that relate to the "transaction
of such other business which may come before the
meeting."
2. Election of Directors. In situations where no conflict exists,
and where no specific governance deficiency has been noted,
unless otherwise determined by the Proxy Review Committee,
will be voted in support of nominees of management.
Unless otherwise determined by the Proxy Review
Committee, a withhold vote will be made where:
(i) A nominee has, or any time during the previous
three years had, a relationship with the issuer
(e.g., investment banker, counsel or other
professional service provider, or familial
relationship with a senior officer of the
issuer) that may impair his or her independence;
(ii) A direct conflict exists between the interests
of the nominee and the public shareholders; or
(iii) Where the nominees standing for election have
not taken action to implement generally accepted
governance practices for which there is a
"bright line" test. These would include
elimination of dead hand or slow hand poison
pills, requiring Audit, Compensation or
Nominating Committees to be composed of
independent directors and requiring a majority
independent board.
3. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on a
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted in support of management.
CAPITALIZATION CHANGES
o Proposals relating to capitalization changes that
eliminate other classes of stock and voting rights.
o Proposals to increase the authorization of existing
classes of common stock (or securities convertible into
common stock) if. (i) a clear and legitimate business
purpose is stated; (ii) the number of shares requested
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is reasonable in relation to the purpose for which
authorization is requested; and (iii) the authorization
does not exceed 100% of shares currently authorized and
at least 30% of the new authorization will be
outstanding.
o Proposals to create a new class of preferred stock or
for issuances of preferred stock up to 50% of issued
capital.
o Proposals for share repurchase plans.
o Proposals to reduce the number of authorized shares of
common or preferred stock, or to eliminate classes of
preferred stock.
o Proposals to effect stock splits.
o Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits
that do not adjust proportionately to the authorized
share amount will generally be approved if the resulting
increase in authorized shares coincides with the proxy
guidelines set forth above for common stock increases.
COMPENSATION
o Proposals relating to Director fees, provided the
amounts are not excessive relative to outer companies in
the country or industry.
o Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part
of a broad based employee plan, including all
non-executive employees.
o Proposals for the establishment of Employee Stock Option
Plans and other employee ownership plans.
ANTI-TAKEOVER MATTERS
o Proposals to modify or rescind existing supermajority
vote requirements to amend the charters or bylaws.
o Proposals relating to the adoption of anti-greenmail
provisions provided that the proposal: (i) defines
greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no
anti-takeover measures or other provisions restricting
the rights of shareholders.
4. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on the
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted against (notwithstanding management
support).
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o Proposals to establish cumulative voting rights in the
election of directors.
o Proposals relating to capitalization changes that add
classes of stock which substantially dilute the voting
interests of existing shareholders.
o Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights
or super-voting rights.
o Proposals to create "blank check" preferred stock.
o Proposals relating to changes in capitalization by 100%
or more.
o Compensation proposals that allow for discounted stock
options that have not been offered to employees in
general.
o Proposals to amend bylaws to require a supermajority
shareholder vote to pass or repeal certain provisions.
o Proposals to indemnify auditors.
5. The following types of non-routine proposals, which
potentially may have a substantive financial or best interest
impact on an issuer, will be voted as determined by the Proxy
Review Committee.
CORPORATE TRANSACTIONS
o Proposals relating to mergers, acquisitions and other
special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined
on a case-by-case basis. In all cases, ISS and IRRC
research and analysis will be used along with MSIM
Affiliates' research and analysis, including, among
other things, MSM internal company-specific knowledge.
o Proposals relating to change-in-control provisions in
non-salary compensation plans, employment contracts, and
severance agreements that benefit management and would
be costly to shareholders if triggered.
o Proposals relating to shareholders rights plans that
allow appropriate offers to shareholders to be blocked
by the board or trigger provisions that prevent
legitimate offers from proceeding.
o Proposals relating to Executive/Director stock option
plans. Generally, stock option plans should meet the
following criteria:
(i) Whether the stock option plan is incentive
based;
(ii) For mature companies, should be no more than 5%
of the issued capital at the time of approval;
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(iii) For growth companies, should be no more than 10%
of the issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
o Proposals requiring shareholder ratification of poison
pills.
o Proposals relating to anti-takeover and related
provisions that serve to prevent the majority of
shareholders from exercising their rights or effectively
deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals will be supported, unless
otherwise determined by the Proxy Review Committee:
o Proposals requiring auditors to attend the annual
meeting of shareholders.
o Proposals requiring non-U.S. companies to have a
separate Chairman and CEO.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
o Proposals requiring that a certain percentage of the
company's members be comprised of independent and
unaffiliated Directors.
o Proposals requiring confidential voting.
o Proposals to reduce or eliminate of supermajority voting
requirements.
o Proposals requiring shareholder approval for shareholder
rights plan or poison pill.
o Proposals to require the company to expense stock
options.
2. The following shareholder proposals will be voted as
determined by the Proxy Review Committee.
o Proposals that limit tenure of directors.
o Proposals to limit golden parachutes.
o Proposals requiring directors to own large amounts of
stock to be eligible for election.
o Proposals that request or require disclosure of
executive compensation in addition to the disclosure
required by the Securities and Exchange Commission
("SEC") regulations.
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o Proposals that limit retirement benefits or executive
compensation.
o Proposals requiring shareholder approval for bylaw or
charter amendments.
o Proposals requiring shareholder approval of executive
compensation.
o Proposals requiring shareholder approval of golden
parachutes.
o Proposals to eliminate certain anti-takeover related
provisions.
o Proposals to prohibit payment of greenmail.
3. The following shareholder proposals will not be supported,
unless otherwise determined by the Proxy Review Committee.
o Proposals to declassify the Board of Directors (if
management supports a classified board).
o Proposals requiring a U.S. company to have a separate
Chairman and CEO.
o Proposals requiring that the company prepare reports
that are costly to provide or that would require
duplicative efforts or expenditures that are of a
non-business nature or would provide no pertinent
information from the perspective of institutional
shareholders.
o Proposals to add restrictions related to social,
political or special interest issues that impact the
ability of the company to do business or be competitive
and that have a significant financial or best interest
impact to the shareholders.
o Proposals that require inappropriate endorsements or
corporate actions.
VII. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
(a) The Committee, which is appointed by MSIM's Chief
Investment Officer ("CIO"), consists of senior
investment professionals who represent the different
investment disciplines and geographic locations of the
firm. The Committee is responsible for establishing
MSIM's proxy voting policy and guidelines and
determining how MSIM will vote proxies on an ongoing
basis.
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(b) The Committee will periodically review and have the
authority to amend, as necessary, these Proxy Voting
Policy and Procedures and establish and direct voting
positions consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2)
review proposals at upcoming shareholder meetings of
MSIM portfolio companies in accordance with this Policy
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee,
or its designee, will timely communicate to ISS MSIM's
Proxy Voting Policy and Procedures (and any amendments
to them and/or any additional guidelines or procedures
it may adopt).
(d) The Committee will meet on an ad hoc basis to (among
other matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are the
subject of the same proxy solicitation and held by one
or more MSIM portfolios to be voted differently than
other shares) and/or "override voting" (i.e., voting all
MSIM portfolio shares in a manner contrary to the Proxy
Voting Policy and Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in these Policy and
Procedures; and (3) determine how to vote matters for
which specific direction has not been provided in these
Policy and Procedures. Split votes will generally not be
approved within a single Global Investor Group team. The
Committee may take into account ISS and IRRC
recommendations and the research as well as any other
relevant information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of interest,
the Committee will request a special committee to
review, and recommend a course of action with respect
to, the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairman
of the Proxy Review Committee, the Compliance Director
for the area of the firm involved or his/her designee, a
senior portfolio manager (if practicable, one who is a
member of the Proxy Review Committee) designated by the
Proxy Review Committee and MSIM's Chief Investment
Officer or his/her designee. The Special Committee may
request the assistance of MSIM's General Counsel or
his/her designee and will have sole discretion to cast a
vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special Committee,
or their designee(s), for a period of at least 6 years.
To the
C-9
extent these decisions relate to a security held by a
MSIM U.S. registered investment company, the Committee
and Special Committee, or their designee(s), will report
their decisions to each applicable Board of Trustees/
Directors of those investment companies at each Board's
next regularly scheduled Board meeting. The report will
contain information concerning decisions made by the
Committee and Special Committee during the most recently
ended calendar quarter immediately preceding the Board
meeting.
(g) The Committee and Special Committee, or their
designee(s), will timely communicate to applicable
portfolio managers, the Compliance Departments and, as
necessary, ISS, decisions of the Committee and Special
Committee so that, among other things, ISS will vote
proxies consistent with their decisions.
B. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
1. If there is a possibility that a vote may involve a material
conflict of interest, the vote must be decided by the Special
Committee in consultation with MSIM's General Counsel or
his/her designee.
2. A material conflict of interest could exist in the following
situations, among others:
(a) The issuer soliciting the vote is a client of MSIM or an
affiliate of MSIM and the vote is on a material matter
affecting the issuer;
(b) The proxy relates to Morgan Stanley common stock or any
other security issued by Morgan Stanley or its
affiliates; or
(c) Morgan Stanley has a material pecuniary interest in the
matter submitted for a vote (e.g., acting as a financial
advisor to a merger or acquisition for which Morgan
Stanley will be paid a success fee if completed).
C. PROXY VOTING REPORTS
1. MSIM will promptly provide a copy of these Policy and
Procedures to any client requesting it. MSIM will also, upon
client request, promptly provide a report indicating how each
proxy was voted with respect to securities held in that
client's account.
2. MSIM's legal department is responsible for filing an annual
Form N-PX on behalf of each registered management investment
company for which such filing is required, indicating how all
proxies were voted with respect to such investment company's
holdings.
C-10
APPENDIX D
ANNUAL REPORT OF THE ACQUIRING FUND, DATED OCTOBER 31, 2004
D-1
Item 1. Report to Shareholders.
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Advantage Municipal Income Trust II performed during the annual 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 October 31, 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
---------------------------------------------------------------------------------------
D-2
Performance Summary as of 10/31/04
ADVANTAGE MUNICIPAL INCOME TRUST II
SYMBOL: VKI
---------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (8/27/93) 6.56% 6.40%
10-year 9.03 10.99
5-year 9.86 12.82
1-year 8.14 13.05
---------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
D-3
Trust Report
FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 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 interest-rate environment of the 12 months ended October 31, 2004 was marked
by two periods of steadily declining yields, with a significant sell-off in the
middle. Yields fell steadily through the first half of the period, approaching
the historical lows of 2003. This trend persisted until March, at which point
yields reversed direction and began an upward march as prices fell. These losses
were steepest in April, as a surprisingly strong employment report and signals
from members of the Federal Open Market Committee (the "Fed") caused investors
to expect a near-term rate increase. Rates went on to decline from May through
the end of the period as the market digested the Fed's newly hawkish rate
stance. Investors were further comforted when, after the Fed raised rates at its
June 30, 2004 meeting, its members indicated that the path of future rate
increases would be measured.
Unusually, longer-maturity securities largely outperformed in this period of Fed
tightening. Historically, the typical pattern in periods of tightening policy
has seen yields rise across all maturities. During the review period, however,
yields of shorter maturity bonds rose while those of bonds with longer
maturities declined slightly.
Lower-quality municipal bonds also performed strongly in this environment, as
the difference in yields (known as the "yield spread") between AAA and BBB rated
bonds decreased by roughly 20 basis points for 20-year bonds. As a result,
sectors with heavy exposure to lower-rated debt, such as hospitals and
industrial-revenue bonds, posted higher total returns than sectors dominated by
higher-rated debt.
Issuance for the first ten months of 2004 (the final ten months of the review
period) was roughly six percent lower than in the same period in 2003. That
said, 2003 was a record year, and at the current pace of issuance, 2004 could
well be one of the largest years in recent memory. The strong supply met with
faltering demand from mutual funds, as fund investors withdrew over $15 billion
in net cash during the period. This faltering demand was largely offset by
increased participation in the market by insurance companies and individual
investors.
(1)Team members may change without notice at any time.
D-4
PERFORMANCE ANALYSIS
The trust's return 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, as they did during the reporting period. On
both an NAV basis and a market price basis, the trust outperformed its
benchmark, the Lehman Brothers Municipal Bond Index. (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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates in the final months of the period made the trust's
borrowing activity more expensive. These expenses, however, were more than
offset by the strong performance of the bonds we invested in, leading to the
trust's outperformance versus its benchmark, which is unleveraged.
One of our primary strategies in managing the trust was to configure its
interest-rate profile for a rising interest-rate environment. We did this
primarily by maintaining its duration (a measure of interest-rate sensitivity)
at a level lower than that of its benchmark. We also de-emphasized securities
with maturities in the range of five-to-10 years given what appeared to be
unattractive total-return prospects. Instead, we emphasized securities in the
15-to 20-year part of the yield curve. We believe many of the securities we
purchased offered a compelling combination of premium-coupon income and the
moderate interest-rate sensitivity of bonds with shorter maturities. While the
duration strategy provided mixed results, the portfolio's positioning along the
maturity spectrum boosted performance for the period.
In keeping with our long-term approach, we continued to engage in relative-
value trading in order to take advantage of pockets of opportunity in the
market. This approach generally entails buying securities that are undervalued
relative to what our analysis indicates to be their total-return potential, and
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
--------------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
8.14% 13.05% 6.03%
--------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
D-5
selling them when they reach that potential in order to reinvest the assets into
more promising opportunities. We took advantage of the late spring/early summer
spike in yields to purchase long bonds, which we later sold during a period of
strong demand from individual investors. We also selectively purchased A and BBB
rated securities, some of which we subsequently sold at a profit thanks to
investors' demand for yield-oriented securities.
We remained focused on controlling the trust's risk profile through attention to
credit quality and diversification. By the end of the 12-month period, more than
82 percent of the trust's total investments was invested in bonds rated AAA and
AA; these represent the two highest tiers of credit ratings. The portfolio was
also well diversified across the major sectors of the municipal-bond market. Its
three largest sector exposures were health care, public education, and
transportation.
While it is impossible to predict the exact turning point when interest rates
will move decisively higher, we believe the trust remains well positioned for
the near future. We will continue to comb the municipal bond markets for
interesting opportunities.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the trust in the future.
D-6
RATINGS ALLOCATION AS OF 10/31/04
AAA/Aaa 76.4%
AA/Aa 6.4
A/A 5.2
BBB/Baa 10.2
BB/Ba 0.5
Non-Rated 1.3
TOP 5 SECTORS AS OF 10/31/04
Health Care 15.2%
Public Education 15.0
Transportation 10.9
General Purpose 9.3
Industrial Revenue 9.0
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
California 12.3%
Texas 10.6
New York 9.0
Arizona 7.1
Michigan 6.3
Ohio 5.1
Illinois 4.8
Florida 4.3
Georgia 4.2
Puerto Rico 3.8
Missouri 3.2
Colorado 2.6
Oklahoma 2.5
Mississippi 2.0
Alabama 2.0
New Jersey 1.9
Louisiana 1.9
New Hampshire 1.8
Nevada 1.6
Tennessee 1.4
Wisconsin 1.4
Oregon 1.2
Massachusetts 1.2
Connecticut 1.1
Pennsylvania 1.0
Virginia 0.9
North Carolina 0.9
New Mexico 0.8
Indiana 0.8
Washington 0.7
South Dakota 0.5
Maryland 0.5
D-7
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
Minnesota 0.5
Idaho 0.1
-----
Total Investments 100.0%
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
D-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
D-9
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
MUNICIPAL BONDS 162.6%
ALABAMA 3.2%
$3,640 University Southern AL Univ Rev Cap Impt & Rfdg
(FGIC Insd)...................................... 5.000% 03/15/21 $ 3,903,027
------------
ARIZONA 11.6%
5,755 Arizona Sch Fac Brd Ctf Part Ser A (MBIA Insd)... 5.250 09/01/17 6,357,146
3,000 Arizona St Transn Brd Hwy Rev Ser B.............. 5.250 07/01/19 3,318,750
2,000 Phoenix, AZ Civic Impt Corp Arpt Rev Jr Lien
(AMT) (FGIC Insd)................................ 5.375 07/01/29 2,034,140
910 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 961,233
1,300 Tempe, AZ Excise Tax Rev Rfdg.................... 5.250 07/01/18 1,434,550
------------
14,105,819
------------
CALIFORNIA 20.0%
6,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Pub
Impt Proj Ser C (FSA Insd)....................... * 09/01/19 3,026,700
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Pub
Impt Proj Ser C (FSA Insd)....................... * 09/01/32 1,127,600
1,000 California St (AMBAC Insd)....................... 5.125 10/01/27 1,042,570
2,800 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)............................................ 5.500 05/01/16 3,198,384
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.000 12/01/19 2,209,300
2,500 California St Pub Wks Brd Lease Rev Dept of
Mental Hlth Coalinga Ser A....................... 5.000 06/01/24 2,589,475
3,950 Los Angeles, CA Dept Wtr & Pwr Ser A (FGIC
Insd)............................................ 5.125 07/01/40 4,052,977
13,880 San Joaquin Hills, CA Transn Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)............ * 01/15/28 4,098,486
2,720 Washington, CA Uni Sch Dist Yolo Cnty Election
2004 Ser A (FGIC Insd) (d)....................... 5.250 08/01/19 3,003,778
------------
24,349,270
------------
COLORADO 4.2%
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj (Prerefunded @ 08/31/05).................... 7.000 08/31/26 1,072,730
5,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj Ser C (Prerefunded @ 08/31/05).............. * 08/31/26 1,027,700
1,475 Colorado Ed & Cultural Fac Auth Rev Charter Sch
Proj Impt & Rfdg (XLCA Insd)..................... 5.250 08/15/19 1,613,724
1,000 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth................................... 6.500 11/15/31 1,099,240
See Notes to Financial Statements
D-10
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$ 165 Colorado Hsg Fin Auth Single Family Pgm Sr Ser A2
(AMT)............................................ 7.250% 05/01/27 $ 168,437
109 Colorado Hsg Fin Auth Single Family Pgm Sr Ser B1
(AMT)............................................ 7.650 11/01/26 109,555
------------
5,091,386
------------
CONNECTICUT 1.8%
1,010 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144-A Private Placement (a)................... 6.400 09/01/11 1,080,336
990 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144-A Private Placement (Prerefunded @
09/01/07) (a).................................... 6.400 09/01/11 1,102,038
------------
2,182,374
------------
FLORIDA 7.1%
3,000 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd)...... 5.375 07/01/17 3,363,450
5,000 Ocoee, FL Wtr & Swr Sys Rev Impt & Rfdg (AMBAC
Insd)............................................ 5.125 10/01/33 5,203,150
------------
8,566,600
------------
GEORGIA 6.8%
2,000 Atlanta, GA Wtr & Wastewtr Rev (FSA Insd)........ 5.000 11/01/21 2,154,180
2,000 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 2,015,120
2,000 Georgia St Rd & Twy Auth Rev..................... 5.000 10/01/19 2,180,900
1,745 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)................................ 5.250 11/01/20 1,900,026
------------
8,250,226
------------
ILLINOIS 7.8%
1,710 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA Insd)
(d).............................................. * 01/01/29 479,501
5,400 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser
B-1 (FGIC Insd).................................. * 12/01/28 1,519,074
7,375 Illinois Hlth Fac Auth Rev Swedish Amern Hosp
Rfdg (AMBAC Insd) (b)............................ 5.375 11/15/13 7,468,515
------------
9,467,090
------------
INDIANA 1.3%
1,500 Indiana St Dev Fin Auth Rev Exempt Fac Conv Rfdg
(AMT)............................................ 5.950 08/01/30 1,536,840
------------
See Notes to Financial Statements
D-11
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
LOUISIANA 3.1%
$1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen
Retirement Ser A................................. 6.700% 12/01/25 $ 1,434,748
2,000 New Orleans, LA Rfdg (FGIC Insd)................. 5.500 12/01/21 2,348,280
------------
3,783,028
------------
MARYLAND 0.9%
1,000 Maryland St Econ Dev Corp Univ MD College Pk
Proj............................................. 5.625 06/01/35 1,033,220
------------
MASSACHUSETTS 2.0%
1,200 Massachusetts Bay Tran Auth MA Gen Tran Sys Ser A
Rfdg............................................. 6.250 03/01/12 1,430,292
1,000 Massachusetts St Hlth & Ed Fac Auth Rev Saint Mem
Med Ctr Ser A.................................... 6.000 10/01/23 953,990
------------
2,384,282
------------
MICHIGAN 10.3%
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 2,181,740
2,790 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser C Rfdg
(MBIA Insd) (d).................................. 5.250 07/01/19 3,057,198
2,000 Grand Rapids, MI Wtr Supply (FGIC Insd).......... 5.750 01/01/15 2,266,740
2,075 South Lyon, MI Cmnty Sch Bldg & Site (FGIC
Insd)............................................ 5.250 05/01/18 2,305,346
2,285 Taylor, MI Bldg Auth (AMBAC Insd) (d)............ 6.000 03/01/13 2,715,311
------------
12,526,335
------------
MINNESOTA 0.8%
1,000 Duluth, MN Econ Dev Auth Hlthcare Fac Rev
Benedictine Hlth Sys Saint Marys................. 5.250 02/15/33 1,014,240
------------
MISSISSIPPI 3.3%
3,000 Mississippi Bus Fin Corp MS Pollutn Ctl Rev Sys
Energy Res Inc Proj Rfdg......................... 5.900 05/01/22 3,032,400
925 Mississippi Home Corp Single Family Rev Mtg Ser C
(AMT) (GNMA Collateralized)...................... 7.600 06/01/29 973,146
------------
4,005,546
------------
MISSOURI 5.2%
2,000 Curators Univ MO Sys Fac Rev Ser B Rfdg (d)...... 5.000 11/01/20 2,155,480
4,000 Saint Louis, MO Arpt Rev Arpt Dev Pgm Ser A (MBIA
Insd)............................................ 5.250 07/01/31 4,183,920
------------
6,339,400
------------
NEVADA 2.5%
3,000 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp
Proj Ser A (AMT) (AMBAC Insd).................... 5.250 07/01/34 3,096,000
------------
See Notes to Financial Statements
D-12
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
NEW HAMPSHIRE 2.9%
$1,000 New Hampshire Hlth & Ed Fac Auth Rev Derryfield
Sch.............................................. 7.000% 07/01/30 $ 1,001,330
1,400 New Hampshire Hlth & Ed Fac Hlthcare Sys Covenant
Hlth............................................. 5.500 07/01/34 1,435,238
1,000 New Hampshire St Bus Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMT) (AMBAC Insd)......... 6.300 05/01/22 1,103,160
------------
3,539,728
------------
NEW JERSEY 3.1%
500 New Jersey Econ Dev Auth Rev Cigarette Tax....... 5.750 06/15/29 513,310
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 2,295,615
1,000 New Jersey Hlthcare Fac Fin Auth Rev Cap Hlth Sys
Oblig Grp Ser A.................................. 5.375 07/01/33 1,015,850
------------
3,824,775
------------
NEW MEXICO 1.3%
1,500 Jicarilla, NM Apache Nation Rev Adj Ser A
(Acquired 10/23/03, Cost $1,514,910) (c)......... 5.000 09/01/18 1,574,220
------------
NEW YORK 14.2%
3,000 New York City Ser G (Prerefunded @ 02/01/06)..... 6.000 02/01/11 3,202,170
5,000 New York City Ser H (MBIA Insd).................. 5.250 03/15/14 5,611,450
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 2,250,668
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 3,098,910
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 3,104,190
------------
17,267,388
------------
NORTH CAROLINA 1.4%
1,500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser
D................................................ 6.700 01/01/19 1,694,475
------------
OHIO 8.4%
3,000 Cincinnati, OH City Sch Dist Sch Impt (FSA
Insd)............................................ 5.250 06/01/18 3,334,590
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc Proj... 7.500 01/01/30 1,108,460
1,000 Dayton, OH Arpt Rev James M Cox Dayton Ser C Rfdg
(AMT) (Radian Insd).............................. 5.250 12/01/27 1,024,050
1,165 Marion Cnty, OH Rev Cmnty Hosp Impt & Rfdg....... 6.100 05/15/06 1,215,689
See Notes to Financial Statements
D-13
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
OHIO (CONTINUED)
$3,290 Pickerington, OH Loc Sch Dist Cap Apprec Sch Fac
Contract (FGIC Insd)............................. * 12/01/11 $ 2,569,556
850 Toledo Lucas Cnty, OH Port Auth Northwest Bd Fd
Ser A (AMT)...................................... 6.000% 05/15/11 919,811
------------
10,172,156
------------
OKLAHOMA 4.1%
1,755 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev (AMBAC
Insd)............................................ 6.250 11/01/22 2,050,577
2,785 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Ctr
Proj Rfdg (Escrowed to Maturity) (Connie Lee
Insd) (d)........................................ 6.250 06/01/06 2,971,762
------------
5,022,339
------------
OREGON 2.0%
2,010 Emerald Peoples Util Dist OR Rfdg (FGIC Insd)
(d).............................................. 7.350 11/01/09 2,434,793
------------
PENNSYLVANIA 1.7%
2,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D (AMT).......................... 7.150 12/01/18 2,048,040
------------
SOUTH DAKOTA 0.9%
1,000 South Dakota St Hlth & Ed Fac Auth Rev Childrens
Care Hosp Rfdg................................... 6.125 11/01/29 1,063,240
------------
TENNESSEE 2.3%
1,270 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp First
Mtg Ser B Impt & Rfdg............................ 8.000 07/01/33 1,510,563
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 1,261,640
------------
2,772,203
------------
TEXAS 17.3%
790 Brazos River Auth TX Pollutn Ctl Rev Adj TXU Elec
Co Proj Ser C Rfdg (AMT) (Variable Rate
Coupon).......................................... 5.750 05/01/36 857,166
1,050 Brownsville, TX Util Sys Rev (Escrowed to
Maturity)........................................ 7.375 01/01/10 1,193,472
1,515 Cameron Cnty, TX Ctf Oblig (AMBAC Insd) (d)...... 5.750 02/15/16 1,706,814
3,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt Jt Ser A
Rfdg (AMT) (FGIC Insd)........................... 5.500 11/01/31 3,139,110
2,945 Houston, TX Arpt Sys Rev (Escrowed to
Maturity)........................................ 9.500 07/01/10 3,611,071
1,000 Mesquite, TX Hlth Fac Dev Corp Retirement Fac
Christian Care Ctr Ser A......................... 7.625 02/15/28 1,052,370
3,000 Prosper,TX Indpt Sch Dist (PSFG Insd)............ 5.500 08/15/33 3,202,290
2,000 San Antonio, TX Elec & Gas Sys Rfdg.............. 5.375 02/01/16 2,236,980
1,990 Stafford, TX Econ Dev Corp (FGIC Insd) (d)....... 6.000 09/01/19 2,341,951
1,510 Texas St Wtr Fin Assistance...................... 5.500 08/01/35 1,637,791
------------
20,979,015
------------
See Notes to Financial Statements
D-14
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
VIRGINIA 1.5%
$1,595 Richmond, VA Indl Dev Auth Govt Fac Rev Bds
(AMBAC Insd) (d)................................. 5.000% 07/15/16 $ 1,792,956
------------
WASHINGTON 1.1%
1,280 Pierce Cnty, WA Sch Dist No. 343 Dieringer Impt &
Rfdg (FSA Insd).................................. 5.000 12/01/20 1,373,158
------------
WISCONSIN 2.2%
2,500 Milwaukee, WI Redev Auth Rev Milwaukee Pub Schs
(AMBAC Insd)..................................... 5.125 08/01/21 2,682,200
------------
PUERTO RICO 6.3%
6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (FSA Insd).................................. 6.250 07/01/21 7,609,560
------------
TOTAL LONG-TERM INVESTMENTS 162.6%
(Cost $184,591,579)........................................................ 197,484,929
SHORT-TERM INVESTMENTS 0.6%
(Cost $700,000)............................................................ 700,000
------------
TOTAL INVESTMENTS 163.2%
(Cost $185,291,579)........................................................ 198,184,929
OTHER ASSETS IN EXCESS OF LIABILITIES 2.7%.................................. 3,310,303
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (65.9%).................. (80,019,067)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $121,476,165
============
Percentages are calculated as a percentage of net assets applicable to
common shares.
* Zero coupon bond
(a) 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.
(b) All or a portion of this security has been physically segregated in
connection with open futures contracts.
(c) This security is restricted and may be resold only in transactions exempt
from registration which are normally those transactions with qualified
institutional buyers. The restricted security comprises 1.3% of net assets
applicable to common shares.
(d) The Trust owns 100% of the bond issuance.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
See Notes to Financial Statements
D-15
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSFG--Permanent School Fund Guaranty
Radian--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
D-16
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
ASSETS:
Total Investments (Cost $185,291,579)....................... $198,184,929
Cash........................................................ 16,680
Receivables:
Interest.................................................. 3,129,626
Investments Sold.......................................... 699,206
Other....................................................... 4,653
------------
Total Assets............................................ 202,035,094
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 102,162
Variation Margin on Futures............................... 94,781
Income Distributions--Common Shares....................... 17,401
Other Affiliates.......................................... 8,644
Trustees' Deferred Compensation and Retirement Plans........ 226,805
Accrued Expenses............................................ 90,069
------------
Total Liabilities....................................... 539,862
Preferred Shares (including accrued distributions).......... 80,019,067
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $121,476,165
============
NET ASSET VALUE PER COMMON SHARE ($121,476,165 divided by
8,175,881 shares outstanding)............................. $ 14.86
============
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............................................. 108,295,103
Net Unrealized Appreciation................................. 12,616,236
Accumulated Undistributed Net Investment Income............. 1,376,017
Accumulated Net Realized Loss............................... (892,950)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $121,476,165
============
PREFERRED SHARES ($.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....................... $201,476,165
============
See Notes to Financial Statements
D-17
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2004
INVESTMENT INCOME:
Interest.................................................... $10,358,879
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,202,514
Preferred Share Maintenance................................. 232,783
Trustees' Fees and Related Expenses......................... 71,400
Administrative Fee.......................................... 58,584
Legal....................................................... 27,265
Custody..................................................... 13,105
Other....................................................... 149,764
-----------
Total Expenses.......................................... 1,755,415
-----------
NET INVESTMENT INCOME....................................... $ 8,603,464
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,647,995
Futures................................................... (1,714,984)
-----------
Net Realized Loss........................................... (66,989)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 11,091,817
-----------
End of the Period:
Investments............................................. 12,893,350
Futures................................................. (277,114)
-----------
12,616,236
-----------
Net Unrealized Appreciation During the Period............... 1,524,419
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,457,430
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (844,530)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 9,216,364
===========
See Notes to Financial Statements
D-18
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 8,603,464 $ 8,782,170
Net Realized Gain/Loss.................................... (66,989) 2,363,476
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 1,524,419 (3,608,434)
Distributions to Preferred Shareholders:
Net Investment Income................................... (844,530) (805,099)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations.............................................. 9,216,364 6,732,113
Distributions to Common Shareholders:
Net Investment Income................................... (7,846,362) (8,184,010)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES................................... 1,370,002 (1,451,897)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment............................................ 115,004 -0-
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES.................................................. 1,485,006 (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 $1,376,017 and $1,454,435,
respectively)........................................... $121,476,165 $119,991,159
============ ============
See Notes to Financial Statements
D-19
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------
2004 2003 2002 (a)
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 14.69 $ 14.87 $ 14.77
------- ------- -------
Net Investment Income..................................... 1.05 1.08 1.10
Net Realized and Unrealized Gain/Loss..................... .18 (.16) .10
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income................................. (.10) (.10) (.14)
------- ------- -------
Total from Investment Operations............................ 1.13 .82 1.06
Distributions Paid to Common Shareholders:
Net Investment Income................................. (.96) (1.00) (.96)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 14.86 $ 14.69 $ 14.87
======= ======= =======
Common Share Market Price at End of the Period.............. $ 14.70 $ 13.90 $ 13.98
Total Return (b)............................................ 13.05% 6.57% 15.64%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................. $ 121.5 $ 120.0 $ 121.4
Ratio of Expenses to Average Net Assets Applicable to Common
Shares (c)................................................ 1.46% 1.48% 1.58%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)........................... 7.14% 7.23% 7.55%
Portfolio Turnover.......................................... 29% 26% 45%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)................................................ .88% .89% .95%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................... 6.44% 6.57% 6.59%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......................... 3,200 3,200 3,200
Asset Coverage Per Preferred Share (e)...................... $62,967 $62,499 $62,954
Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................... $25,000 $25,000 $25,000
(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.
D-20
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
$ 13.46 $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31 $ 11.93
------- -------- -------- -------- -------- -------- --------
1.12 1.08 1.10 1.10 1.12 1.12 1.15
1.23 .64 (1.84) .54 .63 .19 1.45
(.32) (.40) (.32) (.35) (.35) (.35) (.39)
------- -------- -------- -------- -------- -------- --------
2.03 1.32 (1.06) 1.29 1.40 .96 2.21
(.72) (.78) (.74) (.74) (.74) (.76) (.83)
------- -------- -------- -------- -------- -------- --------
$ 14.77 $ 13.46 $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31
======= ======== ======== ======== ======== ======== ========
$ 12.95 $ 11.625 $11.1875 $13.6875 $ 12.50 $ 11.50 $ 11.50
18.05% 11.15% -13.37% 15.87% 15.58% 6.82% 25.22%
$ 120.6 $ 109.9 $ 105.6 $ 120.2 $ 115.7 $ 110.3 $ 108.7
1.76% 1.88% 1.79% 1.83% 1.88% 1.94% 1.98%
7.89% 8.35% 7.86% 7.67% 8.16% 8.42% 9.06%
38% 24% 36% 15% 16% 37% 79%
1.04% 1.07% 1.06% 1.09% 1.09% 1.12% 1.12%
5.66% 5.27% 5.60% 5.24% 5.61% 5.77% 6.01%
3,200 3,200 3,200 1,600 1,600 1,600 1,600
$62,695 $ 59,345 $ 57,986 $125,139 $122,327 $118,953 $117,963
$25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
D-21
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004
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 the 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 October 31, 2004, the Trust had no 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, 2004, the Trust had an accumulated capital loss
carryforward for tax purposes of $1,168,555 of which $552,994 will
D-22
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
expire on October 31, 2005, $488,247 will expire on October 31, 2007 and
$127,314 will expire on October 31, 2008.
At October 31, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $184,869,940
============
Gross tax unrealized appreciation........................... $ 13,361,337
Gross tax unrealized depreciation........................... (46,348)
------------
Net tax unrealized appreciation on investments.............. $ 13,314,989
============
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 years ended October 31,
2004 and 2003 was as follows:
2004 2003
Distributions paid from:
Ordinary income........................................... $122,420 $119,925
Long-term capital gain.................................... -0- -0-
-------- --------
$122,420 $119,925
======== ========
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent book and
tax difference relating to excise taxes paid that are not deductible for tax
purposes totaling $158 was reclassified from accumulated undistributed net
investment income to paid in surplus. Additionally, a permanent difference
relating to book to tax accretion differences totaling $8,852 was reclassified
to accumulated undistributed net investment income from accumulated net realized
loss.
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $370,024
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 and gains or losses recognized for tax purposes on open futures
transactions on October 31, 2004.
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") will provide investment advice and facilities to the
Trust for an
D-23
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
annual fee payable monthly of .60% of the average daily net assets of the Trust.
Effective November 1, 2004, the investment advisory fee was reduced from .60% to
.55%. In addition, the Trust paid 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 year ended October 31, 2004, the Trust recognized expenses of
approximately $13,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust
is a partner who provides legal services to the Trust, and is therefore 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 year ended October
31, 2004, the Trust recognized expenses of approximately $30,500 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
also 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.
3. CAPITAL TRANSACTIONS
At October 31, 2004 and October 31, 2003, paid in surplus related to common
shares aggregated $108,295,103 and $108,180,334, respectively.
Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 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 $60,611,728 and $57,114,421,
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
D-24
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
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 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 year ended October 31, 2004 were
as follows:
CONTRACTS
Outstanding at October 31, 2003............................. 196
Futures Opened.............................................. 1,312
Futures Closed.............................................. (1,124)
------
Outstanding at October 31, 2004............................. 384
======
The futures contracts outstanding as of October 31, 2004, and the
descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS
U.S. Treasury Notes 10-Year Futures December 2004 (Current
Notional Value of $113,563 per contract)................ 69 $ (78,979)
U.S. Treasury Notes 5-Year Futures December 2004 (Current
Notional Value of $111,375 per contract)................ 315 (198,135)
--- ---------
384 $(277,114)
=== =========
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
D-25
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
series through an auction process. The average rate in effect on October 31,
2004 was 1.575%. During the year ended October 31, 2004, the rates ranged from
0.627% to 1.650%.
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.
7. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
D-26
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Van Kampen Advantage Municipal Income Trust II
We have audited the accompanying statement of assets and liabilities of Van
Kampen Advantage Municipal Income Trust II (the "Trust"), including the
portfolio of investments, as of October 31, 2004, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The Trust's financial highlights for
the periods ended prior to October 31, 2000 were audited by other auditors whose
report, dated December 6, 1999, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Trust's
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Advantage Municipal Income Trust II as of October 31, 2004, the results
of its operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 10, 2004
D-27
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
D-28
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
D-29
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, New York 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 REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2004. The Trust designated 98.6% of the income distributions as a
tax-exempt income distribution. In January, the Trust provides tax information
to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
D-30
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2004,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by the common shareholders
of the Trust:
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
J. Miles Branagan.......................................... 7,567,790 130,103
Linda Hutton Heagy......................................... 7,572,340 125,553
Mitchell M. Merin.......................................... 7,590,366 107,527
Wayne W. Whalen............................................ 7,570,499 127,394
With regard to the election of the following trustee by the preferred
shareholders of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Rod Dammeyer................................................ 3,002 22
The other trustees of the Trust whose terms did not expire in 2004 are David C.
Arch, Jerry D. Choate, R. Craig Kennedy, Howard J Kerr, Jack E. Nelson, Richard
F. Powers, III, Hugo F. Sonnenschein and Suzanne H. Woolsey.
D-31
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing
Blistex Inc. since 1993 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
D-32
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
D-33
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing
CAC, L.L.C. since 1993 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
D-34
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 83 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 85 Trustee/Director/Managing
736 North Western Avenue since 1993 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
D-35
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 85 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 83 Trustee/Director/Managing
(62) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
D-36
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
D-37
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 85 Trustee/Director/Managing
333 West Wacker Drive since 1993 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
D-38
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James M. Dykas (38) Chief Financial Officer Executive Director of Van Kampen Asset Management and Morgan
1 Parkview Plaza Officer and since 1999 Stanley Investment Management. Chief Financial Officer and
Oakbrook Terrace, IL 60181 Treasurer Treasurer of funds in the Fund Complex. Prior to August
2004, Assistant Treasurer of funds in the Fund Complex.
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since May 2003.
1221 Avenue of the Americas President and since 2003 Chief Executive Officer and Chairman of Investor Services.
New York, NY 10020 Principal Executive Vice President and Principal Executive Officer of
Executive funds in the Fund Complex. Managing Director of Morgan
Officer Stanley. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
D-39
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
D-40
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use
(continued on back)
D-41
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
of "cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
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 ANR 12/04 RN04-02819P-Y10/04
D-42
APPENDIX E
SEMIANNUAL REPORT OF THE ACQUIRING FUND, DATED APRIL 30, 2005
E-1
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, 2005.
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
---------------------------------------------------------------------------------------
E-2
Performance Summary as of 4/30/05
ADVANTAGE MUNICIPAL INCOME TRUST II
SYMBOL: VKI
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (8/27/93) 6.62% 5.62%
10-year 8.15 8.67
5-year 10.15 10.70
1-year 10.70 8.11
6-month 3.82 -5.40
------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
E-3
Trust Report
FOR THE 6-MONTH PERIOD ENDED APRIL 30, 2005
Van Kampen Advantage Municipal Income Trust II is managed by the Adviser's
Municipal Fixed Income team.(1) Current members include Timothy D. Haney and
Robert Wimmel, Vice Presidents of the Adviser; and John Reynoldson, Executive
Director of the Adviser.
MARKET CONDITIONS
The six-month period ended April 30, 2005, was characterized by continued
short-term interest rate increases. As crude oil prices reached record highs,
the prospect of rising inflation also cast a shadow. The Federal Open Market
Committee (the "Fed") raised the federal funds target rate 100 basis points
during the period through a series of four "measured" 0.25 percent tightenings
to 2.75 percent by the end of April. Although rates in the short and
intermediate areas of the yield curve shifted upward as the Fed tightened, long-
term interest rates fell as buyers did not seem deterred by the prospect of
rising inflation. As a result, the yield curve (the difference between short and
longer-term yields) flattened and the long end of the municipal market handily
outperformed the shorter end.
The municipal market in total posted positive returns during the period, though
it was not uniformly strong. In contrast to the strong showing by longer-term
bonds, shorter-term municipals were hampered by the Fed's tightening and turned
in a flat to slightly negative showing. Within the investment-grade segment of
the market, yield differentials between BBB-rated and AAA-rated municipal
securities were slightly wider, though BBB-rated securities still outperformed
high grades due to their higher coupons, while securities rated below investment
grade strongly outperformed as investors sought out their higher yields.
The Fed's interest rate hikes did not appear to dampen investors' appetites for
municipal bonds, as net inflows into municipal bond funds topped $290 million
during the period. The supply of new issues was modest during the closing months
of 2004 (the first two months of the period) before soaring in the opening
months of 2005 as long-term issuers rushed to bring securities to market in
anticipation of additional interest rate increases in the near term.
(1)Team members may change without notice at any time.
E-4
PERFORMANCE ANALYSIS
The trust's return 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, as they did during the reporting period. On an NAV basis,
the trust outperformed its benchmark index, the Lehman Brothers Municipal Bond
Index. On a market basis, the trust underperformed its benchmark.
TOTAL RETURNS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2005
----------------------------------------------------------
LEHMAN BROTHERS
BASED ON BASED ON MUNICIPAL
NAV MARKET PRICE BOND INDEX
3.82% -5.40% 1.93%
----------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates throughout the period made the trust's borrowing activity
more expensive. These expenses, however, were more than offset by the positive
performance of the bonds held by the trust.
As part of an ongoing strategy to position the trust for continued increases in
short-term interest rates, we trimmed exposure to bonds with maturities in the
five- to 15-year range. Our strategy also included adding selectively to the
trust's holdings of bonds with longer maturities but moderate interest rate
characteristics. Finally, we kept the trust's duration (a measure of overall
interest-rate sensitivity) below that of its benchmark.
We continued to focus on relative-value trading between liquid, high-quality
securities to capture relative value opportunities identified by our analysts.
The trust's overall credit exposure remained tilted toward higher-quality
securities, with 80 percent of its exposure at the end of the period in bonds
rated AA or better. We took advantage of some compelling opportunities to add
BBB rated securities to the portfolio when our analysts identified securities
with attractive structures and yield characteristics. By the end of the period,
bonds rated BBB represented 11 percent of the portfolio, an allocation which
proved beneficial as the market favored higher-coupon securities.
E-5
The trust's portfolio remained well diversified across the major sectors of the
municipal bond market, with its top three sectors at the end of the period being
transportation, water and sewer, and public education.
There is no guarantee the security sectors mentioned will continue to perform
well or be held by the trust in the future.
RATINGS ALLOCATION AS OF 4/30/05
AAA/Aaa 75.0%
AA/Aa 5.0
A/A 6.3
BBB/Baa 11.1
BB/Ba 0.5
NR 2.1
TOP 5 SECTORS AS OF 4/30/05
Transportation 14.3%
Water & Sewer 14.2
Public Education 12.7
General Purpose 9.1
Health Care 9.0
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 4/30/05
California 14.1%
Texas 10.3
Michigan 6.7
Massachusetts 6.7
Ohio 4.9
Missouri 4.7
New York 4.3
Florida 4.3
Puerto Rico 3.8
Arizona 3.8
Nevada 3.8
Georgia 3.1
New Jersey 3.0
Pennsylvania 2.6
Oklahoma 2.4
Oregon 2.2
Louisiana 1.9
Mississippi 1.9
New Hampshire 1.8
Colorado 1.7
North Carolina 1.7
Washington 1.5
Tennessee 1.4
Wisconsin 1.3
Connecticut 1.1
Illinois 1.1
New Mexico 0.8
Indiana 0.8
Virginia 0.8
(continued on next page)
E-6
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 4/30/05
(continued from previous page)
South Dakota 0.5
Alaska 0.5
Maryland 0.5
-----
Total Investments 100.0%
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
E-7
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public Web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public Web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by visiting our Web site at www.vankampen.com. This
information is also available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
E-8
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED)
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
MUNICIPAL BONDS 163.4%
ALASKA 0.9%
$1,000 Alaska St Hsg Fin Corp Gen Hsg Ser A
(FGIC Insd)..................................... 5.250% 12/01/41 $ 1,057,050
------------
ARIZONA 6.2%
3,000 Arizona St Transn Brd Hwy Rev Ser B............. 5.250 07/01/19 3,285,480
2,000 Phoenix, AZ Civic Impt Corp Arpt Rev Jr Lien
(AMT) (FGIC Insd)............................... 5.375 07/01/29 2,036,700
765 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 800,802
1,300 Tempe, AZ Excise Tax Rev Rfdg................... 5.250 07/01/18 1,433,211
------------
7,556,193
------------
CALIFORNIA 23.2%
6,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Pub Impt Proj Ser C (FSA Insd).................. * 09/01/19 3,126,540
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Pub Impt Proj Ser C (FSA Insd).................. * 09/01/32 1,275,450
2,095 Bay Area Govt Assn CA Rev Tax Alloc CA Redev
Pool Ser A (XLCA Insd).......................... 5.250 09/01/35 2,229,227
1,000 California St (AMBAC Insd)...................... 5.125 10/01/27 1,047,140
2,800 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd).................................... 5.500 05/01/16 3,153,276
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC
Insd)........................................... 5.000 12/01/19 2,197,020
2,500 California St Pub Wks Brd Lease Rev Dept of
Mental Hlth Coalinga Ser A...................... 5.000 06/01/24 2,616,050
1,000 California Statewide Cmntys Dev Auth Rev
Daughters of Charity Hlth Ser A................. 5.250 07/01/35 1,031,590
3,950 Los Angeles, CA Dept Wtr & Pwr Ser A
(FGIC Insd)..................................... 5.125 07/01/40 4,100,653
13,880 San Joaquin Hills, CA Transn Corridor Agy Toll
Rd Rev Cap Apprec Ser A Rfdg (MBIA Insd)........ * 01/15/28 4,511,555
2,720 Washington, CA Uni Sch Dist Yolo Cnty Election
2004 Ser A (FGIC Insd) (a)...................... 5.250 08/01/19 3,013,325
------------
28,301,826
------------
COLORADO 2.8%
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj (Prerefunded @ 08/31/05)................... 7.000 08/31/26 1,044,660
5,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj Ser C (Prerefunded @ 08/31/05)............. * 08/31/26 1,034,300
1,000 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth.................................. 6.500 11/15/31 1,103,950
120 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser A2 (AMT).................................... 7.250 05/01/27 122,235
See Notes to Financial Statements
E-9
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$ 94 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser B1 (AMT).................................... 7.650% 11/01/26 $ 95,902
------------
3,401,047
------------
CONNECTICUT 1.7%
1,010 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A--Private Placement (b).................. 6.400 09/01/11 1,065,227
990 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A--Private Placement (Prerefunded @
09/01/07) (b)................................... 6.400 09/01/11 1,067,062
------------
2,132,289
------------
FLORIDA 7.0%
3,000 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd)..... 5.375 07/01/17 3,304,920
5,000 Ocoee, FL Wtr & Swr Sys Rev Impt & Rfdg (AMBAC
Insd)........................................... 5.125 10/01/33 5,286,900
------------
8,591,820
------------
GEORGIA 5.1%
2,000 Atlanta, GA Wtr & Wastewtr Rev (FSA Insd)....... 5.000 11/01/21 2,141,660
2,000 Georgia St Rd & Twy Auth Rev.................... 5.000 10/01/19 2,170,180
1,745 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)............................... 5.250 11/01/20 1,900,567
------------
6,212,407
------------
ILLINOIS 1.8%
1,710 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA
Insd) (a)....................................... * 01/01/29 519,105
5,400 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser
B-1 (FGIC Insd)................................. * 12/01/28 1,662,552
------------
2,181,657
------------
INDIANA 1.3%
1,500 Indiana St Dev Fin Auth Rev Exempt Fac Conv
Rfdg (AMT)...................................... 5.950 08/01/30 1,544,160
------------
LOUISIANA 3.1%
1,400 Louisiana Pub Fac Auth Rev Hlth Fac Glen
Retirement Ser A................................ 6.700 12/01/25 1,442,924
2,000 New Orleans, LA Rfdg (FGIC Insd)................ 5.500 12/01/21 2,341,140
------------
3,784,064
------------
MARYLAND 0.9%
1,000 Maryland St Econ Dev Corp Univ MD College Pk
Proj............................................ 5.625 06/01/35 1,037,010
------------
MASSACHUSETTS 11.0%
1,200 Massachusetts Bay Tran Auth MA Gen Tran Sys Ser
A Rfdg.......................................... 6.250 03/01/12 1,400,844
3,500 Massachusetts Bay Tran Auth MA Sales Tax Rev Ser
A............................................... 5.000 07/01/35 3,608,220
See Notes to Financial Statements
E-10
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
$1,000 Massachusetts St Hlth & Ed Fac Auth Rev Saint
Mem Med Ctr Ser A............................... 6.000% 10/01/23 $ 1,004,060
7,050 Massachusetts St Wtr Res Auth Gen Ser J (FSA
Insd)........................................... 5.000 08/01/32 7,341,377
------------
13,354,501
------------
MICHIGAN 11.0%
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 2,119,200
2,790 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser C
Rfdg (MBIA Insd) (a)............................ 5.250 07/01/19 3,067,661
2,000 Grand Rapids, MI Wtr Supply (FGIC Insd)......... 5.750 01/01/15 2,233,400
1,000 Kent Hosp Fin Auth MI Rev Metro Hosp Proj Ser
A............................................... 6.000 07/01/35 1,070,740
2,075 South Lyon, MI Cmnty Sch Bldg & Site (FGIC
Insd)........................................... 5.250 05/01/18 2,280,529
2,285 Taylor, MI Bldg Auth (AMBAC Insd) (a)........... 6.000 03/01/13 2,670,982
------------
13,442,512
------------
MISSISSIPPI 3.1%
3,000 Mississippi Bus Fin Corp MS Pollutn Ctl Rev Sys
Energy Res Inc Proj Rfdg........................ 5.900 05/01/22 3,041,520
725 Mississippi Home Corp Single Family Rev Mtg Ser
C (AMT) (GNMA Collateralized)................... 7.600 06/01/29 745,764
------------
3,787,284
------------
MISSOURI 7.8%
2,000 Curators Univ MO Sys Fac Rev Ser B Rfdg (a)..... 5.000 11/01/20 2,159,760
3,000 Platte Cnty, MO Neighborhood Impt Parkville Ser
B (MBIA Insd)................................... 5.000 02/01/25 3,158,370
4,000 Saint Louis, MO Arpt Rev Arpt Dev Pgm Ser A
(MBIA Insd)..................................... 5.250 07/01/31 4,222,680
------------
9,540,810
------------
NEVADA 6.3%
3,000 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp
Proj Ser A (AMT) (AMBAC Insd)................... 5.250 07/01/34 3,147,360
4,375 Las Vegas Vly, NV Wtr Dist Ser B Rfdg (MBIA
Insd)........................................... 5.000 06/01/27 4,561,856
------------
7,709,216
------------
NEW HAMPSHIRE 3.0%
1,000 New Hampshire Hlth & Ed Fac Auth Rev Derryfield
Sch............................................. 7.000 07/01/30 1,060,170
1,400 New Hampshire Hlth & Ed Fac Hlthcare Sys
Covenant Hlth................................... 5.500 07/01/34 1,471,288
1,000 New Hampshire St Bus Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMT) (AMBAC Insd)........ 6.300 05/01/22 1,078,830
------------
3,610,288
------------
NEW JERSEY 4.9%
500 New Jersey Econ Dev Auth Rev Cigarette Tax...... 5.750 06/15/29 536,460
See Notes to Financial Statements
E-11
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
NEW JERSEY (CONTINUED)
$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 $ 2,304,455
1,000 New Jersey Hlthcare Fac Fin Auth Rev Cap Hlth
Sys Oblig Grp Ser A............................. 5.375 07/01/33 1,032,280
2,000 New Jersey St Tpk Auth Tpk Rev Ser C-1 (AMBAC
Insd)........................................... 5.000 01/01/35 2,074,260
------------
5,947,455
------------
NEW MEXICO 1.3%
1,500 Jicarilla, NM Apache Nation Rev Adj Ser A
(Acquired 10/23/03, Cost $1,514,910) (c)........ 5.000 09/01/18 1,568,820
------------
NEW YORK 7.1%
3,000 New York City Ser G (Prerefunded @ 02/01/06)
(d)............................................. 6.000 02/01/11 3,119,940
5,000 New York City Ser H (MBIA Insd)................. 5.250 03/15/14 5,520,300
------------
8,640,240
------------
NORTH CAROLINA 2.8%
1,500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser D........................................... 6.700 01/01/19 1,679,385
1,650 Raleigh Durham, NC Arpt Auth Rev Ser A (AMBAC
Insd)........................................... 5.000 05/01/30 1,733,787
------------
3,413,172
------------
OHIO 8.1%
3,000 Cincinnati, OH City Sch Dist Sch Impt (FSA
Insd)........................................... 5.250 06/01/18 3,299,910
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj............................................ 7.500 01/01/30 1,124,720
1,000 Dayton, OH Arpt Rev James M Cox Dayton Ser C
Rfdg (AMT) (Radian Insd)........................ 5.250 12/01/27 1,038,100
1,165 Marion Cnty, OH Rev Cmnty Hosp Impt & Rfdg...... 6.100 05/15/06 1,190,723
3,070 Pickerington, OH Loc Sch Dist Cap Apprec Sch Fac
Contract (FGIC Insd)............................ * 12/01/11 2,420,081
795 Toledo Lucas Cnty, OH Port Auth Northwest Bd Fd
Ser A (AMT)..................................... 6.000 05/15/11 855,086
------------
9,928,620
------------
OKLAHOMA 4.0%
1,755 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev (AMBAC
Insd)........................................... 6.250 11/01/22 2,001,981
2,785 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Ctr
Proj Rfdg (Escrowed to Maturity) (Connie Lee
Insd) (a)....................................... 6.250 06/01/06 2,887,404
------------
4,889,385
------------
OREGON 3.7%
2,010 Emerald Peoples Util Dist OR Rfdg (FGIC Insd)
(a)............................................. 7.350 11/01/09 2,362,112
2,060 Multnomah Cnty, OR Sch Dist No 007 Reynolds
(MBIA Insd) (e)................................. 5.000 06/01/30 2,127,589
------------
4,489,701
------------
See Notes to Financial Statements
E-12
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
PENNSYLVANIA 4.4%
$2,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D (AMT)......................... 7.150% 12/01/18 $ 2,047,800
2,000 Pennsylvania St Higher Ed Fac Auth Rev UPMC Hlth
Sys Ser A....................................... 6.250 01/15/17 2,258,280
905 Pennsylvania St Higher Ed Fac Auth Rev UPMC Hlth
Sys Ser A....................................... 6.250 01/15/18 1,019,890
------------
5,325,970
------------
SOUTH DAKOTA 0.9%
1,000 South Dakota St Hlth & Ed Fac Auth Rev Childrens
Care Hosp Rfdg.................................. 6.125 11/01/29 1,079,510
------------
TENNESSEE 2.3%
1,270 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp
First Mtg Ser B Impt & Rfdg..................... 8.000 07/01/33 1,514,056
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 1,258,270
------------
2,772,326
------------
TEXAS 16.9%
790 Brazos River Auth TX Pollutn Ctl Rev Adj TXU
Elec Co Proj Ser C Rfdg (AMT)................... 5.750 05/01/36 857,948
930 Brownsville, TX Util Sys Rev (Escrowed to
Maturity) (d)................................... 7.375 01/01/10 1,036,029
1,515 Cameron Cnty, TX Ctf Oblig (AMBAC Insd) (a)..... 5.750 02/15/16 1,672,605
3,000 Dallas-Fort Worth, TX Intl Arpt Rev Jt Ser A
Impt & Rfdg (AMT) (FGIC Insd)................... 5.500 11/01/31 3,173,640
2,945 Houston, TX Arpt Sys Rev (Escrowed to
Maturity)....................................... 9.500 07/01/10 3,473,451
1,000 Mesquite, TX Hlth Fac Dev Corp Retirement Fac
Christian Care Ctr Ser A........................ 7.625 02/15/28 1,048,840
3,000 Prosper, TX Indpt Sch Dist (PSF Gtd)............ 5.500 08/15/33 3,231,120
1,445 San Antonio, TX Elec & Gas Rev Sys Rfdg......... 5.375 02/01/16 1,579,385
555 San Antonio, TX Elec & Gas Rev Sys Rfdg
(Prerefunded @ 02/01/12)........................ 5.375 02/01/16 617,376
1,990 Stafford, TX Econ Dev Corp (FGIC Insd) (a)...... 6.000 09/01/19 2,340,439
1,510 Texas St Wtr Fin Assistance..................... 5.500 08/01/35 1,615,413
------------
20,646,246
------------
VIRGINIA 1.3%
1,445 Richmond, VA Indl Dev Auth Govt Fac Rev Bds
(AMBAC Insd).................................... 5.000 07/15/16 1,594,370
------------
WASHINGTON 1.1%
1,280 Pierce Cnty, WA Sch Dist No. 343 Dieringer Impt
& Rfdg (FSA Insd)............................... 5.000 12/01/20 1,367,731
------------
See Notes to Financial Statements
E-13
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
WISCONSIN 2.2%
$2,500 Milwaukee, WI Redev Auth Rev Milwaukee Pub Schs
(AMBAC Insd).................................... 5.125% 08/01/21 $ 2,673,250
------------
PUERTO RICO 6.2%
6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
Y Rfdg (FSA Insd)............................... 6.250 07/01/21 7,616,580
------------
TOTAL LONG-TERM INVESTMENTS 163.4%
(Cost $187,073,819)....................................................... 199,197,510
SHORT-TERM INVESTMENT 1.4%
(Cost $1,670,000)......................................................... 1,670,000
------------
TOTAL INVESTMENTS 164.8%
(Cost $188,743,819)....................................................... 200,867,510
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%................................. 1,022,135
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (65.7%)................. (80,025,654)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $121,863,991
============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) The Trust owns 100% of the bond issuance.
(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) This security is 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.
(d) All or a portion of this security has been physically segregated in
connection with open futures contracts.
(e) Security purchased on a when-issued or delayed delivery basis.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
Radian--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
E-14
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2005 (Unaudited)
ASSETS:
Total Investments (Cost $188,743,819)....................... $200,867,510
Cash........................................................ 141,625
Receivables:
Interest.................................................. 3,053,189
Investments Sold.......................................... 1,192,683
Variation Margin on Futures............................... 164,250
Other....................................................... 1,525
------------
Total Assets............................................ 205,420,782
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,122,568
Investment Advisory Fee................................... 90,643
Income Distributions--Common Shares....................... 16,446
Other Affiliates.......................................... 6,730
Trustees' Deferred Compensation and Retirement Plans........ 239,193
Accrued Expenses............................................ 55,557
------------
Total Liabilities....................................... 3,531,137
Preferred Shares (including accrued distributions).......... 80,025,654
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $121,863,991
============
NET ASSET VALUE PER COMMON SHARE ($121,863,991 divided by
8,175,881 shares outstanding)............................. $ 14.91
============
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............................................. 108,295,103
Net Unrealized Appreciation................................. 11,787,172
Accumulated Undistributed Net Investment Income............. 960,981
Accumulated Net Realized Gain............................... 738,976
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $121,863,991
============
PREFERRED SHARES ($.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....................... $201,863,991
============
See Notes to Financial Statements
E-15
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended April 30, 2005 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 4,975,293
-----------
EXPENSES:
Investment Advisory Fee..................................... 548,862
Preferred Share Maintenance................................. 115,937
Trustees' Fees and Related Expenses......................... 20,718
Legal....................................................... 15,126
Custody..................................................... 9,788
Other....................................................... 73,276
-----------
Total Expenses.......................................... 783,707
-----------
NET INVESTMENT INCOME....................................... $ 4,191,586
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,030,691
Futures................................................... 601,235
-----------
Net Realized Gain........................................... 1,631,926
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 12,616,236
-----------
End of the Period:
Investments............................................. 12,123,691
Futures................................................. (336,519)
-----------
11,787,172
-----------
Net Unrealized Depreciation During the Period............... (829,064)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 802,862
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (731,515)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 4,262,933
===========
See Notes to Financial Statements
E-16
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, 2005 OCTOBER 31, 2004
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 4,191,586 $ 8,603,464
Net Realized Gain/Loss................................... 1,631,926 (66,989)
Net Unrealized Appreciation/Depreciation During the
Period................................................. (829,064) 1,524,419
Distributions to Preferred Shareholders:
Net Investment Income.................................. (731,515) (844,530)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................. 4,262,933 9,216,364
Distributions to Common Shareholders:
Net Investment Income.................................. (3,875,107) (7,846,362)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES.................................. 387,826 1,370,002
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment........................................... -0- 115,004
------------ ------------
TOTAL INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES................................................. 387,826 1,485,006
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.................................. 121,476,165 119,991,159
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $960,981 and $1,376,017,
respectively).......................................... $121,863,991 $121,476,165
============ ============
See Notes to Financial Statements
E-17
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, ------------------
2005 2004 2003
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................. $ 14.86 $ 14.69 $ 14.87
------- ------- -------
Net Investment Income................................... .51 1.05 1.08
Net Realized and Unrealized Gain/Loss................... .10 .18 (.16)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income................................. (.09) (.10) (.10)
------- ------- -------
Total from Investment Operations.......................... .52 1.13 .82
Distributions Paid to Common Shareholders:
Net Investment Income................................. (.47) (.96) (1.00)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD........................ $ 14.91 $ 14.86 $ 14.69
======= ======= =======
Common Share Market Price at End of the Period............ $ 13.44 $ 14.70 $ 13.90
Total Return (b).......................................... -5.40%* 13.05% 6.57%
Net Assets Applicable to Common Shares at End of the
Period (In millions).................................... $ 121.9 $ 121.5 $ 120.0
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)....................................... 1.30% 1.46% 1.48%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)......................... 6.97% 7.14% 7.23%
Portfolio Turnover........................................ 19%* 29% 26%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c).................................... .79% .88% .89%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)......................... 5.76% 6.44% 6.57%
SENIOR SECURITIES:
Total Preferred Shares Outstanding........................ 3,200 3,200 3,200
Asset Coverage Per Preferred Share (e).................... $63,091 $62,967 $62,499
Involuntary Liquidating Preference Per Preferred Share.... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................. $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.
E-18
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------------
2002 (a) 2001 2000 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------
$ 14.77 $ 13.46 $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31 $ 11.93
------- ------- ------- -------- -------- -------- -------- --------
1.10 1.12 1.08 1.10 1.10 1.12 1.12 1.15
.10 1.23 .64 (1.84) .54 .63 .19 1.45
(.14) (.32) (.40) (.32) (.35) (.35) (.35) (.39)
------- ------- ------- -------- -------- -------- -------- --------
1.06 2.03 1.32 (1.06) 1.29 1.40 .96 2.21
(.96) (.72) (.78) (.74) (.74) (.74) (.76) (.83)
------- ------- ------- -------- -------- -------- -------- --------
$ 14.87 $ 14.77 $ 13.46 $ 12.92 $ 14.72 $ 14.17 $ 13.51 $ 13.31
======= ======= ======= ======== ======== ======== ======== ========
$ 13.98 $ 12.95 $11.625 $11.1875 $13.6875 $ 12.50 $ 11.50 $ 11.50
15.64% 18.05% 11.15% -13.37% 15.87% 15.58% 6.82% 25.22%
$ 121.4 $ 120.6 $ 109.9 $ 105.6 $ 120.2 $ 115.7 $ 110.3 $ 108.7
1.58% 1.76% 1.88% 1.79% 1.83% 1.88% 1.94% 1.98%
7.55% 7.89% 8.35% 7.86% 7.67% 8.16% 8.42% 9.06%
45% 38% 24% 36% 15% 16% 37% 79%
.95% 1.04% 1.07% 1.06% 1.09% 1.09% 1.12% 1.12%
6.59% 5.66% 5.27% 5.60% 5.24% 5.61% 5.77% 6.01%
3,200 3,200 3,200 3,200 1,600 1,600 1,600 1,600
$62,954 $62,695 $59,345 $ 57,986 $125,139 $122,327 $118,953 $117,963
$25,000 $25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
E-19
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (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.
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 the 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, 2005, the Trust had $2,105,258 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 Subchapter M 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, 2004, the Trust had an
E-20
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
accumulated capital loss carryforward for tax purposes of $1,168,555 which will
expire according to the following schedule.
AMOUNT EXPIRATION
$552,994.................................................... October 31, 2005
488,247.................................................... October 31, 2007
127,314.................................................... October 31, 2008
At April 30, 2005, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $188,585,829
============
Gross tax unrealized appreciation........................... $ 12,385,264
Gross tax unrealized depreciation........................... (103,583)
------------
Net tax unrealized appreciation on investments.............. $ 12,281,681
============
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,
2004 was as follows:
Distributions paid from:
Ordinary income........................................... $122,420
Long-term capital gain.................................... -0-
--------
$122,420
========
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $370,024
Net realized gains on losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses relating to wash sales
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") will provide investment advice and facilities to the
Trust for an annual fee payable monthly of .55% of the average daily net assets
of the Trust. Effective November 1, 2004, the investment advisory fee was
reduced from .60% to .55%.
For the six months ended April 30, 2005, the Trust recognized expenses of
approximately $3,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
E-21
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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, 2005, the Trust recognized expenses of approximately $17,400
representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van
Kampen") 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
also 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.
3. CAPITAL TRANSACTIONS
At April 30, 2005 and October 31, 2004, paid in surplus related to common shares
aggregated $108,295,103.
Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
Beginning Shares........................................ 8,175,881 8,168,211
Shares Issued Through Dividend Reinvestment............. -0- 7,670
--------- ---------
Ending Shares........................................... 8,175,881 8,175,881
========= =========
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $39,148,692 and $37,822,162,
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.
The Trust may invest up to 15% of its net assets in "inverse floating rate
obligations." The inverse floating rate obligations in which the Trust may
invest are typically created through a division of a fixed-rate municipal
obligation into two separate instruments, a short-term obligation and a
long-term obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation which the Trust
may purchase is the rate the issuer would have paid on the fixed-income
obligation, (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. These securities have varying degrees of liquidity
and the market value of such securities generally will fluctuate in response to
changes in market rates of interest to a greater extent than the value of an
equal principal amount of a fixed rate security having similar credit quality,
redemption provisions
E-22
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
and maturity. These securities tend to underperform the market for fixed rate
bonds in a rising interest rate environment, but tend to outperform the market
for fixed rate bonds when interest rates decline or remain relatively stable.
Although volatile, inverse floating rate obligations typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality, coupon, call provisions and maturity. These
securities usually permit the investor to convert the floating rate security
counterpart to a fixed rate (normally adjusted downward), and this optional
conversion feature may provide a partial hedge against rising rates if exercised
at an opportune time.
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 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, 2005
were as follows:
CONTRACTS
Outstanding at October 31, 2004............................. 384
Futures Opened.............................................. 1,126
Futures Closed.............................................. (853)
-----
Outstanding at April 30, 2005............................... 657
=====
E-23
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
The futures contracts outstanding as of April 30, 2005, and the descriptions
and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 5-Year Futures June 2005 (Current
Notional Value of $108,453 per contract)................ 657 $(336,519)
=== =========
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, 2005 was 2.600%. During the six months ended
April 30, 2005, the rates ranged from 1.500% to 2.600%.
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.
7. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
E-24
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
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
OFFICERS
MITCHELL M. MERIN
President and Chief Executive Officer
RONALD E. ROBISON
Executive Vice President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
TRANSFER AGENT
EQUISERVE TRUST COMPANY, N.A.
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 REGISTERED PUBLIC ACCOUNTING FIRM
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.
E-25
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
E-26
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each
time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of
Use of these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
VKI SAR 6/05 RN05-01297P-Y04/05
(VAN KAMPEN INVESTMENTS LOGO)
E-27
APPENDIX F
ANNUAL REPORT OF VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II,
DATED OCTOBER 31, 2004
F-1
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Municipal Opportunity Trust II performed during the annual 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 October 31, 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
---------------------------------------------------------------------------------------
F-2
Performance Summary as of 10/31/04
MUNICIPAL OPPORTUNITY TRUST II
SYMBOL: VOT
---------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (6/25/93) 6.83% 5.98%
10-year 8.95 9.76
5-year 9.71 11.10
1-year 8.17 6.12
---------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
F-3
Trust Report
FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
Van Kampen Municipal Opportunity 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 interest-rate environment of the 12 months ended October 31, 2004 was marked
by two periods of steadily declining yields, with a significant sell-off in the
middle. Yields fell steadily through the first half of the period, approaching
the historical lows of 2003. This trend persisted until March, at which point
yields reversed direction and began an upward march as prices fell. These losses
were steepest in April, as a surprisingly strong employment report and signals
from members of the Federal Open Market Committee (the "Fed") caused investors
to expect a near-term rate increase. Rates went on to decline from May through
the end of the period as the market digested the Fed's newly hawkish rate
stance. Investors were further comforted when, after the Fed raised rates at its
June 30, 2004 meeting, its members indicated that the path of future rate
increases would be measured.
Unusually, longer-maturity securities largely outperformed in this period of Fed
tightening. Historically, the typical pattern in periods of tightening policy
has seen yields rise across all maturities. During the review period, however,
yields of shorter maturity bonds rose while those of bonds with longer
maturities declined slightly.
Lower-quality municipal bonds also performed strongly in this environment, as
the difference in yields (known as the "yield spread") between AAA and BBB rated
bonds decreased by roughly 20 basis points for 20-year bonds. As a result,
sectors with heavy exposure to lower-rated debt, such as hospitals and
industrial-revenue bonds, posted higher total returns than sectors dominated by
higher-rated debt.
Issuance for the first ten months of 2004 (the final ten months of the review
period) was roughly six percent lower than in the same period in 2003. That
said, 2003 was a record year, and at the current pace if issuance, 2004 could
well be one of the largest years in recent memory. The strong supply met with
faltering demand from mutual funds, as fund investors withdrew over $15 billion
in net cash during the period. This faltering demand was largely offset by
increased participation in the market by insurance companies and individual
investors.
(1)Team members may change without notice at any time.
F-4
PERFORMANCE ANALYSIS
The trust's return 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. On both an NAV basis and a market price basis, the trust
outperformed its benchmark index, the Lehman Brother Municipal Bond Index. (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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates in the final months of the period made the trust's
borrowing activity more expensive. These expenses, however, were more than
offset by the strong performance of the bonds we invested in, leading to the
trust's outperformance of its benchmark, which is unleveraged.
One of our primary strategies in managing the trust was to configure its
interest-rate profile for a rising interest-rate environment. We did this
primarily by maintaining its duration (a measure of interest-rate sensitivity)
at a level lower than that of its benchmark. We also de-emphasized securities
with maturities in the range of five to 10 years given what appeared to be
unattractive total-return prospects. Instead, we emphasized securities in the
15-to 20-year part of the yield curve. Many of the securities we purchased
offered a compelling combination of premium coupon income and the moderate
interest-rate sensitivity of bonds with shorter maturities. While the overall
duration strategy provided mixed results, the portfolio's positioning along the
maturity spectrum boosted performance for the period.
In keeping with our long-term approach, we continued to engage in relative-
value trading in order to take advantage of pockets of opportunity in the
market. This approach generally entails buying securities that are undervalued
relative to what our analysis indicates to be their total-return potential, and
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
---------------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
8.17% 6.12% 6.03%
---------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
F-5
selling them when they reach that potential in order to reinvest the assets into
more promising opportunities. We took advantage of the late spring/early summer
spike in yields to purchase long bonds which we later sold into strong demand
from individual investors. We also selectively purchased A and BBB rated
securities, some of which we subsequently sold at a profit thanks to investors'
demand for yield-oriented securities.
We remained focused on controlling the trust's risk profile through attention to
credit quality and diversification. By the end of the 12-month period, more than
84 percent of the trust's total investments were invested in bonds rated AAA and
AA; these represent the two highest tiers of credit ratings. The portfolio was
also well diversified across the major sectors of the municipal bond market. Its
three largest sector exposures were public education, health care, and general
purpose.
While it is impossible to predict the exact turning point when interest rates
will move decisively higher, we believe the trust remains well positioned for
the near future. We will continue to comb the municipal bond markets for
interesting opportunities.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the trust in the future.
F-6
RATINGS ALLOCATION AS OF 10/31/04
AAA/Aaa 70.5%
AA/Aa 13.9
A/A 9.2
BBB/Baa 4.5
BB/Ba 0.3
B/B 0.5
Non-Rated 1.1
TOP 5 SECTORS AS OF 10/31/04
Public Education 18.4%
Health Care 14.4
General Purpose 14.2
Transportation 11.2
Public Building 7.6
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
California 13.8%
Illinois 10.1
Colorado 6.1
Indiana 5.7
Texas 5.6
New York 5.5
Louisiana 4.9
New Jersey 4.7
Missouri 4.7
Arizona 3.7
Puerto Rico 3.5
Mississippi 3.0
Georgia 2.9
South Carolina 2.5
Virginia 2.5
Pennsylvania 2.3
Florida 2.2
Michigan 1.6
Oregon 1.6
Nebraska 1.5
Oklahoma 1.5
Ohio 1.5
Rhode Island 1.4
(continued on next page)
F-7
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
(continued from previous page)
Washington 1.3%
Alabama 1.1
Massachusetts 1.1
West Virginia 0.9
Wisconsin 0.9
Minnesota 0.7
Tennessee 0.6
South Dakota 0.5
Utah 0.1
-----
Total Investments 100.0%
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
F-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
F-9
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
MUNICIPAL BONDS 162.2%
ALABAMA 1.8%
$1,000 Birmingham Baptist Med Ctr AL Baptist Hlth Sys
Ser A........................................... 5.875% 11/15/24 $ 1,042,280
1,090 Lee Cnty, AL Sch Wts Ltd Oblig (MBIA Insd)
(c)............................................. 5.000 02/01/17 1,183,086
1,000 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem
Hosp Ser A...................................... 5.600 11/01/16 1,008,970
-------------
3,234,336
-------------
ARIZONA 6.2%
5,000 Arizona Sch Fac Brd Ctfs Ser B (FGIC Insd)...... 5.250 09/01/18 5,521,950
2,235 Arizona Tourism & Sports Auth Tax Rev
Multipurpose Stad Fac Ser A (MBIA Insd)......... 5.375 07/01/21 2,460,780
2,685 South Campus Group LLC AZ Std Hsg Rev AZ St Univ
South Campus Proj (MBIA Insd)................... 5.625 09/01/35 2,951,406
-------------
10,934,136
-------------
CALIFORNIA 22.8%
7,195 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Sub Pub Impt Proj Ser C (FSA Insd).............. * 09/01/21 3,213,215
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt Proj
Ser C (FSA Insd)................................ 6.000 09/01/16 1,580,137
2,000 California St Dept Wtr Res Pwr Ser A............ 6.000 05/01/15 2,341,360
2,345 California St Dept Wtr Res Pwr Supply Rev Ser A
(XLCA Insd)..................................... 5.375 05/01/17 2,610,829
2,500 California St Pub Wks Brd Lease Rev Dept of
Mental Hlth Coalinga Ser A...................... 5.000 06/01/24 2,589,475
4,600 California St Pub Wks Brd Lease Rev Var Univ CA
Proj Ser A Rfdg (a)............................. 5.500 06/01/10 5,167,410
5,905 California St Pub Wks Brd Lease Rev Var Univ CA
Proj Ser A Rfdg................................. 5.500 06/01/14 6,704,714
5,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap
Apprec Rfdg (MBIA Insd)......................... * 01/15/18 2,561,200
2,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Sr
Lien Ser A (Prerefunded @ 01/01/07)............. 6.500 01/01/32 2,192,780
5,000 Los Angeles, CA Uni Sch Dist Ser A (FSA Insd)... 5.250 07/01/20 5,486,550
2,465 Los Angeles, CA Uni Sch Dist Ser B (FGIC
Insd)........................................... 5.000 07/01/23 2,589,261
3,070 Washington, CA Uni Sch Dist Yolo Cnty Ser A
(FGIC Insd) (c)................................. 5.250 08/01/20 3,371,136
-------------
40,408,067
-------------
COLORADO 10.1%
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj (Prerefunded @ 08/31/05)................... 7.000 08/31/26 1,072,730
7,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj Ser C (Prerefunded @ 08/31/05)............. * 08/31/26 1,541,550
1,945 Colorado Ed & Cultural Impt Charter Sch Pinnacle
Rfdg (XLCA Insd)................................ 5.250 06/01/23 2,074,284
See Notes to Financial Statements
F-10
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to Maturity)........ 5.500% 03/01/32 $ 1,050,690
1,250 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth.................................. 6.500 11/15/31 1,374,050
1,500 Denver, CO City & Cnty Arpt Rev Ser D (AMT)..... 7.750 11/15/13 1,834,635
3,515 E-470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser B
(MBIA Insd)..................................... * 09/01/13 2,483,277
6,160 E-470 Pub Hwy Auth CO Rev Sr Ser A (MBIA
Insd)........................................... 5.000 09/01/21 6,544,569
-------------
17,975,785
-------------
FLORIDA 3.0%
5,000 Osceola Cnty, FL Trans Rev Osceola Pkwy Proj &
Rfdg (MBIA Insd)................................ 5.000 04/01/22 5,342,550
-------------
GEORGIA 3.6%
5,000 Clayton Cnty & Clayton Cnty GA Wtr Auth Wtr &
Swr Rev (b)..................................... 5.000 05/01/20 5,436,650
1,000 Richmond Cnty, GA Dev Auth ASU Jaguar Student
Hsg LLC Ser A................................... 5.250 02/01/35 1,017,600
-------------
6,454,250
-------------
ILLINOIS 16.6%
3,750 Bolingbrook, IL Cap Apprec Ser B (MBIA Insd).... * 01/01/32 851,212
3,365 Chicago, IL Cap Apprec (Prerefunded @ 07/01/05)
(AMBAC Insd).................................... * 01/01/17 1,600,192
350 Chicago, IL Single Family Mtg Rev Ser A (AMT)
(GNMA Collateralized)........................... 7.000 09/01/27 351,459
55 Chicago, IL Single Family Mtg Rev Ser B (AMT)
(GNMA Collateralized)........................... 7.625 09/01/27 55,261
3,345 Cook Cnty, IL Sch Dist No 100 Berwyn South Ser D
Rfdg (FSA Insd)................................. 5.500 12/01/23 3,712,582
2,540 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap
Apprec (FGIC Insd) (c).......................... * 12/01/15 1,588,135
4,500 Cook Cnty, IL Ser A (FGIC Insd)................. 5.500 11/15/31 4,872,015
1,000 Illinois Dev Fin Auth Rev Cmnty Rehab Providers
Fac Ser A....................................... 7.375 07/01/25 1,081,320
2,500 Illinois Fin Auth Rev Northwestern Mem Hosp Ser
A............................................... 5.500 08/15/43 2,600,200
8,000 Illinois St First Ser (FSA Insd)................ 5.250 12/01/19 8,848,560
3,400 Illinois St First Ser (FSA Insd)................ 5.250 04/01/27 3,585,164
310 Peoria, Moline & Freeport, IL Coll Mtg Ser A
(AMT) (GNMA Collateralized)..................... 7.600 04/01/27 310,437
-------------
29,456,537
-------------
See Notes to Financial Statements
F-11
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
INDIANA 9.4%
$2,805 Dekalb Eastn High Sch Bldg Corp Ind First Mtg
(FSA Insd)...................................... 6.000% 01/15/18 $ 3,261,906
4,000 East Chicago, IN Elementary Sch Bldg Corp First
Mtg Ser A....................................... 6.250 07/05/08 4,473,200
3,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus Regl
Hosp Rfdg (FSA Insd)............................ 7.000 08/15/15 3,730,170
2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt
(AMT)........................................... 5.950 12/01/29 2,020,840
2,850 Southwest Parke Cmnty Sch Bldg First Mtg (FGIC
Insd) (c)....................................... 5.250 07/15/21 3,111,402
-------------
16,597,518
-------------
LOUISIANA 8.1%
2,500 Louisiana Loc Govt Envir Fac Pkg Fac Corp Garage
Proj Ser A (AMBAC Insd)......................... 5.375 10/01/31 2,675,550
6,000 New Orleans, LA Rfdg (MBIA Insd)................ 5.125 09/01/21 6,431,700
2,000 New Orleans, LA Rfdg (FGIC Insd)................ 5.500 12/01/21 2,348,280
2,800 Saint Charles Parish, LA Solid Waste Disp Rev LA
Pwr & Lt Co Proj (AMT) (FSA Insd) (a)........... 7.050 04/01/22 2,811,340
-------------
14,266,870
-------------
MASSACHUSETTS 1.8%
2,000 Massachusetts Muni Whsl Elec Co Proj No 6-A
(MBIA Insd)..................................... 5.250 07/01/16 2,220,060
1,000 Massachusetts St Hlth & Ed Fac Auth Rev Saint
Mem Med Ctr Ser A............................... 6.000 10/01/23 953,990
-------------
3,174,050
-------------
MICHIGAN 2.7%
3,000 Detroit, MI City Sch Dist Sch Bldg & Site Impt
Ser A (FGIC Insd)............................... 5.375 05/01/24 3,248,820
1,495 Michigan St Hsg Dev Auth Multi-Family Rev Ltd
Oblig Ser A Rfdg (GNMA Collateralized).......... 6.600 04/01/30 1,533,915
-------------
4,782,735
-------------
MINNESOTA 1.1%
1,900 Duluth, MN Econ Dev Auth Hlthcare Fac Rev
Benedictine Hlth Sys Saint Marys................ 5.250 02/15/33 1,927,056
-------------
MISSISSIPPI 4.9%
2,000 Mississippi Business Fin Corp MS Pollutn Ctl Rev
Sys Energy Res Inc Proj Rfdg.................... 5.900 05/01/22 2,021,600
1,900 Mississippi Dev Bk Spl Oblig Cap Proj & Equip
Acquisition Ser A2 (AMBAC Insd)................. 5.000 07/01/24 2,045,008
1,550 Mississippi Dev Bk Spl Oblig Madison Cnty Hosp
Proj (Prerefunded @ 07/01/09)................... 6.400 07/01/29 1,824,056
2,595 Mississippi Dev Bk Spl Oblig MS Ltd Oblig Hosp
Impts (MBIA Insd) (c)........................... 5.250 07/01/32 2,712,450
-------------
8,603,114
-------------
See Notes to Financial Statements
F-12
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
MISSOURI 7.8%
$2,000 Cape Girardeau Cnty, MO Indl Dev Auth Hlthcare
Fac Rev Southeast MO Hosp Assoc................. 5.625% 06/01/27 $ 2,038,940
1,250 Cole Cnty, MO Indl Dev Auth Sr Living Fac Rev
Lutheran Sr Svcs Heisinger Proj................. 5.500 02/01/35 1,285,950
1,500 Saint Louis Cnty, MO Mtg Rev Ctf Rcpt Ser H
(AMT) (Escrowed to Maturity).................... 5.400 07/01/18 1,704,990
5,855 Saint Louis, MO Arpt Rev Arpt Dev Pgm Ser A
(MBIA Insd)..................................... 5.250 07/01/31 6,124,213
2,380 Saint Louis, MO Arpt Rev Cap Impt Pgm Ser A
(MBIA Insd) (c)................................. 5.375 07/01/19 2,637,492
-------------
13,791,585
-------------
NEBRASKA 2.5%
4,260 University NE Univ Rev Lincoln Student Fees &
Fac Ser B....................................... 5.000 07/01/23 4,483,565
-------------
NEW JERSEY 7.8%
1,000 New Jersey Econ Dev Auth Rev Cigarette Tax...... 5.500 06/15/31 1,007,060
5,000 New Jersey Econ Dev Auth Rev Sch Fac Constr Ser
I............................................... 5.000 09/01/23 5,241,250
1,000 New Jersey Hlthcare Fac Fin Auth Rev Gen Hosp
Ctr at Passaic (Escrowed to Maturity) (FSA
Insd)........................................... 6.000 07/01/06 1,044,000
4,000 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev
Pollutn Ctl Pub Svc Elec & Gas Ser A (AMT) (MBIA
Insd)........................................... 5.450 02/01/32 4,044,960
2,500 Secaucus, NJ Muni Util Auth Swr Rev Ser A
Rfdg............................................ 6.000 12/01/08 2,559,300
-------------
13,896,570
-------------
NEW YORK 8.0%
3,250 New York City Hlth & Hosp Corp Rev Hlth Sys Ser
A (AMBAC Insd).................................. 5.000 02/15/11 3,595,605
5,000 New York City Ser A1 (Prerefunded @ 08/01/05)... 6.375 08/01/10 5,223,100
1,520 New York St Dorm Auth Rev Insd John T Mather Mem
Hosp (Connie Lee Insd) (c)...................... 6.500 07/01/09 1,768,611
500 New York St Energy Res & Dev Auth St Service
Contract Rev Ser B.............................. 5.500 04/01/05 507,470
3,000 New York City Muni Wtr Fin Auth Wtr & Sew Sys
Rev Ser A (AMBAC Insd).......................... 5.000 06/15/35 3,084,930
-------------
14,179,716
-------------
OHIO 2.4%
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj............................................ 7.500 01/01/30 1,108,460
1,000 Franklin Cnty, OH Hosp Rev Holy Cross Hlth Sys
Ser B Rfdg (MBIA Insd).......................... 5.250 06/01/08 1,022,580
1,040 Lorain Cnty, OH Hosp Rev EMH Regl Med Ctr Rfdg
(AMBAC Insd).................................... 7.750 11/01/13 1,118,697
950 Strongsville, OH (Prerefunded @ 12/01/06)....... 6.700 12/01/11 1,060,105
-------------
4,309,842
-------------
See Notes to Financial Statements
F-13
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
OKLAHOMA 2.5%
$1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev (AMBAC
Insd)........................................... 6.250% 11/01/22 $ 1,168,420
2,960 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Ctr
Proj Rfdg (Escrowed to Maturity) (Connie Lee
Insd) (c)....................................... 6.250 06/01/07 3,264,347
-------------
4,432,767
-------------
OREGON 2.7%
820 Oregon St Vets Welfare Ser 76A.................. 6.050 10/01/28 830,972
3,580 Yamhill Cnty, OR Sch Dist No 029J Newburg (MBIA
Insd)........................................... 5.250 06/15/21 3,875,207
-------------
4,706,179
-------------
PENNSYLVANIA 3.8%
4,680 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd).... * 09/01/20 2,259,691
1,500 Harrisburg, PA Res Gtd Sub Ser D 2 (FSA Insd)... 5.000 12/01/33 1,645,665
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D (AMT)......................... 7.050 12/01/10 1,535,355
1,315 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (Prerefunded @ 02/01/05) (MBIA
Insd) (c)....................................... 6.450 02/01/10 1,330,885
-------------
6,771,596
-------------
RHODE ISLAND 2.4%
3,975 Rhode Island St Econ Dev Corp Arpt Rev Ser A
Rfdg (AMT) (FSA Insd)........................... 5.000 07/01/17 4,233,534
-------------
SOUTH CAROLINA 4.1%
3,115 Greenville, SC Impt & Rfdg (MBIA Insd) (c)...... 5.250 04/01/21 3,382,890
3,750 South Carolina Jobs Econ Dev Auth Indl Rev Elec
& Gas Co Proj Ser B (AMT) (AMBAC Insd).......... 5.450 11/01/32 3,942,975
-------------
7,325,865
-------------
SOUTH DAKOTA 0.8%
1,375 Deadwood, SD Ctf Partn (ACA Insd)............... 6.375 11/01/20 1,484,285
-------------
TENNESSEE 0.9%
1,300 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Ser A Rfdg (MBIA Insd)................ 7.500 07/01/25 1,640,132
-------------
TEXAS 9.2%
2,335 Beaumont, TX Wtrwks & Swr Sys (FGIC Insd)....... 6.250 09/01/14 2,720,228
2,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp.......... 5.375 01/01/32 2,031,680
1,190 Brazos River Auth TX Pollutn Ctl Rev Adj TXU
Elec Co Proj Ser C Rfdg (AMT)................... 5.750 05/01/36 1,291,174
5,000 Houston, TX Util Sys Rev Comb First Lien Ser A
Rfdg (FSA Insd)................................. 5.250 05/15/20 5,498,000
1,000 Mesquite, TX Hlth Fac Dev Corp Retirement Fac
Christian Care Ctr Ser A........................ 7.625 02/15/28 1,052,370
See Notes to Financial Statements
F-14
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$1,500 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones
Mem Hosp Proj................................... 7.250% 01/01/31 $ 1,450,065
2,000 Texas St Wtr Fin Assistance..................... 5.500 08/01/35 2,169,260
-------------
16,212,777
-------------
UTAH 0.1%
80 Utah St Hsg Fin Agy Single Family Mtg Sr Issue
Ser B-2 (AMT) (FHA/VA Gtd)...................... 6.500 07/01/15 80,053
-------------
VIRGINIA 4.1%
2,000 Fairfax Cnty, VA Ctf Partn...................... 5.300 04/15/23 2,147,960
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease Rev
Henrico Cnty Regl Jail Proj (Prerefunded @
08/01/05)....................................... 6.500 08/01/10 1,582,710
1,380 Richmond, VA Indl Dev Auth Govt Fac Rev Bonds
(AMBAC Insd) (c)................................ 5.000 07/15/14 1,544,289
1,715 Richmond, VA Indl Dev Auth Govt Fac Rev Bonds
(AMBAC Insd) (c)................................ 5.000 07/15/17 1,921,778
-------------
7,196,737
-------------
WASHINGTON 2.2%
700 Quinault Indian Nation, WA Quinault Beach Ser A
Rfdg & Impt (ACA Insd).......................... 5.800 12/01/15 752,136
3,000 Spokane, WA Pub Fac Dist Hotel Motel & Sales Use
Tax (MBIA Insd)................................. 5.250 09/01/33 3,160,470
-------------
3,912,606
-------------
WEST VIRGINIA 1.6%
500 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp
Rev West PA Pwr Co Ser C (AMT) (AMBAC Insd)..... 6.750 08/01/24 511,905
2,215 West Virginia St Wtr Dev Auth Wtr Dev Rev Ln Pgm
II Ser A (Prerefunded @ 11/01/04) (FSA Insd).... 6.750 11/01/33 2,259,898
-------------
2,771,803
-------------
WISCONSIN 1.5%
2,490 Wisconsin St Hlth & Ed Fac Auth Rev Bellin Mem
Hosp (AMBAC Insd)............................... 6.625 02/15/08 2,724,135
-------------
PUERTO RICO 5.7%
8,000 Puerto Rico Comwlth Hwy & Trans Auth Hwy Rev Ser
Y Rfdg (FSA Insd)............................... 6.250 07/01/21 10,146,080
-------------
TOTAL LONG-TERM INVESTMENTS 162.2%
(Cost $268,343,129)....................................................... 287,456,831
See Notes to Financial Statements
F-15
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
DESCRIPTION VALUE
------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 3.0%
(Cost $5,300,000)............................................................. $ 5,300,000
-------------
TOTAL INVESTMENTS 165.2%
(Cost $273,643,129)........................................................... 292,756,831
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%)................................... (527,461)
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (64.9%)..................... (115,027,860)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.................................. $ 177,201,510
=============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(b) Security purchased on a when-issued or delayed delivery basis.
(c) The Trust owns 100% of the bond issuance.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
F-16
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
ASSETS:
Total Investments (Cost $273,643,129)....................... $292,756,831
Cash........................................................ 35,514
Receivables:
Interest.................................................. 4,323,417
Investments Sold.......................................... 1,223,064
Other....................................................... 6,172
------------
Total Assets............................................ 298,344,998
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,420,867
Variation Margin on Futures............................... 159,656
Investment Advisory Fee................................... 148,097
Income Distributions--Common Shares....................... 27,481
Other Affiliates.......................................... 13,553
Trustees' Deferred Compensation and Retirement Plans........ 245,065
Accrued Expenses............................................ 100,909
------------
Total Liabilities....................................... 6,115,628
Preferred Shares (including accrued distributions).......... 115,027,860
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $177,201,510
============
NET ASSET VALUE PER COMMON SHARE ($177,201,510 divided by
11,681,272 shares outstanding)............................ $ 15.17
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 11,681,272 shares issued and
outstanding).............................................. $ 116,813
Paid in Surplus............................................. 158,834,539
Net Unrealized Appreciation................................. 18,646,927
Accumulated Undistributed Net Investment Income............. 1,101,236
Accumulated Net Realized Loss............................... (1,498,005)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $177,201,510
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 4,600 issued with liquidation preference of
$25,000 per share)........................................ $115,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $292,201,510
============
See Notes to Financial Statements
F-17
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2004
INVESTMENT INCOME:
Interest.................................................... $14,561,352
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,743,012
Preferred Share Maintenance................................. 351,531
Administrative Fee.......................................... 84,934
Trustees' Fees and Related Expenses......................... 81,856
Legal....................................................... 36,980
Custody..................................................... 17,548
Other....................................................... 183,926
-----------
Total Expenses.......................................... 2,499,787
-----------
NET INVESTMENT INCOME....................................... $12,061,565
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,529,460
Futures................................................... (2,977,740)
-----------
Net Realized Loss........................................... (1,448,280)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 14,892,156
-----------
End of the Period:
Investments............................................. 19,113,702
Futures................................................. (466,775)
-----------
18,646,927
-----------
Net Unrealized Appreciation During the Period............... 3,754,771
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,306,491
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,202,014)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $13,166,042
===========
See Notes to Financial Statements
F-18
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 12,061,565 $ 12,544,025
Net Realized Gain/Loss.................................. (1,448,280) 3,881,454
Net Unrealized Appreciation/Depreciation During the
Period................................................ 3,754,771 (3,662,840)
Distributions to Preferred Shareholders:
Net Investment Income................................. (1,202,014) (1,144,837)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 13,166,042 11,617,802
Distributions to Common Shareholders:
Net Investment Income................................. (11,359,554) (11,534,733)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 1,806,488 83,069
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 175,395,022 175,311,953
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,101,236 and $1,601,153,
respectively)......................................... $177,201,510 $175,395,022
============ ============
See Notes to Financial Statements
F-19
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------
2004 2003 2002 (a)
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 15.02 $ 15.01 $ 14.91
------- ------- -------
Net Investment Income..................................... 1.03 1.08 1.09
Net Realized and Unrealized Gain/Loss..................... .19 .02 .06
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income................................... (.10) (.10) (.13)
------- ------- -------
Total from Investment Operations............................ 1.12 1.00 1.02
Distributions Paid to Common Shareholders:
Net Investment Income................................... (.97) (.99) (.92)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 15.17 $ 15.02 $ 15.01
======= ======= =======
Common Share Market Price at End of the Period.............. $ 14.07 $ 14.20 $ 13.80
Total Return (b)............................................ 6.12% 10.27% 10.36%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................. $ 177.2 $ 175.4 $ 175.3
Ratio of Expenses to Average Net Assets Applicable to Common
Shares (c)................................................ 1.42% 1.44% 1.55%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)........................... 6.87% 7.11% 7.44%
Portfolio Turnover.......................................... 21% 35% 44%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)................................................ .86% .87% .93%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................... 6.19% 6.46% 6.54%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......................... 4,600 4,600 4,600
Asset Coverage Per Preferred Share (e)...................... $63,528 $63,132 $63,114
Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................... $25,000 $25,000 $25,000
(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 period ended October 31, 2002 was to increase net
investment income per share by $.01, decrease net realized and unrealized
gains and losses per share by $.01 and increase the ratio of investment
income to average net assets applicable to common shares by .03%. Per share,
ratios and supplemental data for the periods prior to October 31, 2002 have
not been restated to reflect this change in presentation.
(b) Total return based 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.
F-20
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
$ 13.77 $ 13.28 $ 15.08 $ 14.51 $ 13.88 $ 13.72 $ 12.20
------- -------- -------- -------- -------- -------- --------
1.10 1.13 1.12 1.12 1.13 1.14 1.15
1.11 .54 (1.82) .57 .60 .12 1.55
(.31) (.40) (.32) (.34) (.35) (.35) (.38)
------- -------- -------- -------- -------- -------- --------
1.90 1.27 (1.02) 1.35 1.38 .91 2.32
(.76) (.78) (.78) (.78) (.75) (.75) (.80)
------- -------- -------- -------- -------- -------- --------
$ 14.91 $ 13.77 $ 13.28 $ 15.08 $ 14.51 $ 13.88 $ 13.72
======= ======== ======== ======== ======== ======== ========
$ 13.36 $11.8125 $11.5625 $14.0625 $12.6875 $ 11.625 $ 11.375
20.07% 9.19% -12.84% 17.23% 16.02% 8.98% 16.07%
$ 174.2 $ 160.8 $ 155.1 $ 176.1 $ 169.5 $ 162.1 $ 160.2
1.76% 1.85% 1.79% 1.79% 1.83% 1.90% 1.94%
7.66% 8.44% 7.68% 7.54% 8.04% 8.31% 8.85%
45% 22% 25% 13% 23% 37% 58%
1.04% 1.06% 1.06% 1.08% 1.08% 1.10% 1.10%
5.48% 5.48% 5.50% 5.20% 5.56% 5.77% 5.88%
4,600 4,600 4,600 2,300 2,300 2,300 2,300
$62,863 $ 59,963 $ 58,717 $126,569 $123,694 $120,481 $119,666
$25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
F-21
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Opportunity 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 provide a high level of current income exempt from federal
income tax, consistent with preservation of capital. The Trust intends to invest
substantially all of its assets in municipal securities rated investment grade
at the time of investment. The Trust commenced investment operations on June 25,
1993. Effective November 30, 2003, the Trust's investment adviser, Van Kampen
Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management
(the "Adviser").
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 the 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 October 31, 2004, the Trust had $5,420,867 of when-issued
and 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, 2004, the Trust had an accumulated capital loss
carryforward for tax purposes of $1,963,921, of which $197,774 will
F-22
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
expire on October 31, 2005, $500,047 will expire on October 31, 2007, $374,118
will expire on October 31, 2008, and $891,982 will expire on October 31, 2012.
At October 31, 2004 the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $273,499,454
============
Gross tax unrealized appreciation........................... $ 19,447,205
Gross tax unrealized depreciation........................... (189,828)
------------
Net tax unrealized appreciation on investments.............. $ 19,257,377
============
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 years ended October 31,
2004 and 2003 was as follows:
2004 2003
Distributions paid from:
Ordinary income........................................... $132,494 $12,965
Long-term capital gain.................................... -0- -0-
-------- -------
$132,494 $12,965
======== =======
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent book and
tax difference relating to a portion of the capital loss carryforward expiring
in the current year totaling $343,729 was reclassified from accumulated net
realized loss to paid in surplus. Additionally, a permanent book and tax
differences relating to book to tax accretion differences totaling $86 has been
reclassified to accumulated undistributed net investment income from accumulated
net realized loss.
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $101,509
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses recognized for tax
purposes on open futures transactions on October 31, 2004 and the deferral of
losses relating to wash sales transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser
provides investment advice and facilities to the Trust for an annual fee payable
monthly of .60% of the
F-23
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
average daily net assets of the Trust. Effective November 1, 2004, the
investment advisory fee was reduced from .60% to .55%. In addition, the Trust
paid 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 year ended October 31, 2004, the Trust recognized expenses of
approximately $19,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust
is a partner who provides legal services to the Trust, and is therefore 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 year ended October
31, 2004, the Trust recognized expenses of approximately $36,900 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, in 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
also officers of Van Kampen.
The Trust has implemented 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.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $59,246,496 and $58,891,558,
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.
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.
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 on U.S. Treasury Bonds and Notes
and typically closes the contract prior to delivery date. These
F-24
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
contracts are generally used to manage the Trust's effective maturity and
duration. 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 year ended October 31, 2004, were
as follows:
CONTRACTS
Outstanding at October 31, 2003............................. 423
Futures Opened.............................................. 2,255
Futures Closed.............................................. (2,031)
------
Outstanding at October 31, 2004............................. 647
======
The futures contracts outstanding as of October 31, 2004 and the
descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
Short Contracts:
U.S. Treasury Notes 10--Year Futures December 2004 (Current
Notional Value of $113,563 per contract).................. 116 $(132,776)
U.S. Treasury Notes 5--Year Futures December 2004 (Current
Notional Value of $111,375 per contract).................. 531 (333,999)
--- ---------
647 $(466,775)
=== =========
5. PREFERRED SHARES
As of October 31, 2004, the Trust has outstanding 4,600 Auction Preferred Shares
("APS") in three series. Series A and B each contain 1,600 shares while Series C
contains 1,400 shares. Dividends are cumulative and the dividend rates are
generally reset every 7 days through an auction process. The average rate in
effect on October 31, 2004 was 1.435%. During the year ended October 31, 2004,
the rates ranged from .500% to 1.700%.
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 in 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.
F-25
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
F-26
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen Municipal Opportunity
Trust II
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Opportunity Trust II (the "Trust"), including the portfolio of
investments, as of October 31, 2004, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to October 31, 2000 were audited by other auditors whose report, dated
December 6, 1999, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Opportunity Trust II as of October 31, 2004, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 10, 2004
F-27
VAN KAMPEN MUNICIPAL OPPORTUNITY 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
F-28
VAN KAMPEN MUNICIPAL OPPORTUNITY 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
F-29
VAN KAMPEN MUNICIPAL OPPORTUNITY 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, New York 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 REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2004. The Trust designated 98.9% of the income distributions as a
tax-exempt income distribution. In January, the Trust provides tax information
to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
F-30
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2004,
where shareholders voted on the election of trustees.
With regards to the election of the following trustees by the common
shareholders of the Trust:
# OF SHARES
------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
J. Miles Branagan......................................... 10,192,637 107,536
Linda Hutton Heagy........................................ 10,197,212 102,961
Mitchell M. Merin......................................... 10,201,007 99,165
Wayne W. Whalen........................................... 10,194,790 105,383
With regards to the election of the following trustee by the preferred
shareholders of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Rod Dammeyer................................................ 3,942 80
The other trustees of the Trust whose terms did not expire in 2004 are David C.
Arch, Jerry D. Choate, R. Craig Kennedy, Howard J Kerr, Jack E. Nelson, Richard
F. Powers, III, Hugo F. Sonnenschein and Suzanne H. Woolsey.
F-31
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing
Blistex Inc. since 1993 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
F-32
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
F-33
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing
CAC, L.L.C. since 1993 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
F-34
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 83 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 85 Trustee/Director/Managing
736 North Western Avenue since 1993 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
F-35
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 85 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 83 Trustee/Director/Managing
(62) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
F-36
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
F-37
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 85 Trustee/Director/Managing
333 West Wacker Drive since 1993 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
F-38
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James M. Dykas (38) Chief Financial Officer Executive Director of Van Kampen Asset Management and Morgan
1 Parkview Plaza Officer and since 1999 Stanley Investment Management. Chief Financial Officer and
Oakbrook Terrace, IL 60181 Treasurer Treasurer of funds in the Fund Complex. Prior to August
2004, Assistant Treasurer of funds in the Fund Complex.
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since May 2003.
1221 Avenue of the Americas President and since 2003 Chief Executive Officer and Chairman of Investor Services.
New York, NY 10020 Principal Executive Vice President and Principal Executive Officer of
Executive funds in the Fund Complex. Managing Director of Morgan
Officer Stanley. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
F-39
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
F-40
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
F-41
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each
time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of
Use of these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
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.
VOT ANR
12/04 RN04-02829P-Y10/04
F-42
APPENDIX G
SEMIANNUAL REPORT OF VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II,
DATED APRIL 30, 2005
G-1
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Municipal Opportunity 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, 2005.
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
---------------------------------------------------------------------------------------
G-2
Performance Summary as of 4/30/05
MUNICIPAL OPPORTUNITY TRUST II
SYMBOL: VOT
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET
Since Inception (06/25/93) 6.87% 5.54%
10-year 8.16 7.93
5-year 9.97 10.28
1-year 10.87 9.89
6-month 3.71 -2.01
------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
G-3
Trust Report
FOR THE 6-MONTH PERIOD ENDED APRIL 30, 2005
Van Kampen Municipal Opportunity Trust II is managed by the Adviser's Municipal
Fixed Income team.(1) Current members include Timothy D. Haney and Robert
Wimmel, Vice Presidents of the Adviser; and John Reynoldson, Executive Director
of the Adviser.
MARKET CONDITIONS
The six-month period ended April 30, 2005, was characterized by continued
short-term interest rate increases. As crude oil prices reached record highs,
the prospect of rising inflation also cast a shadow. The Federal Open Market
Committee (the "Fed") raised the federal funds target rate 100 basis points
during the period through a series of four "measured" 0.25 percent tightenings
to 2.75 percent by the end of April. Although rates in the short and
intermediate areas of the yield curve shifted upward as the Fed tightened, long-
term interest rates fell as buyers did not seem deterred by the prospect of
rising inflation. As a result, the yield curve (the difference between short and
longer-term yields) flattened and the long end of the municipal market handily
outperformed the shorter end.
The municipal market in total posted positive returns during the period, though
it was not uniformly strong. In contrast to the strong showing by longer-term
bonds, shorter-term municipals were hampered by the Fed's tightening and turned
in a flat to slightly negative showing. Within the investment-grade segment of
the market, yield differentials between BBB-rated and AAA-rated municipal
securities were slightly wider, though BBB-rated securities still outperformed
high grades due to their higher coupons, while securities rated below investment
grade strongly outperformed as investors sought out their higher yields.
The Fed's interest rate hikes did not appear to dampen investors' appetites for
municipal bonds, as net inflows into municipal bond funds topped $290 million
during the period. The supply of new issues was modest during the closing months
of 2004 (the first two months of the period) before soaring in the opening
months of 2005 as long-term issuers rushed to bring securities to market in
anticipation of additional interest rate increases in the near term.
(1)Team members may change without notice at any time.
G-4
PERFORMANCE ANALYSIS
The trust's return 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, as they did during the reporting period. On an NAV basis,
the trust outperformed its benchmark index, the Lehman Brothers Municipal Bond
Index. On a market price basis, the trust underperformed its benchmark.
TOTAL RETURNS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2005
----------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
3.71% -2.01% 1.93%
----------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates throughout the period made the trust's borrowing activity
more expensive. These expenses, however, were more than offset by the positive
performance of the bonds held by the trust.
As part of an ongoing strategy to position the trust for continued increases in
short-term interest rates, we trimmed exposure to bonds with maturities in the
five- to 15-year range. Our strategy also included adding selectively to the
trust's holdings of bonds with longer maturities but moderate interest rate
characteristics. Finally, we kept the trust's duration (a measure of overall
interest-rate sensitivity) below that of its benchmark.
We continued to focus on relative-value trading between liquid, high-quality
securities to capture relative value opportunities identified by our analysts.
The trust's overall credit exposure remained tilted toward higher-quality
securities, with 84 percent of its exposure at the end of the period in bonds
rated AA or better. We took advantage of what we believed were some compelling
opportunities to add BBB rated securities to the portfolio when our analysts
identified securities with attractive structures and yield characteristics. By
the end of the period, bonds rated BBB represented 5 percent of the portfolio,
an allocation which proved beneficial as the market favored higher-coupon
securities.
G-5
The trust's portfolio remained well diversified across the major sectors of the
municipal bond market. At the end of the period, the top three sectors in the
portfolio were public education, health care and general purpose.
There is no guarantee the security sectors mentioned will continue to perform
well or be held by the trust in the future.
G-6
RATINGS ALLOCATION AS OF 4/30/05
AAA/Aaa 71.7%
AA/Aa 11.9
A/A 8.9
BBB/Baa 5.4
BB/Ba 0.4
B/B 0.5
NR 1.2
TOP 5 SECTORS AS OF 4/30/05
Public Education 17.7%
Health Care 14.4
General Purpose 14.0
Higher Education 11.3
Transportation 9.2
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 4/30/05
California 16.4%
Illinois 10.7
Colorado 6.2
Indiana 5.7
Texas 5.6
Louisiana 5.0
Missouri 4.8
New York 4.7
New Jersey 3.9
Arizona 3.8
Puerto Rico 3.5
Mississippi 3.0
South Carolina 2.6
Virginia 2.4
Georgia 2.2
Massachusetts 2.2
Michigan 2.0
Nebraska 1.6
Oregon 1.6
Oklahoma 1.5
West Virginia 1.5
Washington 1.4
Pennsylvania 1.3
Rhode Island 1.3
Alabama 1.1
(continued on next page)
G-7
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 4/30/05
(continued from previous page)
Ohio 1.1
Wisconsin 0.9
Tennessee 0.6
Maryland 0.5
South Dakota 0.5
Minnesota 0.4
-----
Total Investments 100.0%
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
G-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public Web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public Web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by visiting our Web site at www.vankampen.com. This
information is also available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
G-9
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED)
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
MUNICIPAL BONDS 162.5%
ALABAMA 1.8%
$1,000 Birmingham Baptist Med Ctr AL Baptist Hlth
Sys Ser A.................................... 5.875% 11/15/24 $ 1,061,820
1,090 Lee Cnty, AL Sch Wts Ltd Oblig (MBIA Insd)
(a).......................................... 5.000 02/01/17 1,175,870
1,000 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A............................... 5.600 11/01/16 1,007,340
-------------
3,245,030
-------------
ARIZONA 6.2%
5,000 Arizona Sch Fac Brd Ctf Ser B (Prerefunded @
09/01/13) (FGIC Insd)........................ 5.250 09/01/18 5,628,600
2,235 Arizona Tourism & Sports Auth Tax Rev
Multipurpose Stad Fac Ser A (MBIA Insd)...... 5.375 07/01/21 2,476,872
2,685 South Campus Group LLC AZ Std Hsg Rev AZ St
Univ South Campus Proj (MBIA Insd)........... 5.625 09/01/35 2,975,168
-------------
11,080,640
-------------
CALIFORNIA 26.7%
7,195 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Sub Pub Impt Proj Ser C (FSA Insd)........... * 09/01/21 3,360,569
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt
Proj Ser C (FSA Insd)........................ 6.000 09/01/16 1,545,674
6,750 California Ed Fac Auth Rev Pepperdine Univ
Ser A Rfdg (FGIC Insd)....................... 5.000 09/01/33 7,055,100
2,000 California St Dept Wtr Res Pwr Ser A......... 6.000 05/01/15 2,304,420
2,345 California St Dept Wtr Res Pwr Supply Rev Ser
A (XLCA Insd)................................ 5.375 05/01/17 2,602,833
2,500 California St Pub Wks Brd Lease Rev Dept of
Mental Hlth Coalinga Ser A................... 5.000 06/01/24 2,616,050
4,600 California St Pub Wks Brd Lease Rev Var Univ
CA Proj Ser A Rfdg (b)....................... 5.500 06/01/10 5,042,152
5,905 California St Pub Wks Brd Lease Rev Var Univ
CA Proj Ser A Rfdg........................... 5.500 06/01/14 6,641,235
5,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg (MBIA Insd).................. * 01/15/18 2,629,050
2,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Sr Lien Ser A (Prerefunded @ 01/01/07)....... 6.500 01/01/32 2,122,500
5,000 Los Angeles, CA Uni Sch Dist Ser A (FSA
Insd)........................................ 5.250 07/01/20 5,534,550
2,465 Los Angeles, CA Uni Sch Dist Ser B (FGIC
Insd)........................................ 5.000 07/01/23 2,607,748
3,070 Washington, CA Uni Sch Dist Yolo Cnty Ser A
(FGIC Insd) (a).............................. 5.250 08/01/20 3,401,069
-------------
47,462,950
-------------
See Notes to Financial Statements
G-10
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
COLORADO 10.1%
$1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded @ 08/31/05).......... 7.000% 08/31/26 $ 1,044,660
7,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05).... * 08/31/26 1,551,450
1,945 Colorado Ed & Cultural Impt Charter Sch
Pinnacle Rfdg (XLCA Insd).................... 5.250 06/01/23 2,081,286
1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to Maturity)..... 5.500 03/01/32 1,116,660
1,250 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth............................... 6.500 11/15/31 1,379,937
1,500 Denver, CO City & Cnty Arpt Rev Ser D
(AMT)........................................ 7.750 11/15/13 1,770,555
3,515 E-470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser B
(MBIA Insd).................................. * 09/01/13 2,511,327
6,160 E-470 Pub Hwy Auth CO Rev Sr Ser A (MBIA
Insd)........................................ 5.000 09/01/21 6,439,294
-------------
17,895,169
-------------
GEORGIA 3.6%
5,000 Clayton Cnty & Clayton Cnty GA Wtr Auth Wtr &
Swr Rev...................................... 5.000 05/01/20 5,415,400
1,000 Richmond Cnty, GA Dev Auth ASU Jaguar Student
Hsg LLC Ser A................................ 5.250 02/01/35 1,033,010
-------------
6,448,410
-------------
ILLINOIS 17.4%
3,750 Bolingbrook, IL Cap Apprec Ser B (MBIA
Insd)........................................ * 01/01/32 887,512
3,365 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd)....................... * 01/01/17 1,612,441
290 Chicago, IL Single Family Mtg Rev Ser A (AMT)
(GNMA Collateralized)........................ 7.000 09/01/27 291,177
40 Chicago, IL Single Family Mtg Rev Ser B (AMT)
(GNMA Collateralized)........................ 7.625 09/01/27 40,551
3,345 Cook Cnty, IL Sch Dist No 100 Berwyn South
Ser D (FSA Insd)............................. 5.500 12/01/23 3,733,321
2,540 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap
Apprec (FGIC Insd) (a)....................... * 12/01/15 1,608,734
4,500 Cook Cnty, IL Ser A (FGIC Insd).............. 5.500 11/15/31 4,891,860
1,000 Illinois Dev Fin Auth Rev Cmnty Rehab
Providers Fac Ser A.......................... 7.375 07/01/25 1,085,650
2,500 Illinois Fin Auth Rev Northwestern Mem Hosp
Ser A........................................ 5.500 08/15/43 2,680,750
1,325 Illinois Fin Auth Student Hsg Rev MJH Ed
Assistance IV Sr Ser A....................... 5.125 06/01/35 1,329,425
8,000 Illinois St First Ser (FSA Insd)............. 5.250 12/01/19 8,766,560
See Notes to Financial Statements
G-11
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$3,400 Illinois St First Ser (FSA Insd)............. 5.250% 04/01/27 $ 3,648,710
275 Peoria, Moline & Freeport, IL Coll Mtg Ser A
(AMT) (GNMA Collateralized).................. 7.600 04/01/27 279,584
-------------
30,856,275
-------------
INDIANA 9.2%
2,805 Dekalb Eastn High Sch Bldg Corp Ind First Mtg
(FSA Insd)................................... 6.000 01/15/18 3,198,541
4,000 East Chicago, IN Elementary Sch Bldg Corp
First Mtg Ser A.............................. 6.250 07/05/08 4,301,920
3,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus
Regl Hosp Rfdg (FSA Insd).................... 7.000 08/15/15 3,661,920
2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt
(AMT)........................................ 5.950 12/01/29 2,079,180
2,850 Southwest Parke Cmnty Sch Bldg First Mtg
(FGIC Insd) (a).............................. 5.250 07/15/21 3,101,883
-------------
16,343,444
-------------
LOUISIANA 8.1%
2,500 Louisiana Loc Govt Environmental Fac Pkg Fac
Corp Garage Proj Ser A (AMBAC Insd).......... 5.375 10/01/31 2,700,250
6,000 New Orleans, LA Rfdg (MBIA Insd)............. 5.125 09/01/21 6,456,900
2,000 New Orleans, LA Rfdg (FGIC Insd)............. 5.500 12/01/21 2,341,140
2,800 Saint Charles Parish, LA Solid Waste Disp Rev
LA Pwr & Lt Co Proj (AMT) (FSA Insd) (b)..... 7.050 04/01/22 2,809,464
-------------
14,307,754
-------------
MARYLAND 0.8%
1,325 Maryland St Hlth & Higher Ed Fac Auth Rev
Civista Med Ctr (Radian Insd)................ 5.000 07/01/37 1,367,214
-------------
MASSACHUSETTS 3.6%
2,000 Massachusetts Muni Whsl Elec Co Proj No 6-A
(MBIA Insd).................................. 5.250 07/01/16 2,184,940
1,000 Massachusetts St Hlth & Ed Fac Auth Rev Saint
Mem Med Ctr Ser A............................ 6.000 10/01/23 1,004,060
2,995 Massachusetts St Wtr Pollutn Abatement Tr
Pool Pgm Bds Ser 10.......................... 5.000 08/01/21 3,223,399
-------------
6,412,399
-------------
MICHIGAN 3.3%
3,000 Detroit, MI City Sch Dist Sch Bldg & Site
Impt Ser A (FGIC Insd)....................... 5.375 05/01/24 3,319,140
1,000 Kent Hosp Fin Auth MI Rev Met Hosp Proj Ser
A............................................ 6.000 07/01/35 1,070,740
1,495 Michigan St Hsg Dev Auth Multi-Family Rev Ltd
Oblig Ser A Rfdg (GNMA Collateralized)....... 6.600 04/01/30 1,526,694
-------------
5,916,574
-------------
See Notes to Financial Statements
G-12
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
MINNESOTA 0.6%
$1,065 Duluth, MN Econ Dev Auth Hlthcare Fac Rev
Benedictine Hlth Sys Saint Marys............. 5.250% 02/15/33 $ 1,093,212
-------------
MISSISSIPPI 4.9%
2,000 Mississippi Business Fin Corp MS Pollutn Ctl
Rev Sys Energy Res Inc Proj Rfdg............. 5.900 05/01/22 2,027,680
1,900 Mississippi Dev Bk Spl Oblig Cap Proj & Equip
Acquisition Ser A2 (AMBAC Insd).............. 5.000 07/01/24 2,076,282
1,550 Mississippi Dev Bk Spl Oblig Madison Cnty
Hosp Proj (Prerefunded @ 07/01/09)........... 6.400 07/01/29 1,772,968
2,595 Mississippi Dev Bk Spl Oblig MS Ltd Oblig
Hosp Impts (MBIA Insd) (a)................... 5.250 07/01/32 2,755,864
-------------
8,632,794
-------------
MISSOURI 7.8%
2,000 Cape Girardeau Cnty, MO Indl Dev Auth
Hlthcare Fac Rev Southeast MO Hosp Assoc..... 5.625 06/01/27 2,060,620
1,250 Cole Cnty, MO Indl Dev Auth Sr Living Fac Rev
Lutheran Sr Svcs Heisinger Proj.............. 5.500 02/01/35 1,298,450
1,500 Saint Louis Cnty, MO Mtg Rev Ctf Rcpt Ser H
(AMT) (Escrowed to Maturity)................. 5.400 07/01/18 1,686,270
5,855 Saint Louis, MO Arpt Rev Arpt Dev Pgm Ser A
(MBIA Insd).................................. 5.250 07/01/31 6,180,948
2,380 Saint Louis, MO Arpt Rev Cap Impt Pgm Ser A
(MBIA Insd) (a).............................. 5.375 07/01/19 2,609,361
-------------
13,835,649
-------------
NEBRASKA 2.5%
4,260 University NE Univ Rev Lincoln Student Fees &
Fac Ser B.................................... 5.000 07/01/23 4,504,652
-------------
NEW JERSEY 6.4%
1,000 New Jersey Econ Dev Auth Rev Cigarette Tax... 5.500 06/15/31 1,045,540
5,000 New Jersey Econ Dev Auth Rev Sch Fac Constr
Ser I........................................ 5.000 09/01/23 5,266,600
1,000 New Jersey Hlthcare Fac Fin Auth Rev Gen Hosp
Ctr at Passaic (Escrowed to Maturity) (FSA
Insd)........................................ 6.000 07/01/06 1,020,850
4,000 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev
Pollutn Ctl Pub Svc Elec & Gas Ser A (AMT)
(MBIA Insd).................................. 5.450 02/01/32 4,033,320
-------------
11,366,310
-------------
NEW YORK 7.6%
3,250 New York City Hlth & Hosp Corp Rev Hlth Sys
Ser A (AMBAC Insd)........................... 5.000 02/15/11 3,539,088
5,000 New York City Ser A1 (Prerefunded @
08/01/05).................................... 6.375 08/01/10 5,098,700
See Notes to Financial Statements
G-13
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$1,520 New York St Dorm Auth Rev Insd John T Mather
Mem Hosp (Connie Lee Insd) (a)............... 6.500% 07/01/09 $ 1,714,682
3,000 New York City Muni Wtr Fin Auth Wtr & Sew Sys
Rev Ser A (AMBAC Insd)....................... 5.000 06/15/35 3,133,200
-------------
13,485,670
-------------
OHIO 1.8%
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj......................................... 7.500 01/01/30 1,124,720
1,040 Lorain Cnty, OH Hosp Rev EMH Regl Med Ctr
Rfdg (AMBAC Insd)............................ 7.750 11/01/13 1,085,687
950 Strongsville, OH (Prerefunded @ 12/01/06).... 6.700 12/01/11 1,025,611
-------------
3,236,018
-------------
OKLAHOMA 2.4%
1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev
(AMBAC Insd)................................. 6.250 11/01/22 1,140,730
2,960 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med
Ctr Proj Rfdg (Escrowed to Maturity) (Connie
Lee Insd) (a)................................ 6.250 06/01/07 3,156,070
-------------
4,296,800
-------------
OREGON 2.7%
700 Oregon St Vets Welfare Ser 76A............... 6.050 10/01/28 707,973
3,580 Yamhill Cnty, OR Sch Dist No 029J Newburg
(Prerefunded @ 06/15/12) (MBIA Insd)......... 5.250 06/15/21 4,015,221
-------------
4,723,194
-------------
PENNSYLVANIA 2.1%
4,500 Erie, PA Sch Dist Cap Apprec Rfdg (FSA
Insd)........................................ * 09/01/20 2,213,325
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D (AMT).................. 7.050 12/01/10 1,535,205
-------------
3,748,530
-------------
RHODE ISLAND 2.1%
3,475 Rhode Island St Econ Dev Corp Arpt Rev Ser A
Rfdg (AMT) (FSA Insd)........................ 5.000 07/01/17 3,666,994
-------------
SOUTH CAROLINA 4.2%
3,115 Greenville, SC Impt & Rfdg (MBIA Insd) (a)... 5.250 04/01/21 3,398,652
3,750 South Carolina Jobs Econ Dev Auth Indl Rev
Elec & Gas Co Proj Ser B (AMT) (AMBAC Insd).. 5.450 11/01/32 3,989,025
-------------
7,387,677
-------------
SOUTH DAKOTA 0.8%
1,375 Deadwood, SD Ctf Partn (ACA Insd)............ 6.375 11/01/20 1,477,919
-------------
TENNESSEE 0.9%
1,300 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Ser A Rfdg (MBIA Insd)............. 7.500 07/01/25 1,635,751
-------------
See Notes to Financial Statements
G-14
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
TEXAS 9.1%
$2,335 Beaumont, TX Wtrwks & Swr Sys (Prerefunded @
09/01/10) (FGIC Insd)........................ 6.250% 09/01/14 $ 2,655,082
2,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp....... 5.375 01/01/32 2,049,280
1,190 Brazos River Auth TX Pollutn Ctl Rev TXU Elec
Co Proj Ser C Rfdg (AMT)..................... 5.750 05/01/36 1,292,352
5,000 Houston, TX Util Sys Rev Comb First Lien Ser
A (FSA Insd)................................. 5.250 05/15/20 5,443,800
1,000 Mesquite, TX Hlth Fac Dev Corp Retirement Fac
Christian Care Ctr Ser A..................... 7.625 02/15/28 1,048,840
1,500 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj.......................... 7.250 01/01/31 1,529,580
2,000 Texas St Wtr Fin Assistance.................. 5.500 08/01/35 2,139,620
-------------
16,158,554
-------------
UTAH 0.0%
50 Utah St Hsg Fin Agy Single Family Mtg Sr
Issue Ser B-2 (AMT) (FHA/VA Gtd)............. 6.500 07/01/15 50,220
-------------
VIRGINIA 3.9%
2,000 Fairfax Cnty, VA Ctf Partn................... 5.300 04/15/23 2,163,540
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease
Rev Henrico Cnty Regl Jail Proj (Prerefunded
@ 08/01/05).................................. 6.500 08/01/10 1,544,970
1,380 Richmond, VA Indl Dev Auth Govt Fac Rev Bonds
(AMBAC Insd) (a)............................. 5.000 07/15/14 1,521,491
1,465 Richmond, VA Indl Dev Auth Govt Fac Rev Bonds
(AMBAC Insd)................................. 5.000 07/15/17 1,615,045
-------------
6,845,046
-------------
WASHINGTON 2.2%
700 Quinault Indian Nation, WA Quinault Beach Ser
A Rfdg & Impt (ACA Insd)..................... 5.800 12/01/15 743,638
3,000 Spokane, WA Pub Fac Dist Hotel Motel & Sales
Use Tax (MBIA Insd).......................... 5.250 09/01/33 3,196,530
-------------
3,940,168
-------------
WEST VIRGINIA 2.5%
500 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp
Rev West PA Pwr Co Ser C (AMT) (AMBAC Insd).. 6.750 08/01/24 511,565
3,750 West Virginia Univ Rev Impt Univ Proj Ser C
(FGIC Insd).................................. 5.000 10/01/34 3,938,138
-------------
4,449,703
-------------
WISCONSIN 1.5%
2,490 Wisconsin St Hlth & Ed Fac Auth Rev Bellin
Mem Hosp (AMBAC Insd)........................ 6.625 02/15/08 2,643,658
-------------
See Notes to Financial Statements
G-15
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
PUERTO RICO 5.7%
$8,000 Puerto Rico Comwlth Hwy & Trans Auth Hwy Rev
Ser Y Rfdg (FSA Insd)........................ 6.250% 07/01/21 $ 10,155,440
-------------
TOTAL INVESTMENTS 162.5%
(Cost $269,792,710)....................................................... 288,669,818
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3%................................. 4,014,070
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (64.8%)................. (115,038,326)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $ 177,645,562
=============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) The Trust owns 100% of the bond issuance.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
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.
See Notes to Financial Statements
G-16
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2005 (Unaudited)
ASSETS:
Total Investments (Cost $269,792,710)....................... $288,669,818
Receivables:
Interest.................................................. 4,331,297
Investments Sold.......................................... 1,702,440
Variation Margin on Futures............................... 133,000
Other....................................................... 1,773
------------
Total Assets............................................ 294,838,328
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,525,965
Custodian Bank............................................ 132,150
Investment Advisory Fee................................... 131,365
Income Distributions--Common Shares....................... 24,486
Other Affiliates.......................................... 11,870
Trustees' Deferred Compensation and Retirement Plans........ 259,673
Accrued Expenses............................................ 68,931
------------
Total Liabilities....................................... 2,154,440
Preferred Shares (including accrued distributions).......... 115,038,326
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $177,645,562
============
NET ASSET VALUE PER COMMON SHARE ($177,645,562 divided by
11,681,272 shares outstanding)............................ $ 15.21
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 11,681,272 shares issued and
outstanding).............................................. $ 116,813
Paid in Surplus............................................. 158,834,539
Net Unrealized Appreciation................................. 18,567,417
Accumulated Undistributed Net Investment Income............. 700,288
Accumulated Net Realized Loss............................... (573,495)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $177,645,562
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 4,600 issued with liquidation preference of
$25,000 per share)........................................ $115,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $292,645,562
============
See Notes to Financial Statements
G-17
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended April 30, 2005 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 7,123,503
-----------
EXPENSES:
Investment Advisory Fee..................................... 795,775
Preferred Share Maintenance................................. 167,491
Trustees' Fees and Related Expenses......................... 25,201
Legal....................................................... 18,616
Custody..................................................... 10,563
Other....................................................... 92,018
-----------
Total Expenses.......................................... 1,109,664
-----------
NET INVESTMENT INCOME....................................... $ 6,013,839
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 284,720
Futures................................................... 639,790
-----------
Net Realized Gain........................................... 924,510
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 18,646,927
-----------
End of the Period:
Investments............................................. 18,877,108
Futures................................................. (309,691)
-----------
18,567,417
-----------
Net Unrealized Depreciation During the Period............... (79,510)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 845,000
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,000,772)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 5,858,067
===========
See Notes to Financial Statements
G-18
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 6,013,839 $ 12,061,565
Net Realized Gain/Loss.................................. 924,510 (1,448,280)
Net Unrealized Appreciation/Depreciation During the
Period................................................ (79,510) 3,754,771
Distributions to Preferred Shareholders:
Net Investment Income................................. (1,000,772) (1,202,014)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 5,858,067 13,166,042
Distributions to Common Shareholders:
Net Investment Income................................. (5,414,015) (11,359,554)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 444,052 1,806,488
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 177,201,510 175,395,022
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $700,288 and $1,101,236,
respectively)......................................... $177,645,562 $177,201,510
============ ============
See Notes to Financial Statements
G-19
VAN KAMPEN MUNICIPAL OPPORTUNITY 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, ------------------
2005 2004 2003
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 15.17 $ 15.02 $ 15.01
------- ------- -------
Net Investment Income.................................... .52 1.03 1.08
Net Realized and Unrealized Gain/Loss.................... .07 .19 .02
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income................................ (.09) (.10) (.10)
------- ------- -------
Total from Investment Operations........................... .50 1.12 1.00
Distributions Paid to Common Shareholders:
Net Investment Income................................ (.46) (.97) (.99)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......................... $ 15.21 $ 15.17 $ 15.02
======= ======= =======
Common Share Market Price at End of the Period............. $ 13.33 $ 14.07 $ 14.20
Total Return (b)........................................... -2.01%* 6.12% 10.27%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................ $ 177.6 $ 177.2 $ 175.4
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)........................................ 1.27% 1.42% 1.44%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c).......................... 6.86% 6.87% 7.11%
Portfolio Turnover......................................... 7%* 21% 35%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c)..................................... .77% .86% .87%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).......................... 5.72% 6.19% 6.46%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......................... 4,600 4,600 4,600
Asset Coverage Per Preferred Share (e)..................... $63,627 $63,528 $63,132
Involuntary Liquidating Preference Per Preferred Share..... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share................... $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 period ended October 31, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of net investment income to
average net asset applicable to common shares by .03% Per share, ratios and
supplemental data for the 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.
G-20
Year Ended October 31,
-----------------------------------------------------------------------------------------
2002 (a) 2001 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------
$ 14.91 $ 13.77 $ 13.28 $ 15.08 $ 14.51 $ 13.88 $ 13.72 $ 12.20
------- ------- -------- -------- -------- -------- -------- --------
1.09 1.10 1.13 1.12 1.12 1.13 1.14 1.15
.06 1.11 .54 (1.82) .57 .60 .12 1.55
(.13) (.31) (.40) (.32) (.34) (.35) (.35) (.38)
------- ------- -------- -------- -------- -------- -------- --------
1.02 1.90 1.27 (1.02) 1.35 1.38 .91 2.32
(.92) (.76) (.78) (.78) (.78) (.75) (.75) (.80)
------- ------- -------- -------- -------- -------- -------- --------
$ 15.01 $ 14.91 $ 13.77 $ 13.28 $ 15.08 $ 14.51 $ 13.88 $ 13.72
======= ======= ======== ======== ======== ======== ======== ========
$ 13.80 $ 13.36 $11.8125 $11.5625 $14.0625 $12.6875 $ 11.625 $ 11.375
10.36% 20.07% 9.19% -12.84% 17.23% 16.02% 8.98% 16.07%
$ 175.3 $ 174.2 $ 160.8 $ 155.1 $ 176.1 $ 169.5 $ 162.1 $ 160.2
1.55% 1.76% 1.85% 1.79% 1.79% 1.83% 1.90% 1.94%
7.44% 7.66% 8.44% 7.68% 7.54% 8.04% 8.31% 8.85%
44% 45% 22% 25% 13% 23% 37% 58%
.93% 1.04% 1.06% 1.06% 1.08% 1.08% 1.10% 1.10%
6.54% 5.48% 5.48% 5.50% 5.20% 5.56% 5.77% 5.88%
4,600 4,600 4,600 4,600 2,300 2,300 2,300 2,300
$63,114 $62,863 $ 59,963 $ 58,717 $126,569 $123,694 $120,481 $119,666
$25,000 $25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
G-21
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Opportunity 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 provide a high level of current income exempt from federal
income tax, consistent with preservation of capital. The Trust intends to invest
substantially all of its assets in municipal securities rated investment grade
at the time of investment. The Trust commenced investment operations on June 25,
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 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 the 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, 2005, the Trust had no when-issued and 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 Subchapter M 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, 2004, the Trust had an
G-22
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
accumulated capital loss carryforward for tax purposes of $1,963,921, which will
expire according to the following schedule.
AMOUNT EXPIRATION
$197,774.................................................... October 31, 2005
$500,047.................................................... October 31, 2007
$374,118.................................................... October 31, 2008
$891,982.................................................... October 31, 2012
At April 30, 2005 the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $269,653,266
============
Gross tax unrealized appreciation........................... $ 19,184,429
Gross tax unrealized depreciation........................... (167,877)
------------
Net tax unrealized appreciation on investments.............. $ 19,016,552
============
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,
2004 was as follows:
Distributions paid from:
Ordinary income........................................... $132,494
Long-term capital gain.................................... -0-
--------
$132,494
========
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $101,509
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 .55% of the average daily net assets
of the Trust. Effective November 1, 2004, the investment advisory fee was
reduced from .60% to .55%.
For the six months ended April 30, 2005, the Trust recognized expenses of
approximately $8,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
G-23
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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, 2005, the Trust recognized expenses of approximately $19,200
representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van
Kampen") cost of providing accounting and legal services to the Trust, which are
reported as part of "Other" and "Legal" expenses, respectively, in 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
also officers of Van Kampen.
The Trust has implemented 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.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $22,569,042 and $21,497,734,
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 may invest up to 15% of its net assets in "inverse floating rate
obligations." The inverse floating rate obligations in which the Trust may
invest are typically created through a division of a fixed-rate municipal
obligation into two separate instruments, a short-term obligation and a
long-term obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation which the Trust
may purchase is the rate the issuer would have paid on the fixed-income
obligation, (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. These securities have varying degrees of liquidity
and the market value of such securities generally will fluctuate in response to
changes in market rates of interest to a greater extent than the value of an
equal principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity. These securities tend to underperform the
market for fixed rate bonds in a rising interest rate environment, but tend to
outperform the market for fixed rate bonds when interest rates decline or remain
relatively stable. Although volatile, inverse floating rate obligations
typically offer the potential for yields exceeding the yields available on fixed
rate bonds with comparable credit quality, coupon, call provisions and maturity.
These securities usually permit the investor to convert the floating rate
security counterpart to a fixed rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against rising rates if
exercised at an opportune time.
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
G-24
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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
exercising a call option contract or 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.
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 on U.S. Treasury Bonds and Notes
and typically closes the contract prior to delivery date. These contracts are
generally used to manage the Trust's effective maturity and duration. 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, 2005,
were as follows:
CONTRACTS
Outstanding at October 31, 2004............................. 647
Futures Opened.............................................. 1,184
Futures Closed.............................................. (1,299)
------
Outstanding at April 30, 2005............................... 532
======
The futures contracts outstanding as of April 30, 2005 and the descriptions
and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 5-Year Futures June 2005 (Current
Notional Value of $108,453 per contract).................. 532 $(309,691)
=== =========
5. PREFERRED SHARES
As of April 30, 2005, the Trust has outstanding 4,600 Auction Preferred Shares
("APS") in three series. Series A and B each contain 1,600 shares while Series C
contains 1,400 shares. Dividends are cumulative and the dividend rates are
generally reset every 7 days through an auction process. The average rate in
effect on April 30, 2005 was 2.493%. During the six months ended April 30, 2005,
the rates ranged from 1.000% to 2.650%.
G-25
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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 in 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.
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
G-26
VAN KAMPEN MUNICIPAL OPPORTUNITY 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
G-27
VAN KAMPEN MUNICIPAL OPPORTUNITY 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
G-28
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
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
OFFICERS
MITCHELL M. MERIN
President and Chief Executive Officer
RONALD E. ROBISON
Executive Vice President and
Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and
Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEPHANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRET
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
TRANSFER AGENT
EQUISERVE TRUST COMPANY, N.A.
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 REGISTERED
PUBLIC ACCOUNTING FIRM
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.
G-29
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
G-30
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each
time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of
Use of these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
VOT SAR 6/05 RN05-01324P-Y04/05
(VAN KAMPEN INVESTMENTS LOGO)
G-31
APPENDIX H
ANNUAL REPORT OF VAN KAMPEN VALUE MUNICIPAL INCOME TRUST,
DATED OCTOBER 31, 2004
H-1
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Value Municipal Income Trust performed during the annual 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 October 31, 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
---------------------------------------------------------------------------------------
H-2
Performance Summary as of 10/31/04
VALUE MUNICIPAL INCOME TRUST
SYMBOL: VKV
---------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (3/26/93) 7.13% 6.36%
10-year 8.76 9.88
5-year 9.53 10.73
1-year 7.55 5.25
---------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
H-3
Trust Report
FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
Van Kampen Value Municipal Income Trust 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 interest-rate environment of the 12 months ended October 31, 2004 was marked
by two periods of steadily declining yields, with a significant sell-off in the
middle. Yields fell steadily through the first half of the period, approaching
the historical lows of 2003. This trend persisted until March, at which point
yields reversed direction and began an upward march as prices fell. These losses
were steepest in April, as a surprisingly strong employment report and signals
from members of the Federal Open Market Committee (the "Fed") caused investors
to expect a near-term rate increase. Rates went on to decline from May through
the end of the period as the market digested the Fed's newly hawkish rate
stance. Investors were further comforted when, after the Fed raised rates at its
June 30, 2004 meeting, its members indicated that the path of future rate
increases would be measured.
Unusually, longer-maturity securities largely outperformed in this period of Fed
tightening. Historically, the typical pattern in periods of tightening policy
has seen yields rise across all maturities. During the review period, however,
yields of shorter maturity bonds rose while those of bonds with longer
maturities declined slightly.
Lower-quality municipal bonds also performed strongly in this environment, as
the difference in yields (known as the "yield spread") between AAA and BBB rated
bonds decreased by roughly 20 basis points for 20-year bonds. As a result,
sectors with heavy exposure to lower-rated debt, such as hospitals and
industrial revenue bonds, posted higher total returns than sectors dominated by
higher-rated debt.
Issuance for the first 10 months of 2004 (the final 10 months of the review
period) was roughly six percent lower than in the same period in 2003. That
said, 2003 was a record year, and at the current pace of issuance, 2004 could
well be one of the largest years in recent memory. The strong supply met with
faltering demand from mutual funds, as fund investors withdrew over $15 billion
in net cash during the period. This faltering demand was largely offset by
increased participation in the market by insurance companies and individual
investors.
(1)Team members may change without notice at any time.
H-4
PERFORMANCE ANALYSIS
The trust's return 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, as they did during the reporting period. On an
NAV basis, the trust outperformed its benchmark, the Lehman Brothers Municipal
Bond Index. (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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates in the final months of the period made the trust's
borrowing activity more expensive. These expenses, however, were more than
offset by the strong performance of the bonds we invested in, leading to the
trust's outperformance versus its benchmark, which is unleveraged.
One of our primary strategies in managing the trust was to configure its
interest-rate profile for a rising interest-rate environment. We did this
primarily by maintaining its duration (a measure of interest-rate sensitivity)
at a level lower than that of its benchmark. We also de-emphasized securities
with maturities in the range of five to 10 years given what appeared to be
unattractive total-return prospects. Instead, we emphasized securities in the
15-to 20-year part of the yield curve. We believe many of the securities we
purchased offered a compelling combination of premium-coupon income as well as
the moderate interest-rate sensitivity of bonds with shorter maturities. While
the overall duration strategy provided mixed results, the portfolio's
positioning along the maturity spectrum boosted performance for the period.
In keeping with our long-term approach, we continued to engage in relative-
value trading in order to take advantage of pockets of opportunity in the
market. This approach generally entails buying securities that are undervalued
relative to what our analysis indicates to be their total-return potential, and
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
----------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
7.55% 5.25% 6.03%
----------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
H-5
selling them when they reach that potential in order to reinvest the assets into
more promising opportunities. We took advantage of the late spring/early summer
spike in yields to purchase long bonds which we later sold into strong demand
from individual investors. We also selectively purchased several BBB rated
securities, some of which we subsequently sold at a profit thanks to investors'
demand for yield-oriented securities.
We remained focused on controlling the trust's risk profile through attention to
credit quality and diversification. By the end of the 12-month period, more than
86 percent of the trust's total investments were invested in bonds rated AAA and
AA; these represent the two highest tiers of credit ratings. The portfolio was
also well diversified across the major sectors of the municipal bond market. Its
three largest sector exposures were transportation, general purpose, and health
care.
While it is impossible to predict the exact turning point when interest rates
will move decisively higher, we believe the trust remains well positioned for
the near future. We will continue to comb the municipal bond markets for
interesting opportunities.
There is no guarantee that any securities will continue to perform well or be
held by the trust in the future.
H-6
RATINGS ALLOCATION AS OF 10/31/04
AAA/Aaa 76.0%
AA/Aa 10.3
A/A 6.2
BBB/Baa 3.8
B/B 0.3
Non-Rated 3.4
TOP 5 SECTORS AS OF 10/31/04
Transportation 14.2%
General Purpose 13.7
Health Care 12.3
Public Building 10.6
Industrial Revenue 9.9
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
California 12.1%
New York 10.6
Texas 8.7
Illinois 6.6
New Jersey 6.6
Florida 5.2
Washington 5.0
Louisiana 4.6
Colorado 4.5
Ohio 3.0
Georgia 2.8
Arizona 2.7
Oregon 2.4
Puerto Rico 2.3
Nevada 2.2
Michigan 2.1
Hawaii 1.9
Maryland 1.6
West Virginia 1.6
South Carolina 1.4
Connecticut 1.4
Kansas 1.3
Pennsylvania 1.3
Tennessee 1.2
Massachusetts 1.1
Alabama 1.1
Missouri 1.1
District of Columbia 0.9
Arkansas 0.6
Wisconsin 0.5
Utah 0.5
Mississippi 0.3
Oklahoma 0.3
South Dakota 0.2
(continued on next page)
H-7
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
(continued from previous page)
Rhode Island 0.2%
Kentucky 0.1
-----
Total Investments 100.0%
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
H-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
H-9
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
MUNICIPAL BONDS 157.4%
ALABAMA 1.7%
$ 1,000 Birmingham Baptist Med Ctr AL Baptist Hlth
Sys Ser A................................. 5.875% 11/15/24 $ 1,042,280
5,000 Birmingham Baptist Med Ctr AL Spl Care Fac
Fin Auth Rev (MBIA Insd).................. 5.750 11/15/10 5,429,000
4 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svc Co Proj Rfdg........ 6.950 01/01/20 22
-------------
6,471,302
-------------
ARIZONA 4.3%
1,860 Arizona Hlth Fac Auth Hosp John C Lincoln
Hlth Network.............................. 5.750 12/01/32 1,884,310
5,000 Arizona Sch Fac Brd Ctf Ser B (FSA
Insd)..................................... 5.250 09/01/19 5,540,450
5,250 Arizona Tourism & Sports Auth Tax Rev
Multipurpose Stad Fac Ser A (MBIA Insd)... 5.375 07/01/23 5,724,075
2,710 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg
(FSA Insd) (a)............................ 7.250 07/15/10 2,862,573
-------------
16,011,408
-------------
ARKANSAS 1.0%
1,930 Arkansas St Cap Apprec College Svg........ * 06/01/16 1,200,383
2,305 Arkansas St Dev Fin Auth Rev St Agy Fac
Donaghey Plaza Proj (FSA Insd)............ 5.000 06/01/34 2,371,246
-------------
3,571,629
-------------
CALIFORNIA 19.1%
6,215 ABC, CA Uni Sch Dist Cap Apprec (FGIC
Insd)..................................... * 08/01/34 1,283,895
13 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser B (AMT) (GNMA
Collateralized)........................... 7.750 09/01/26 12,579
10,000 California St (MBIA Insd)................. 5.500 03/01/17 11,110,800
3,000 California St Dept Wtr Res Ser A.......... 5.875 05/01/16 3,440,610
5,000 California St Pub Wks Brd Dept Gen Svc Cap
East End A (AMBAC Insd)................... 5.125 12/01/21 5,362,050
6,000 California St Pub Wks Brd Lease Rev Dept
of Corrections St Prisons Ser A Rfdg
(AMBAC Insd).............................. 5.250 12/01/13 6,835,260
2,000 California St Pub Wks Brd Lease Rev Dept
of Corrections St Prisons Ser A Rfdg
(AMBAC Insd) (b).......................... 5.000 12/01/19 2,209,300
5,000 California St Rfdg........................ 5.000 02/01/19 5,297,350
2,000 Florin, CA Res Consv Dist Cap Impt Elk
Grove Wtr Svc Ser A (MBIA Insd)........... 5.000 09/01/33 2,051,040
30,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Ser A Rfdg............................ * 01/15/22 11,017,200
1,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Sr Lien Ser A (Prerefunded @
01/01/07)................................. 6.500 01/01/32 1,096,390
See Notes to Financial Statements
H-10
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$ 3,350 Imperial Irr Dist CA Ctf Part Elec Sys
Proj (FSA Insd) (d)....................... 5.250% 11/01/19 $ 3,694,681
5,500 Port Oakland, CA Ser L (AMT) (FGIC
Insd)..................................... 5.000 11/01/32 5,578,595
9,000 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev Riverside Cnty Hosp Proj
(MBIA Insd)............................... * 06/01/21 4,080,870
5,700 Sacramento, CA City Fin Auth Rev Comb Proj
B (MBIA Insd)............................. * 11/01/15 3,586,212
10,225 Santa Ana, CA Uni Sch Dist Ctf Part Cap
Apprec Fin Proj (FSA Insd)................ * 04/01/32 2,427,006
5,755 Southwestern Cmnty College Cap Apprec
Election 2000 (FGIC Insd)................. * 08/01/29 1,555,576
-------------
70,639,414
-------------
COLORADO 7.1%
4,340 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser
A (FSA Insd).............................. 5.250 12/01/18 4,817,921
4,290 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser
C (Prerefunded 12/01/06) (MBIA Insd)...... 5.750 12/01/08 4,703,299
3,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded @ 08/31/05) (a)... 7.000 08/31/26 3,218,190
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)
(a)....................................... 6.950 08/31/20 1,072,310
9,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser C (Prerefunded @
08/31/05)................................. * 08/31/26 1,849,860
2,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to
Maturity)................................. 5.500 03/01/32 2,101,380
6,495 Colorado Springs, CO Utils Rev (Escrowed
to Maturity).............................. 6.600 11/15/18 8,270,928
-------------
26,033,888
-------------
CONNECTICUT 2.1%
2,500 Connecticut St Hlth & Ed Fac Auth Rev
Nursing Home Pgm AHF/Hartford (Prerefunded
@ 11/01/04)............................... 7.125 11/01/14 2,550,725
5,000 Connecticut St Ser C (FGIC Insd).......... 5.000 04/01/22 5,354,650
-------------
7,905,375
-------------
See Notes to Financial Statements
H-11
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA 1.4%
$ 5,000 Metropolitan Washington DC Arpt Auth Sys
Ser A (AMT) (FGIC Insd)................... 5.250% 10/01/32 $ 5,165,950
-------------
FLORIDA 7.7%
2,500 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd)..................................... 5.250 10/01/21 2,687,500
5,000 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)..................................... 5.950 07/01/20 5,136,300
3,980 Jacksonville, FL Port Auth (AMT) (MBIA
Insd)..................................... 5.700 11/01/30 4,263,893
2,780 Jacksonville, FL Port Auth (Prerefunded @
11/01/10) (AMT) (MBIA Insd)............... 5.700 11/01/30 3,156,662
11,500 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (AMT) (FGIC Insd)............... 5.375 10/01/32 11,960,230
1,270 Pinellas Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Multi Cnty Pgm Ser A (AMT)
(GNMA Collateralized)..................... 6.700 02/01/28 1,298,664
-------------
28,503,249
-------------
GEORGIA 4.5%
5,000 Georgia Muni Elec Auth Pwr Rev Ser B
(Escrowed to Maturity) (FGIC Insd)........ 5.700 01/01/19 5,922,000
2,700 Marietta, GA Dev Auth Rev First Mtg Life
College Ser B (FSA Insd) (d).............. 5.375 09/01/09 2,823,390
2,205 Municipal Elec Auth GA Comb Cycle Proj Ser
A (MBIA Insd)............................. 5.000 11/01/20 2,366,053
5,000 Municipal Elec Auth GA Combustion Turbine
Proj Ser A (MBIA Insd).................... 5.250 11/01/20 5,444,200
-------------
16,555,643
-------------
HAWAII 3.1%
10,430 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co Inc Ser A (AMT) (MBIA
Insd)..................................... 5.650 10/01/27 11,286,824
-------------
ILLINOIS 10.4%
3,500 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd).................... * 01/01/17 1,664,390
10,000 Chicago, IL Cap Apprec City Colleges (FGIC
Insd)..................................... * 01/01/29 2,816,000
6,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd) (c)........................... 0/5.750 01/01/29 5,927,700
3,180 Illinois Hlth Fac Auth Rev Children's Mem
Hosp (MBIA Insd).......................... 6.250 08/15/13 3,799,623
1,485 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser A Rfdg (Escrowed to Maturity)
(FSA Insd)................................ 6.750 04/15/17 1,840,286
See Notes to Financial Statements
H-12
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 825 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser C (FSA Insd)..................... 6.750% 04/15/17 $ 1,022,381
1,000 Illinois Hlth Fac Auth Rev Highland Park
Hosp Proj Ser A (Prerefunded @ 10/01/07)
(MBIA Insd)............................... 5.750 10/01/17 1,120,360
2,070 Northern IL Univ Ctf Part Hoffman Estates
Ctr Proj (FSA Insd)....................... 5.400 09/01/16 2,361,642
5,000 Regional Trans Auth IL Ser A (AMBAC
Insd)..................................... 8.000 06/01/17 7,033,000
10,000 Will Cnty, IL Sch Dist No 122 Ser B Rfdg
(FGIC Insd)............................... 5.250 11/01/20 10,957,900
-------------
38,543,282
-------------
KANSAS 2.1%
3,430 Kansas St Dev Fin Auth Rev KS Proj Ser N
(AMBAC Insd) (d).......................... 5.250 10/01/20 3,741,410
3,615 Kansas St Dev Fin Auth Rev KS Proj Ser N
(AMBAC Insd) (d).......................... 5.250 10/01/21 3,916,310
-------------
7,657,720
-------------
KENTUCKY 0.2%
500 Mount Sterling, KY Lease Rev KY League
Cities Fdg Ser B.......................... 6.100 03/01/18 602,560
-------------
LOUISIANA 7.2%
5,000 Lafayette, LA Util Rev (MBIA Insd)........ 5.250 11/01/21 5,504,700
5,970 Louisiana Loc Govt Environment Southeastn
LA Student Hsg A (MBIA Insd) (d).......... 5.250 08/01/24 6,439,839
8,065 Louisiana St Office Fac Corp LA St Cap
Complex Pgm (MBIA Insd) (d)............... 5.000 11/01/20 8,641,486
6,000 Saint Charles Parish, LA Solid Waste Disp
Rev LA Pwr & Lt Co Proj (AMT) (FSA Insd)
(b)....................................... 7.050 04/01/22 6,024,300
-------------
26,610,325
-------------
MARYLAND 2.6%
5,000 Maryland St Econ Dev Corp MD Aviation
Admin Fac (AMT) (FSA Insd)................ 5.375 06/01/20 5,402,900
4,000 Maryland St Trans Auth Arpt Baltimore/WA
Intl Arpt B (AMT) (AMBAC Insd)............ 5.125 03/01/24 4,187,240
-------------
9,590,140
-------------
MASSACHUSETTS 1.8%
2,500 Massachusetts Bay Trans Auth Ser A........ 5.000 07/01/32 2,562,250
1,750 Massachusetts St Hlth & Ed Fac Auth Rev
Hlthcare Sys Covenant Hlth................ 6.000 07/01/31 1,847,580
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT).......... 6.900 12/01/29 1,066,690
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT).......... 6.950 12/01/35 1,067,230
-------------
6,543,750
-------------
See Notes to Financial Statements
H-13
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
MICHIGAN 3.4%
$ 5,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No. 1 Proj Ser C1
(Prerefunded @ 07/01/06).................. 6.250% 07/01/25 $ 5,454,350
3,185 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser
A (MBIA Insd) (d)......................... 5.250 07/01/20 3,472,924
3,090 Troy, MI Downtown Dev Auth Dev Rfdg (MBIA
Insd)..................................... 5.500 11/01/15 3,491,484
-------------
12,418,758
-------------
MISSISSIPPI 0.5%
2,000 Mississippi Bus Fin Corp MS Pollutn Ctl
Rev Sys Energy Res Inc Proj............... 5.875 04/01/22 2,007,000
-------------
MISSOURI 1.7%
2,195 Missouri St Hlth & Ed Fac Rev Univ MO
Columbia Arena Proj (d)................... 5.000 11/01/16 2,399,420
4,000 Platte Cnty, MO Indl Dev Auth Trans Rev... 4.500 12/01/24 4,001,320
-------------
6,400,740
-------------
NEVADA 3.4%
8,000 Clark Cnty, NV Arpt Rev Sub Lien Ser A-2
(FGIC Insd)............................... 5.000 07/01/36 8,150,640
4,000 Clark Cnty, NV Indl Dev Rev Southwest Gas
Corp Proj Ser A (AMT) (AMBAC Insd)........ 5.250 07/01/34 4,128,000
375 Nevada Hsg Div Single Family Pgm Mezz B
(AMT) (FHA/VA Gtd)........................ 6.550 10/01/12 376,226
-------------
12,654,866
-------------
NEW JERSEY 10.4%
5,000 Essex Cnty, NJ Impt Auth Rev Cnty Gtd Proj
Consldtn Rfdg (MBIA Insd)................. 5.125 10/01/20 5,458,950
1,400 New Jersey Econ Dev Auth Rev Cigarette
Tax....................................... 5.750 06/15/29 1,437,268
4,350 New Jersey Econ Dev Wtr NJ Amern Wtr Co
Inc Ser A (AMT) (FGIC Insd)............... 5.250 07/01/38 4,453,486
2,500 New Jersey Hlthcare Fac Fin Auth Rev Gen
Hosp Ctr at Passaic (Escrowed to Maturity)
(FSA Insd)................................ 6.750 07/01/19 3,223,550
1,695 New Jersey Hlthcare Fac Fin Auth Rev Gen
Hosp Ctr Passaic (Escrowed to Maturity)
(FSA Insd)................................ 6.000 07/01/06 1,769,580
10,000 New Jersey St Ed Fac Auth Higher Ed Cap
Impt Ser A (AMBAC Insd)................... 5.250 09/01/20 11,000,100
3,830 New Jersey St Trans Tr Fd Auth Trans Sys
Ser A (FGIC Insd)......................... 5.250 06/15/19 4,246,398
6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth
Rev Pollutn Ctl Pub Svc Elec & Gas Ser A
(AMT) (MBIA Insd)......................... 5.450 02/01/32 6,825,870
-------------
38,415,202
-------------
See Notes to Financial Statements
H-14
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
NEW YORK 16.8%
$ 7,000 Metropolitan Trans Auth NY Ser A Rfdg
(FGIC Insd)............................... 5.250% 11/15/31 $ 7,439,740
4,750 New York City Ser C....................... 5.500 08/01/13 5,371,205
6,000 New York City Transitional Fin Auth Rev
Future Tax Secd Ser A Rfdg (Variable Rate
Coupon)................................... 5.500 11/01/26 6,792,120
8,240 New York City Transitional Future Tax Secd
Ser C Rfdg (AMBAC Insd)................... 5.250 08/01/18 9,055,925
525 New York St Dorm Auth Lease Rev Ser B
(Variable Rate Coupon) (XLCA Insd)........ 4.000 07/01/30 538,729
7,575 New York St Dorm Auth Rev City Univ Sys
Con Ser A................................. 5.625 07/01/16 8,840,782
3,845 New York St Dorm Auth Rev Secd Hosp Gen
Hosp Rfdg................................. 5.750 02/15/20 4,291,328
5,885 New York St Energy Resh & Dev Auth Fac Rev
(AMT)..................................... 7.125 12/01/29 6,026,946
2,310 New York St Med Care Fac Fin Agy Rev Saint
Peter's Hosp Proj Ser A (AMBAC Insd)...... 5.375 11/01/13 2,339,337
2,170 New York St Ser G......................... 5.750 02/01/14 2,291,303
2,830 New York St Ser G (Prerefunded @
02/01/06)................................. 5.750 02/01/14 3,011,969
5,000 New York St Urban Dev Corp Rev St Fac
Rfdg...................................... 5.700 04/01/20 5,910,750
-------------
61,910,134
-------------
OHIO 4.8%
1,150 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj...................................... 7.500 01/01/30 1,274,729
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg
Dale Bridge Apt (AMT) (GNMA
Collateralized)........................... 6.600 10/20/30 2,065,700
3,540 Franklin Cnty, OH Hosp Rev & Impt Doctor's
Hosp Proj Rfdg (Escrowed to Maturity)..... 5.875 12/01/23 3,600,251
1,500 Mahoning Cnty, OH Hosp Fac Forum Hlth
Oblig Group Ser A......................... 6.000 11/15/32 1,588,545
5,130 Muskingum Cnty, OH Hosp Fac Rev Bethesda
Care Sys Impt Rfdg (Connie Lee Insd)
(d)....................................... 6.250 12/01/10 5,628,841
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
OH Edison Co Proj Rfdg.................... 5.950 05/15/29 2,000,840
1,340 Toledo Lucas Cnty, OH Port Auth Dev Rev
Northwest OH Bd Fd Ser C (AMT) (d)........ 6.600 11/15/15 1,415,844
-------------
17,574,750
-------------
OKLAHOMA 0.5%
1,500 Jenks, OK Aquarium Auth Rev First Mtg
(Prerefunded 07/01/10) (MBIA Insd)........ 6.100 07/01/30 1,765,935
-------------
See Notes to Financial Statements
H-15
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
OREGON 3.7%
$ 5,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd)..................................... 5.250% 07/01/22 $ 5,404,600
2,745 Oregon St Dept Admin Ser A (Prerefunded @
11/01/05) (MBIA Insd)..................... 5.250 11/01/10 2,866,055
5,000 Oregon St Dept Admin Ser C Rfdg (MBIA
Insd)..................................... 5.250 11/01/18 5,547,400
-------------
13,818,055
-------------
PENNSYLVANIA 2.0%
5,000 Harrisburg, PA Auth Res Gtd Sub Ser D-2
(Variable Rate Coupon) (FSA Insd)......... 5.000 12/01/33 5,485,550
1,370 Philadelphia, PA Hosp & Higher Ed Fac Auth
Rev Cmnty College Ser B Rfdg (MBIA Insd)
(d)....................................... 6.500 05/01/08 1,554,909
465 Ridley Park, PA Hosp Auth Rev Taylor Hosp
Ser A (Escrowed to Maturity).............. 6.000 12/01/05 475,137
-------------
7,515,596
-------------
RHODE ISLAND 0.3%
1,050 Rhode Island St Hlth & Ed Bldg Corp Rev
Higher Ed Fac Roger Williams (Prerefunded
@ 11/15/04) (Connie Lee Insd)............. 7.200 11/15/14 1,073,426
-------------
SOUTH CAROLINA 2.2%
1,015 Rock Hill, SC Util Sys Rev Comb Ser C Rfdg
(FSA Insd) (d)............................ 5.000 01/01/11 1,119,992
6,500 South Carolina Jobs Econ Dev Auth Indl Rev
Elec & Gas Co Proj Ser A (AMBAC Insd)..... 5.200 11/01/27 6,840,925
-------------
7,960,917
-------------
TENNESSEE 2.0%
12,525 Johnson City, TN Hlth & Ed Fac Brd Hosp
Rev Cap Apprec First Mtg Ser A Rfdg (MBIA
Insd)..................................... * 07/01/26 4,074,007
2,500 Johnson City, TN Hlth & Ed Fac Brd Hosp
Rev First Mtg Mtn St Hlth Ser A Rfdg (MBIA
Insd)..................................... 7.500 07/01/25 3,154,100
-------------
7,228,107
-------------
TEXAS 13.8%
1,585 Brazos River Auth TX Pollutn Ctl Rev Adj
TXU Elec Co Proj Ser C Rfdg (AMT)
(Variable Rate Coupon).................... 5.750 05/01/36 1,719,757
5,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt
Jt Ser A Rfdg (AMT) (FGIC Insd)........... 5.500 11/01/31 5,231,850
2,345 Denton Cnty, TX Perm Impt (d)............. 5.500 07/15/19 2,614,652
1,000 Harris Cnty, TX Hlth Fac Dev Mem Hermann
Hlthcare Ser A............................ 6.375 06/01/29 1,098,900
5,000 Harris Cnty, TX Sr Lien Toll Rd Rfdg (FSA
Insd)..................................... 5.125 08/15/32 5,173,950
See Notes to Financial Statements
H-16
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 4,655 Houston, TX Arpt Sys Rev Sub Lien (FSA
Insd)..................................... 5.500% 07/01/15 $ 5,283,146
3,000 Houston, TX Arpt Sys Rev Sub Lien Ser A
(AMT) (FSA Insd).......................... 5.625 07/01/30 3,187,620
5,000 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Lt Rfdg (AMT) (AMBAC Insd) (a).... 5.125 11/01/28 5,280,850
2,000 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj....................... 7.250 01/01/31 1,933,420
4,475 North Cent TX Hlth Fac Dev Hosp Baylor
Hlthcare Sys Proj Ser A................... 5.125 05/15/29 4,548,211
5,000 San Antonio, TX Elec & Gas Sys Rfdg....... 5.375 02/01/16 5,592,450
3,960 Stafford, TX Econ Dev Corp (FGIC Insd).... 5.500 09/01/30 4,316,004
5,000 Wylie, TX Indpt Sch Dist Rfdg (PSF Gtd)... 5.000 08/15/30 5,093,300
-------------
51,074,110
-------------
UTAH 0.8%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev
Ser A Rfdg (Escrowed to Maturity) (FGIC
Insd)..................................... * 07/01/17 2,806,650
-------------
WASHINGTON 7.9%
5,000 Clark Cnty, WA Sch Dist 114 (FSA Insd).... 5.250 06/01/19 5,478,900
3,630 King City, WA Ser B (Prerefunded @
12/01/07)................................. 5.900 12/01/14 4,102,699
1,370 King Cnty, WA Ser B (Prerefunded @
12/01/07)................................. 5.900 12/01/14 1,548,401
2,245 King Cnty, WA Ser B (Prerefunded @
12/01/07)................................. 6.625 12/01/15 2,585,746
4,000 Washington St Pub Pwr Supply Ser A Rfdg
(FGIC Insd)............................... 7.000 07/01/08 4,625,360
10,000 Washington St Pub Pwr Supply Ser A Rfdg
(AMBAC Insd).............................. 5.700 07/01/09 10,777,000
-------------
29,118,106
-------------
WEST VIRGINIA 2.5%
5,920 Harrison Cnty, WV Cnty Cmnty Solid Waste
Disp Rev West PA Pwr Co Ser C (AMT) (AMBAC
Insd)..................................... 6.750 08/01/24 6,060,955
3,000 West Virginia St Wtr Dev Auth Wtr Dev Rev
Ln Pgm II Ser A (Prerefunded @ 11/01/04)
(FSA Insd)................................ 6.750 11/01/33 3,060,810
-------------
9,121,765
-------------
WISCONSIN 0.8%
2,675 Wisconsin St Hlth & Ed Fac FH Hlthcare Dev
Inc Proj.................................. 6.250 11/15/28 2,837,827
-------------
See Notes to Financial Statements
H-17
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
PUERTO RICO 3.6%
$ 7,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy
Rev Ser Y Rfdg (FSA Insd) (a) (b)......... 6.250% 07/01/21 $ 8,877,820
4,000 Puerto Rico Pub Bldgs Auth Gtd Pub Ed &
Hlth Fac Ser M Rfdg (MBIA Insd)........... 5.600 07/01/08 4,461,400
-------------
13,339,220
-------------
TOTAL LONG-TERM INVESTMENTS 157.4%
(Cost $539,147,967)......................................................... 580,733,623
SHORT-TERM INVESTMENTS 1.0%
(Cost $3,600,000)........................................................... 3,600,000
-------------
TOTAL INVESTMENTS 158.4%
(Cost $542,747,967)......................................................... 584,333,623
OTHER ASSETS IN EXCESS OF LIABILITIES 2.6%................................... 9,655,302
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (61.0%)................... (225,095,154)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%................................ $ 368,893,771
=============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) Security converts to a fixed coupon rate at a predetermined date.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) The Trust owns 100% of the bond issuance.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
H-18
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
ASSETS:
Total Investments (Cost $542,747,967)....................... $584,333,623
Cash........................................................ 51,021
Receivables:
Interest.................................................. 8,826,273
Investments Sold.......................................... 4,492,172
Other....................................................... 11,046
------------
Total Assets............................................ 597,714,135
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,597,391
Variation Margin on Futures............................... 319,969
Investment Advisory Fee................................... 301,093
Income Distributions--Common Shares....................... 59,773
Other Affiliates.......................................... 24,339
Trustees' Deferred Compensation and Retirement Plans........ 306,453
Accrued Expenses............................................ 116,192
------------
Total Liabilities....................................... 3,725,210
Preferred Shares (including accrued distributions).......... 225,095,154
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $368,893,771
============
NET ASSET VALUE PER COMMON SHARE ($368,893,771 divided by
23,555,115 shares outstanding)............................ $ 15.66
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 23,555,115 shares issued and
outstanding).............................................. $ 235,551
Paid in Surplus............................................. 330,817,133
Net Unrealized Appreciation................................. 40,650,218
Accumulated Undistributed Net Investment Income............. 1,898,467
Accumulated Net Realized Loss............................... (4,707,598)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $368,893,771
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 9,000 issued with liquidation preference of
$25,000 per share)........................................ $225,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $593,893,771
============
See Notes to Financial Statements
H-19
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2004
INVESTMENT INCOME:
Interest.................................................... $29,571,106
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,545,870
Preferred Share Maintenance................................. 639,077
Administrative Fee.......................................... 172,834
Trustees' Fees and Related Expenses......................... 116,603
Legal....................................................... 62,495
Custody..................................................... 36,488
Other....................................................... 257,080
-----------
Total Expenses.......................................... 4,830,447
-----------
NET INVESTMENT INCOME....................................... $24,740,659
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,874,326
Futures................................................... (6,840,560)
-----------
Net Realized Loss........................................... (4,966,234)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 32,736,810
-----------
End of the Period:
Investments............................................. 41,585,656
Futures................................................. (935,438)
-----------
40,650,218
-----------
Net Unrealized Appreciation During the Period............... 7,913,408
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,947,174
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(2,460,484)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $25,227,349
===========
See Notes to Financial Statements
H-20
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 24,740,659 $ 25,830,017
Net Realized Gain/Loss.................................. (4,966,234) 4,872,068
Net Unrealized Appreciation/Depreciation During the
Period................................................ 7,913,408 (5,757,330)
Distributions to Preferred Shareholders:
Net Investment Income................................. (2,460,484) (2,292,954)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 25,227,349 22,651,801
Distributions to Common Shareholders:
Net Investment Income................................. (23,212,687) (23,883,918)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 2,014,662 (1,232,117)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 366,879,109 368,111,226
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,898,467 and $2,903,198,
respectively)......................................... $368,893,771 $366,879,109
============ ============
See Notes to Financial Statements
H-21
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------
2004 2003 2002 (a)
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 15.58 $ 15.63 $ 15.68
------- ------- -------
Net Investment Income..................................... 1.05 1.10 1.11
Net Realized and Unrealized Gain/Loss..................... .12 (.04) (.06)
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income................................... (.10) (.10) (.13)
------- ------- -------
Total from Investment Operations............................ 1.07 .96 .92
Distributions Paid to Common Shareholders:
Net Investment Income................................... (.99) (1.01) (.97)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 15.66 $ 15.58 $ 15.63
======= ======= =======
Common Share Market Price at End of the Period.............. $ 14.46 $ 14.70 $ 14.37
Total Return (b)............................................ 5.25% 9.61% 11.50%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................. $ 368.9 $ 366.9 $ 368.1
Ratio of Expenses to Average Net Assets Applicable to Common
Shares (c)................................................ 1.32% 1.33% 1.46%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)........................... 6.76% 6.99% 7.22%
Portfolio Turnover.......................................... 24% 30% 38%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)................................................ .82% .83% .90%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................... 6.09% 6.37% 6.36%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......................... 9,000 9,000 9,000
Asset Coverage Per Preferred Share (e)...................... $65,999 $65,769 $65,910
Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................... $25,000 $25,000 $25,000
(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 less than $.01, decrease net realized and unrealized
gains and losses per share by less than $.01 and increase the ratio of net
investment income to average net assets applicable to common shares by .02%.
Per share, ratios, and supplemental data for the periods prior to October 31,
2002 have not been restated to reflect this change.
(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.
H-22
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
$ 14.38 $ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37 $ 12.90
------- ------- -------- -------- -------- -------- --------
1.13 1.15 1.14 1.14 1.16 1.17 1.18
1.25 .63 (1.86) .51 .63 .13 1.57
(.31) (.39) (.31) (.34) (.34) (.34) (.38)
------- ------- -------- -------- -------- -------- --------
2.07 1.39 (1.03) 1.31 1.45 .96 2.37
(.77) (.81) (.81) (.81) (.81) (.83) (.90)
------- ------- -------- -------- -------- -------- --------
$ 15.68 $ 14.38 $ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37
======= ======= ======== ======== ======== ======== ========
$ 13.78 $ 12.25 $12.0625 $ 14.75 $13.5625 $ 12.375 $ 12.75
19.22% 8.56% -13.29% 15.10% 16.61% 3.70% 27.67%
$ 369.3 $ 338.7 $ 325.1 $ 368.5 $ 356.6 $ 341.5 $ 338.4
1.63% 1.77% 1.67% 1.67% 1.70% 1.77% 1.80%
7.49% 8.36% 7.56% 7.41% 7.93% 8.15% 8.67%
30% 25% 35% 24% 32% 42% 50%
1.00% 1.05% 1.02% 1.03% 1.03% 1.06% 1.06%
5.44% 5.55% 5.50% 5.21% 5.61% 5.78% 5.90%
9,000 9,000 9,000 4,500 4,500 4,500 4,500
$66,028 $62,631 $ 61,123 $131,890 $129,243 $125,881 $125,198
$25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
H-23
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Value Municipal Income Trust (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 in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment. The Trust commenced investment operations on March 26, 1993.
Effective November 30, 2003, the Trust's investment adviser, Van Kampen
Investment Advisory Corp., merged into its affiliate, Van Kampen Asset
Management (the "Adviser").
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.
Future 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 the 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 October 31, 2004, there were no 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, 2004, the Trust had an
H-24
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
accumulated capital loss carryforward for tax purposes of $5,643,037, of which
$2,246,517 will expire on October 31, 2007 and $3,396,520 will expire on October
31, 2012.
At October 31, 2004, the cost and related gross unrealized appreciation and
depreciation were as follows:
Cost of investments for tax purposes........................ $542,124,354
============
Gross tax unrealized appreciation........................... $ 42,660,994
Gross tax unrealized depreciation........................... (451,725)
------------
Net tax unrealized appreciation on investments.............. $ 42,209,269
============
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 years ended October 31,
2004 and 2003 was as follows:
2004 2003
Distributions paid from:
Ordinary income........................................... $185,505 $128,418
Long-term capital gain.................................... -0- -0-
-------- --------
$185,505 $128,418
======== ========
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under accounting principles generally accepted in the
United States of America and for federal income tax purposes, permanent
differences between book and tax basis reporting have been identified and
appropriately reclassified on the Statement of Assets and Liabilities. A
permanent book and tax difference relating to a portion of the capital loss
carry forward expiring in the current year totaling $412,304 was reclassified
from accumulated net realized loss to paid in surplus. In addition, a permanent
difference relating to book to tax accretion differences totaling $72,236 was
reclassified from accumulated undistributed net investment income to accumulated
net realized loss. Also, a permanent difference relating to excise taxes paid
which are not deductible for tax purposes totaling $17 was reclassified from
accumulated undistributed net investment income to paid in surplus.
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $169,276
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures contracts on October 31, 2004.
H-25
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, 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. Effective November
1, 2004, the investment advisory fee was reduced from .60% to .55%. In addition,
the Trust paid 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 year ended October 31, 2004, the Trust recognized expenses of
approximately $41,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust
is a partner who provides legal services to the Trust, and is therefore 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 year ended October
31, 2004, the Trust recognized expenses of approximately $51,800 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, in 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
also officers of Van Kampen.
The Trust has implemented 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 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.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $151,146,381 and $139,332,692,
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.
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 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.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an arrangement involving the delivery of a
particular asset on a specified future
H-26
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
date at an agreed upon price. The Trust generally invests in exchange traded
futures on 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 futures commission merchant pursuant to the 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 year ended October 31, 2004, were
as follows:
CONTRACTS
Outstanding at October 31, 2003............................. 1,006
Futures Opened.............................................. 4,720
Futures Closed.............................................. (4,429)
------
Outstanding at October 31, 2004............................. 1,297
======
The futures contracts outstanding as of October 31, 2004, and the
description and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Notes Futures December 2004 (Current
Notional Value of $113,563 per contract).................. 232 $(265,553)
5-Year U.S. Treasury Notes Futures December 2004 (Current
Notional Value of $111,375 per contract).................. 1,065 (669,885)
----- ---------
1,297 $(935,438)
===== =========
5. PREFERRED SHARES
The Trust has outstanding 9,000 Auction Preferred Shares ("APS") in five series.
Series A, B, C and D each contain 2,000 shares and Series E contains 1,000
shares. Dividends are cumulative and the dividend rate is periodically reset
through an auction process. The dividend period for Series A and E is seven
days. The dividend period for Series B, C and D is 28 days. The average rate in
effect on October 31, 2004 was 1.551%. During the year ended October 31, 2004,
the rates ranged from 0.450% to 1.700%.
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 in 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.
H-27
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
H-28
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen Value Municipal Income
Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Value Municipal Income Trust (the "Trust"), including the portfolio of
investments, as of October 31, 2004, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to October 31, 2000 were audited by other auditors whose report, dated
December 6, 1999, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Value Municipal Income Trust as of October 31, 2004, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 10, 2004
H-29
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
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
H-30
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
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
H-31
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
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 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, New York 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 REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2004. The Trust designated 99.3% of the income distributions as a
tax-exempt income distribution. In January, the Trust provides tax information
to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
H-32
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2004,
where shareholders voted on the election of trustees.
1) With regard to the election of the following trustees by the common
shareholders of the Trust:
# OF SHARES
------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
J. Miles Branagan......................................... 21,090,465 233,531
Linda Hutton Heagy........................................ 21,074,663 249,332
Mitchell M. Merin......................................... 21,096,726 227,270
Wayne W. Whalen........................................... 21,085,831 238,165
2) With regard to the election of the following trustee by the preferred
shareholders of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Rod Dammeyer................................................ 7,420 12
The other trustees of the Trust whose terms did not expire in 2004 are David C.
Arch, Jerry D. Choate, R. Craig Kennedy, Howard J Kerr, Jack Nelson, Richard F.
Powers, III, Hugo F. Sonnenschein, and Suzanne H. Woolsey.
H-33
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing
Blistex Inc. since 1993 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
H-34
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
H-35
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing
CAC, L.L.C. since 1993 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
H-36
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 83 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 85 Trustee/Director/Managing
736 North Western Avenue since 1993 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
H-37
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 85 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 83 Trustee/Director/Managing
(62) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
H-38
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
H-39
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 85 Trustee/Director/Managing
333 West Wacker Drive since 1993 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
H-40
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James M. Dykas (38) Chief Financial Officer Executive Director of Van Kampen Asset Management and Morgan
1 Parkview Plaza Officer and since 1999 Stanley Investment Management. Chief Financial Officer and
Oakbrook Terrace, IL 60181 Treasurer Treasurer of funds in the Fund Complex. Prior to August
2004, Assistant Treasurer of funds in the Fund Complex.
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since May 2003.
1221 Avenue of the Americas President and since 2003 Chief Executive Officer and Chairman of Investor Services.
New York, NY 10020 Principal Executive Vice President and Principal Executive Officer of
Executive funds in the Fund Complex. Managing Director of Morgan
Officer Stanley. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
H-41
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
H-42
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our
(continued on back)
H-43
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
sites, and help to improve our sites' content and personalize your
experience on our sites by, for example, suggesting offerings that may
interest you. Please consult the Terms of Use of these sites for more
details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
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.
VKV ANR 12/04 RN04-02821P-Y10/04
H-44
APPENDIX I
SEMIANNUAL REPORT OF VAN KAMPEN VALUE MUNICIPAL INCOME TRUST,
DATED APRIL 30, 2005
I-1
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
Value Municipal Income Trust 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, 2005.
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
---------------------------------------------------------------------------------------
I-2
Performance Summary as of 4/30/05
VALUE MUNICIPAL INCOME TRUST
SYMBOL: VKV
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS MARKET NAV
Since Inception (3/26/93) 5.78% 7.15%
10-year 7.44 7.96
5-year 10.36 9.71
1-year 8.90 10.61
6-month -3.55 3.70
------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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.
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 does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
I-3
Trust Report
FOR THE 6-MONTH PERIOD ENDED APRIL 30, 2005
Van Kampen Value Municipal Income Trust is managed by the Adviser's Municipal
Fixed Income team.(1) Current members include Timothy D. Haney and Robert
Wimmel, Vice Presidents of the Adviser; and John Reynoldson, Executive Director
of the Adviser.
MARKET CONDITIONS
The six-month period ended April 30, 2005, was characterized by continued
short-term interest rate increases. As crude oil prices reached record highs,
the prospect of rising inflation also cast a shadow. The Federal Open Market
Committee (the "Fed") raised the federal funds target rate 100 basis points
during the period through a series of four "measured" 0.25 percent tightenings
to 2.75 percent by the end of April. Although rates in the short and
intermediate areas of the yield curve shifted upward as the Fed tightened, long-
term interest rates fell as buyers did not seem deterred by the prospect of
rising inflation. As a result, the yield curve (the difference between short and
longer-term yields) flattened and the long end of the municipal market handily
outperformed the shorter end.
The municipal market in total posted positive returns during the period, though
it was not uniformly strong. In contrast to the strong showing by longer-term
bonds, shorter-term municipals were hampered by the Fed's tightening and turned
in a flat to slightly negative showing. Within the investment-grade segment of
the market, yield differentials between BBB-rated and AAA-rated municipal
securities were slightly wider, though BBB-rated securities still outperformed
high grades due to their higher coupons, while securities rated below investment
grade strongly outperformed as investors sought out their higher yields.
The Fed's interest rate hikes did not appear to dampen investors' appetites for
municipal bonds, as net inflows into municipal bond funds topped $290 million
during the period. The supply of new issues was modest during the closing months
of 2004 (the first two months of the period) before soaring in the opening
months of 2005 as long-term issuers rushed to bring securities to market in
anticipation of additional interest rate increases in the near term.
(1)Team members may change without notice at any time.
I-4
PERFORMANCE ANALYSIS
The trust's return 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, as they did during the reporting period. On an NAV basis,
the trust outperformed its benchmark index, the Lehman Brothers Municipal Bond
Index. On a market price basis, the trust underperformed its benchmark.
TOTAL RETURNS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2005
----------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
3.70% -3.55% 1.93%
----------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. 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.
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 reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates throughout the period made the trust's borrowing activity
more expensive. These expenses, however, were more than offset by the positive
performance of the bonds held by the trust.
As part of an ongoing strategy to position the trust for continued increases in
short-term interest rates, we trimmed exposure to bonds with maturities in the
five- to 15-year range. Our strategy also included adding selectively to the
trust's holdings of bonds with longer maturities but moderate interest rate
characteristics. Finally, we kept the trust's duration (a measure of overall
interest-rate sensitivity) below that of its benchmark.
We continued to focus on relative-value trading between liquid, high-quality
securities to capture relative value opportunities identified by our analysts.
The trust's overall credit exposure remained tilted toward higher-quality
securities, with 87 percent of its exposure at the end of the period in bonds
rated AA or better. We took advantage of what we believed to be some compelling
opportunities to add BBB rated securities to the portfolio when our analysts
identified securities with attractive structures and yield characteristics.
I-5
The trust's portfolio remained well diversified across the major sectors of the
municipal bond market, with its top three sectors at the end of the period being
general purpose, transportation and health care.
There is no guarantee the security sectors mentioned will continue to perform
well or be held by the trust in the future.
I-6
TOP 5 SECTORS AS OF 4/30/05
General Purpose 14.8%
Transportation 13.4
Health Care 12.8
Public Building 10.4
Industrial Revenue 9.1
RATINGS ALLOCATION AS OF 4/30/05
AAA/Aaa 78.8%
AA/Aa 8.4
A/A 6.1
BBB/Baa 4.2
B/B 0.4
Non-Rated 2.1
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 4/30/05
California 12.2%
New York 11.4
Texas 9.3
Illinois 6.0
New Jersey 5.9
Washington 4.8
Florida 4.6
Louisiana 4.5
Georgia 3.1
Colorado 3.0
Ohio 3.0
Tennessee 2.5
Michigan 2.5
Arizona 2.4
Oregon 2.3
Puerto Rico 2.3
Nevada 2.2
Massachusetts 2.0
Hawaii 1.9
Alabama 1.8
Maryland 1.6
Pennsylvania 1.6
Kansas 1.5
South Carolina 1.4
Missouri 1.1
West Virginia 1.0
Connecticut 0.9
District of Columbia 0.9
Arkansas 0.6
Wisconsin 0.5
Utah 0.5
Mississippi 0.3
Oklahoma 0.3
Kentucky 0.1
-----
Total Investments 100.0%
I-7
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. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
I-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public Web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public Web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by visiting our Web site at www.vankampen.com. This
information is also available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
I-9
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED)
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
MUNICIPAL BONDS 157.5%
ALABAMA 2.9%
$ 1,000 Birmingham Baptist Med Ctr AL Baptist Hlth
Sys Ser A................................. 5.875% 11/15/24 $ 1,061,820
5,000 Birmingham Baptist Med Ctr AL Spl Care Fac
Fin Auth Rev (MBIA Insd).................. 5.750 11/15/10 5,298,300
4,000 Jefferson Cnty, AL Ltd Oblig Sch Wt Ser
A......................................... 5.250 01/01/23 4,275,400
4 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svc Co Proj Rfdg........ 6.950 01/01/20 71
-------------
10,635,591
-------------
ARIZONA 3.7%
5,000 Arizona Sch Fac Brd Ctf Ser B (Prerefunded
@ 09/01/14) (FSA Insd).................... 5.250 09/01/19 5,654,250
5,250 Arizona Tourism & Sports Auth Tax Rev
Multipurpose Stad Fac Ser A (MBIA Insd)... 5.375 07/01/23 5,818,155
2,280 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg
(FSA Insd)................................ 7.250 07/15/10 2,386,704
-------------
13,859,109
-------------
ARKANSAS 0.9%
1,930 Arkansas St Cap Apprec College Svg........ * 06/01/16 1,209,357
2,000 Arkansas St Dev Fin Auth Rev St Agy Fac
Donaghey Plaza Proj (FSA Insd)............ 5.000 06/01/34 2,089,780
-------------
3,299,137
-------------
CALIFORNIA 19.4%
6,215 ABC, CA Uni Sch Dist Cap Apprec (FGIC
Insd)..................................... * 08/01/34 1,408,070
8 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser B (AMT) (GNMA
Collateralized)........................... 7.750 09/01/26 7,613
10,000 California St (Prerefunded @ 03/01/10)
(MBIA Insd)............................... 5.500 03/01/17 11,241,900
3,000 California St Dept Wtr Res Ser A.......... 5.875 05/01/16 3,397,830
5,000 California St Pub Wks Brd Dept Gen Svc Cap
East End A (AMBAC Insd)................... 5.125 12/01/21 5,346,300
6,000 California St Pub Wks Brd Lease Rev Dept
of Corrections St Prisons Ser A Rfdg
(AMBAC Insd).............................. 5.250 12/01/13 6,762,480
2,000 California St Pub Wks Brd Lease Rev Dept
of Corrections St Prisons Ser A Rfdg
(AMBAC Insd) (a).......................... 5.000 12/01/19 2,197,020
5,000 California St Rfdg........................ 5.000 02/01/19 5,276,450
2,000 Florin, CA Res Consv Dist Cap Impt Elk
Grove Wtr Svc Ser A (MBIA Insd)........... 5.000 09/01/33 2,097,320
30,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Ser A Rfdg............................ * 01/15/22 11,480,700
1,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Sr Lien Ser A (Prerefunded @
01/01/07)................................. 6.500 01/01/32 1,061,250
See Notes to Financial Statements
I-10
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$ 3,350 Imperial Irr Dist CA Ctf Part Elec Sys
Proj (FSA Insd) (b)....................... 5.250% 11/01/19 $ 3,658,233
5,500 Port Oakland, CA Ser L (AMT) (FGIC
Insd)..................................... 5.000 11/01/32 5,627,050
9,000 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev Riverside Cnty Hosp Proj
(MBIA Insd)............................... * 06/01/21 4,174,740
5,700 Sacramento, CA City Fin Auth Rev Comb Proj
B (MBIA Insd)............................. * 11/01/15 3,668,121
10,225 Santa Ana, CA Uni Sch Dist Ctf Part Cap
Apprec Fin Proj (FSA Insd)................ * 04/01/32 2,654,819
5,755 Southwestern Cmnty College Cap Apprec
Election 2000 (FGIC Insd)................. * 08/01/29 1,724,773
-------------
71,784,669
-------------
COLORADO 4.8%
4,340 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser
A (FSA Insd).............................. 5.250 12/01/18 4,797,349
4,290 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser
C (Prerefunded 12/01/06) (MBIA Insd)...... 5.750 12/01/08 4,568,550
3,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded @ 08/31/05) (c)... 7.000 08/31/26 3,133,980
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)
(c)....................................... 6.950 08/31/20 1,044,490
9,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser C (Prerefunded @
08/31/05)................................. * 08/31/26 1,861,740
2,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to
Maturity)................................. 5.500 03/01/32 2,233,320
-------------
17,639,429
-------------
CONNECTICUT 1.4%
5,000 Connecticut St Ser C (FGIC Insd) (a)...... 5.000 04/01/22 5,366,100
-------------
DISTRICT OF COLUMBIA 1.4%
5,000 Metropolitan Washington DC Arpt Auth Sys
Ser A (AMT) (FGIC Insd)................... 5.250 10/01/32 5,217,550
-------------
FLORIDA 7.3%
2,500 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd)..................................... 5.250 10/01/21 2,633,525
5,000 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)..................................... 5.950 07/01/20 5,077,550
3,980 Jacksonville, FL Port Auth (AMT) (MBIA
Insd)..................................... 5.700 11/01/30 4,311,773
See Notes to Financial Statements
I-11
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 2,780 Jacksonville, FL Port Auth (Prerefunded @
11/01/10) (AMT) (MBIA Insd)............... 5.700% 11/01/30 $ 3,088,997
11,500 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (AMT) (FGIC Insd)............... 5.375 10/01/32 12,118,930
-------------
27,230,775
-------------
GEORGIA 4.4%
5,000 Georgia Muni Elec Auth Pwr Rev Ser B
(Escrowed to Maturity) (FGIC Insd)........ 5.700 01/01/19 5,779,450
2,700 Marietta, GA Dev Auth Rev First Mtg Life
College Ser B (FSA Insd) (b).............. 5.375 09/01/09 2,774,790
2,205 Municipal Elec Auth GA Comb Cycle Proj Ser
A (MBIA Insd)............................. 5.000 11/01/20 2,383,781
4,995 Municipal Elec Auth GA Comb Turbine Proj
Ser A (MBIA Insd)......................... 5.250 11/01/20 5,440,304
-------------
16,378,325
-------------
HAWAII 3.1%
10,430 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co Inc Ser A (AMT) (MBIA
Insd)..................................... 5.650 10/01/27 11,409,690
-------------
ILLINOIS 9.6%
3,500 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd).................... * 01/01/17 1,677,130
6,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd) (d)........................... 0/5.750 01/01/29 6,147,120
3,180 Illinois Hlth Fac Auth Rev Children's Mem
Hosp (MBIA Insd).......................... 6.250 08/15/13 3,680,119
1,485 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser A Rfdg (FSA Insd)................ 6.750 04/15/17 1,806,681
825 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser C (FSA Insd)..................... 6.750 04/15/17 1,003,711
1,000 Illinois Hlth Fac Auth Rev Highland Park
Hosp Proj Ser A (Prerefunded @ 10/01/07)
(MBIA Insd)............................... 5.750 10/01/17 1,083,720
2,070 Northern IL Univ Ctf Part Hoffman Estates
Ctr Proj (FSA Insd)....................... 5.400 09/01/16 2,322,147
5,000 Regional Trans Auth IL Ser A (AMBAC
Insd)..................................... 8.000 06/01/17 6,893,250
10,000 Will Cnty, IL Sch Dist No 122 Ser B Rfdg
(FGIC Insd)............................... 5.250 11/01/20 10,840,800
-------------
35,454,678
-------------
See Notes to Financial Statements
I-12
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
KANSAS 2.1%
$ 3,430 Kansas St Dev Fin Auth Rev KS Proj Ser N
(AMBAC Insd) (b).......................... 5.250% 10/01/20 $ 3,714,347
3,615 Kansas St Dev Fin Auth Rev KS Proj Ser N
(AMBAC Insd) (b).......................... 5.250 10/01/21 3,914,683
-------------
7,629,030
-------------
KENTUCKY 0.2%
500 Mount Sterling, KY Lease Rev KY League
Cities Fdg Ser B.......................... 6.100 03/01/18 593,560
-------------
LOUISIANA 7.2%
5,000 Lafayette, LA Util Rev (MBIA Insd)........ 5.250 11/01/21 5,484,800
5,970 Louisiana Loc Govt Environment Southeastn
LA Student Hsg A (MBIA Insd) (b).......... 5.250 08/01/24 6,462,406
8,065 Louisiana St Office Fac Corp LA St Cap
Complex Pgm (MBIA Insd) (b)............... 5.000 11/01/20 8,591,886
6,000 Saint Charles Parish, LA Solid Waste Disp
Rev LA Pwr & Lt Co Proj (AMT) (FSA Insd)
(a)....................................... 7.050 04/01/22 6,020,280
-------------
26,559,372
-------------
MARYLAND 2.6%
5,000 Maryland St Econ Dev Corp MD Aviation
Admin Fac (AMT) (FSA Insd)................ 5.375 06/01/20 5,414,550
4,000 Maryland St Trans Auth Arpt Baltimore/WA
Intl Arpt B (AMT) (AMBAC Insd)............ 5.125 03/01/24 4,219,280
-------------
9,633,830
-------------
MASSACHUSETTS 3.2%
2,500 Massachusetts Bay Trans Auth Ser A........ 5.000 07/01/32 2,602,175
1,750 Massachusetts St Hlth & Ed Fac Auth Rev
Hlthcare Sys Covenant Hlth................ 6.000 07/01/31 1,863,767
925 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT).......... 6.900 12/01/29 978,003
925 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT).......... 6.950 12/01/35 978,733
5,000 Massachusetts St Wtr Pollutn Abatement Tr
Pool Prog Bds Ser 10...................... 5.000 08/01/21 5,381,300
-------------
11,803,978
-------------
MICHIGAN 3.9%
5,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No. 1 Proj Ser C1
(Prerefunded @ 07/01/06).................. 6.250 07/01/25 5,298,000
3,185 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser
A (MBIA Insd) (b)......................... 5.250 07/01/20 3,501,971
2,000 Kent Hosp Fin Auth MI Rev Met Hosp Proj
Ser A..................................... 6.000 07/01/35 2,141,480
3,090 Troy, MI Downtown Dev Auth Dev Rfdg (MBIA
Insd)..................................... 5.500 11/01/15 3,443,342
-------------
14,384,793
-------------
See Notes to Financial Statements
I-13
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
MISSISSIPPI 0.5%
$ 2,000 Mississippi Bus Fin Corp MS Pollutn Ctl
Rev Sys Energy Res Inc Proj............... 5.875% 04/01/22 $ 2,025,100
-------------
MISSOURI 1.7%
2,195 Missouri St Hlth & Ed Fac Rev Univ MO
Columbia Arena Proj (b)................... 5.000 11/01/16 2,365,486
4,000 Platte Cnty, MO Indl Dev Auth Trans Rev... 4.500 12/01/24 4,019,960
-------------
6,385,446
-------------
NEVADA 3.4%
8,000 Clark Cnty, NV Arpt Rev Sub Lien Ser A-2
(FGIC Insd)............................... 5.000 07/01/36 8,312,640
4,000 Clark Cnty, NV Indl Dev Rev Southwest Gas
Corp Proj Ser A (AMT) (AMBAC Insd)........ 5.250 07/01/34 4,196,480
290 Nevada Hsg Div Single Family Pgm Mezz B
(AMT) (FHA/VA Gtd)........................ 6.550 10/01/12 293,692
-------------
12,802,812
-------------
NEW JERSEY 9.2%
5,000 Essex Cnty, NJ Impt Auth Rev Cnty Gtd Proj
Consldtn Rfdg (MBIA Insd)................. 5.125 10/01/20 5,431,700
1,400 New Jersey Econ Dev Auth Rev Cigarette
Tax....................................... 5.750 06/15/29 1,502,088
4,350 New Jersey Econ Dev Wtr NJ Amern Wtr Co
Inc Ser A (AMT) (FGIC Insd)............... 5.250 07/01/38 4,508,297
2,500 New Jersey Hlthcare Fac Fin Auth Rev Gen
Hosp Ctr at Passaic (Escrowed to Maturity)
(FSA Insd)................................ 6.750 07/01/19 3,164,700
1,695 New Jersey Hlthcare Fac Fin Auth Rev Gen
Hosp Ctr Passaic (Escrowed to Maturity)
(FSA Insd)................................ 6.000 07/01/06 1,730,341
10,000 New Jersey St Ed Fac Auth Higher Ed Cap
Impt Ser A (AMBAC Insd)................... 5.250 09/01/20 10,873,800
6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth
Rev Pollutn Ctl Pub Svc Elec & Gas Ser A
(AMT) (MBIA Insd)......................... 5.450 02/01/32 6,806,228
-------------
34,017,154
-------------
NEW YORK 18.0%
7,000 Metropolitan Trans Auth NY Ser A Rfdg
(FGIC Insd)............................... 5.250 11/15/31 7,523,320
5,000 Metropolitan Trans Auth NY Svc Contract
Ser A Rfdg (AMBAC Insd)................... 5.000 07/01/30 5,212,200
3,500 New York City Ser C....................... 5.500 08/01/13 3,906,175
7,500 New York City Ser E (FSA Insd)............ 5.000 11/01/20 8,060,550
6,000 New York City Transitional Fin Auth Rev
Future Tax Secd Ser A Rfdg (d)............ 5.500/14.000 11/01/26 6,675,300
8,240 New York City Transitional Future Tax Secd
Ser C Rfdg (AMBAC Insd)................... 5.250 08/01/18 9,054,030
See Notes to Financial Statements
I-14
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$ 7,575 New York St Dorm Auth Rev City Univ Sys
Con Ser A................................. 5.625% 07/01/16 $ 8,664,588
3,845 New York St Dorm Auth Rev Secd Hosp Gen
Hosp Rfdg................................. 5.750 02/15/20 4,271,141
2,310 New York St Med Care Fac Fin Agy Rev Saint
Peter's Hosp Proj Ser A (AMBAC Insd)...... 5.375 11/01/13 2,337,720
5,000 New York St Ser G (Prerefunded @
02/01/06)................................. 5.750 02/01/14 5,190,600
5,000 New York St Urban Dev Corp Rev St Fac
Rfdg...................................... 5.700 04/01/20 5,870,850
-------------
66,766,474
-------------
OHIO 4.7%
1,150 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj...................................... 7.500 01/01/30 1,293,428
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg
Dale Bridge Apt (AMT) (GNMA
Collateralized)........................... 6.600 10/20/30 2,057,200
3,540 Franklin Cnty, OH Hosp Rev & Impt Doctor's
Hosp Proj Rfdg (Escrowed to Maturity)..... 5.875 12/01/23 3,574,798
1,500 Mahoning Cnty, OH Hosp Fac Forum Hlth
Oblig Group Ser A......................... 6.000 11/15/32 1,611,915
5,130 Muskingum Cnty, OH Hosp Fac Rev Bethesda
Care Sys Impt Rfdg (Connie Lee Insd)
(b)....................................... 6.250 12/01/10 5,482,688
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
OH Edison Co Proj Rfdg.................... 5.950 05/15/29 2,020,280
1,280 Toledo Lucas Cnty, OH Port Auth Dev Rev
Northwest OH Bd Fd Ser C (AMT) (b)........ 6.600 11/15/15 1,356,467
-------------
17,396,776
-------------
OKLAHOMA 0.5%
1,500 Jenks, OK Aquarium Auth Rev First Mtg
(Prerefunded 07/01/10) (MBIA Insd)........ 6.100 07/01/30 1,725,075
-------------
OREGON 3.7%
5,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd)..................................... 5.250 07/01/22 5,471,350
2,745 Oregon St Dept Admin Ser A (Prerefunded @
11/01/05) (MBIA Insd)..................... 5.250 11/01/10 2,809,068
5,000 Oregon St Dept Admin Ser C Rfdg (MBIA
Insd)..................................... 5.250 11/01/18 5,453,500
-------------
13,733,918
-------------
PENNSYLVANIA 2.3%
2,500 Harrisburg, PA Auth Res Gtd Sub Ser D-2
(Variable Rate Coupon) (FSA Insd)......... 5.000 12/01/33 2,722,225
2,535 Pennsylvania St Higher Ed UPMC Hlth Sys
Ser A..................................... 6.250 01/15/17 2,862,370
1,000 Pennsylvania St Higher Ed UPMC Hlth Sys
Ser A..................................... 6.250 01/15/18 1,126,950
See Notes to Financial Statements
I-15
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
$ 1,370 Philadelphia, PA Hosp & Higher Ed Fac Auth
Rev Cmnty College Ser B Rfdg (MBIA Insd)
(b)....................................... 6.500% 05/01/08 $ 1,505,260
465 Ridley Park, PA Hosp Auth Rev Taylor Hosp
Ser A (Escrowed to Maturity).............. 6.000 12/01/05 473,858
-------------
8,690,663
-------------
SOUTH CAROLINA 2.2%
1,015 Rock Hill, SC Util Sys Rev Comb Ser C Rfdg
(FSA Insd) (b)............................ 5.000 01/01/11 1,101,255
6,500 South Carolina Jobs Econ Dev Auth Indl Rev
Elec & Gas Co Proj Ser A (AMBAC Insd)..... 5.200 11/01/27 6,968,325
-------------
8,069,580
-------------
TENNESSEE 4.0%
7,050 Hallsdale Powell Util Dist Knox Cnty TN
Wtr & Swr Rev Impt Ser B (FGIC Insd)...... 5.000 04/01/34 7,366,122
12,525 Johnson City, TN Hlth & Ed Fac Brd Hosp
Rev Cap Apprec First Mtg Ser A Rfdg (MBIA
Insd)..................................... * 07/01/26 4,411,430
2,500 Johnson City, TN Hlth & Ed Fac Brd Hosp
Rev First Mtg Mtn St Hlth Ser A Rfdg (MBIA
Insd)..................................... 7.500 07/01/25 3,145,675
-------------
14,923,227
-------------
TEXAS 14.7%
1,585 Brazos River Auth TX Pollutn Ctl Rev Adj
TXU Elec Co Proj Ser C Rfdg (Variable Rate
Coupon) (AMT)............................. 5.750 05/01/36 1,721,326
5,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt
Jt Ser A Rfdg (AMT) (FGIC Insd)........... 5.500 11/01/31 5,289,400
2,345 Denton Cnty, TX Perm Impt (Prerefunded
07/15/10) (b)............................. 5.500 07/15/19 2,568,150
1,000 Harris Cnty, TX Hlth Fac Dev Mem Hermann
Hlthcare Ser A............................ 6.375 06/01/29 1,104,220
5,000 Harris Cnty, TX Sr Lien Toll Rd Rfdg (FSA
Insd)..................................... 5.125 08/15/32 5,229,500
4,655 Houston, TX Arpt Sys Rev Sub Lien (FSA
Insd)..................................... 5.500 07/01/15 5,179,898
3,000 Houston, TX Arpt Sys Rev Sub Lien Ser A
(AMT) (FSA Insd).......................... 5.625 07/01/30 3,234,270
3,920 Lower Colorado Riv Auth TX LCRA Svcs Corp
Proj Rfdg (FGIC Insd)..................... 5.000 05/15/33 4,030,779
5,000 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Lt Rfdg (AMT) (AMBAC Insd) (c).... 5.125 11/01/28 5,429,100
2,000 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj....................... 7.250 01/01/31 2,039,440
3,325 North Cent TX Hlth Fac Dev Hosp Baylor
Hlthcare Sys Proj Ser A................... 5.125 05/15/29 3,421,425
3,610 San Antonio, TX Elec & Gas Sys Rfdg....... 5.375 02/01/16 3,945,730
See Notes to Financial Statements
I-16
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 1,390 San Antonio, TX Elec & Gas Sys Rfdg
(Prerefunded @ 02/01/12).................. 5.375% 02/01/16 $ 1,546,222
3,960 Stafford, TX Econ Dev Corp (FGIC Insd).... 5.500 09/01/30 4,397,738
5,000 Wylie, TX Indpt Sch Dist Rfdg (PSF Gtd)... 5.000 08/15/30 5,156,700
-------------
54,293,898
-------------
UTAH 0.8%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev
Ser A Rfdg (Escrowed to Maturity)
(FGIC Insd)............................... * 07/01/17 2,821,104
-------------
WASHINGTON 7.7%
5,000 Clark Cnty, WA Sch Dist 114 (FSA Insd).... 5.250 06/01/19 5,482,400
3,630 King City, WA Ser B (Prerefunded @
12/01/07)................................. 5.900 12/01/14 3,966,791
1,370 King Cnty, WA Ser B (Prerefunded @
12/01/07)................................. 5.900 12/01/14 1,497,109
2,245 King Cnty, WA Ser B (Prerefunded @
12/01/07)................................. 6.625 12/01/15 2,493,611
4,000 Washington St Pub Pwr Supply Ser A Rfdg
(FGIC Insd)............................... 7.000 07/01/08 4,470,840
10,000 Washington St Pub Pwr Supply Ser A Rfdg
(AMBAC Insd).............................. 5.700 07/01/09 10,521,300
-------------
28,432,051
-------------
WEST VIRGINIA 1.6%
5,920 Harrison Cnty, WV Cnty Cmnty Solid Waste
Disp Rev West PA Pwr Co Ser C (AMT) (AMBAC
Insd)..................................... 6.750 08/01/24 6,056,930
-------------
WISCONSIN 0.8%
2,675 Wisconsin St Hlth & Ed Fac FH Hlthcare Dev
Inc Proj.................................. 6.250 11/15/28 2,848,099
-------------
See Notes to Financial Statements
I-17
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
PUERTO RICO 3.6%
$ 7,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy
Rev Ser Y Rfdg (FSA Insd) (a)............. 6.250% 07/01/21 $ 8,886,010
4,000 Puerto Rico Pub Bldgs Auth Gtd Pub Ed &
Hlth Fac Ser M Rfdg (MBIA Insd)........... 5.600 07/01/08 4,333,120
-------------
13,219,130
-------------
TOTAL LONG-TERM INVESTMENTS 157.5%
(Cost $543,446,761)........................................................ 583,087,053
SHORT-TERM INVESTMENTS 1.1%
(Cost $4,100,000).......................................................... 4,100,000
-------------
TOTAL INVESTMENTS 158.6%
(Cost $547,546,761)........................................................ 587,187,053
OTHER ASSETS IN EXCESS OF LIABILITIES 2.2%.................................. 8,266,696
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (60.8%).................. (225,191,898)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 370,261,851
=============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(b) The Trust owns 100% of the bond issuance.
(c) Security converts to a fixed coupon rate at a predetermined date.
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
See Notes to Financial Statements
I-18
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2005 (Unaudited)
ASSETS:
Total Investments (Cost $547,546,761)....................... $587,187,053
Cash........................................................ 3,082
Receivables:
Interest.................................................. 8,762,166
Investments Sold.......................................... 2,112,200
Variation Margin on Futures............................... 221,250
Other....................................................... 2,491
------------
Total Assets............................................ 598,288,242
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,034,620
Investment Advisory Fee................................... 267,133
Income Distributions--Common Shares....................... 56,705
Other Affiliates.......................................... 24,415
Trustees' Deferred Compensation and Retirement Plans........ 328,080
Accrued Expenses............................................ 123,540
------------
Total Liabilities....................................... 2,834,493
Preferred Shares (including accrued distributions).......... 225,191,898
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $370,261,851
============
NET ASSET VALUE PER COMMON SHARE ($370,261,851 divided by
23,555,115 shares outstanding)............................ $ 15.72
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 23,555,115 shares issued and
outstanding).............................................. $ 235,551
Paid in Surplus............................................. 330,817,133
Net Unrealized Appreciation................................. 39,125,111
Accumulated Undistributed Net Investment Income............. 1,635,355
Accumulated Net Realized Loss............................... (1,551,299)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $370,261,851
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 9,000 issued with liquidation preference of
$25,000 per share)........................................ $225,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $595,261,851
============
See Notes to Financial Statements
I-19
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended April 30, 2005 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $14,565,083
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,617,837
Preferred Share Maintenance................................. 313,258
Trustees' Fees and Related Expenses......................... 36,635
Legal....................................................... 30,554
Custody..................................................... 17,538
Other....................................................... 125,847
-----------
Total Expenses.......................................... 2,141,669
-----------
NET INVESTMENT INCOME....................................... $12,423,414
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,434,758
Futures................................................... 1,721,541
-----------
Net Realized Gain........................................... 3,156,299
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 40,650,218
-----------
End of the Period:
Investments............................................. 39,640,292
Futures................................................. (515,181)
-----------
39,125,111
-----------
Net Unrealized Depreciation During the Period............... (1,525,107)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,631,192
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(2,051,834)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $12,002,772
===========
See Notes to Financial Statements
I-20
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 12,423,414 $ 24,740,659
Net Realized Gain/Loss................................... 3,156,299 (4,966,234)
Net Unrealized Appreciation/Depreciation During the
Period................................................. (1,525,107) 7,913,408
Distributions to Preferred Shareholders:
Net Investment Income.................................. (2,051,834) (2,460,484)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................. 12,002,772 25,227,349
Distributions to Common Shareholders:
Net Investment Income.................................. (10,634,692) (23,212,687)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES.................................. 1,368,080 2,014,662
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.................................. 368,893,771 366,879,109
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,635,355 and $1,898,467,
respectively).......................................... $370,261,851 $368,893,771
============ ============
See Notes to Financial Statements
I-21
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
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, ------------------
2005 2004 2003
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 15.66 $ 15.58 $ 15.63
------- ------- -------
Net Investment Income...................................... .53 1.05 1.10
Net Realized and Unrealized Gain/Loss...................... .07 .12 (.04)
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income.................................... (.09) (.10) (.10)
------- ------- -------
Total from Investment Operations............................ .51 1.07 .96
Distributions Paid to Common Shareholders:
Net Investment Income.................................... (.45) (.99) (1.01)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 15.72 $ 15.66 $ 15.58
======= ======= =======
Common Share Market Price at End of the Period.............. $ 13.50 $ 14.46 $ 14.70
Total Return (b)............................................ -3.55%* 5.25% 9.61%
Net Assets Applicable to Common Shares at End of the Period
(In millions).............................................. $ 370.3 $ 368.9 $ 366.9
Ratio of Expenses to Average Net Assets Applicable to Common
Shares (c)................................................. 1.17% 1.32% 1.33%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)............................ 6.80% 6.76% 6.99%
Portfolio Turnover.......................................... 9%* 24% 30%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)................................................. .73% .82% .83%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)............................ 5.68% 6.09% 6.37%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......................... 9,000 9,000 9,000
Asset Coverage Per Preferred Share (e)...................... $66,162 $65,999 $65,769
Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................... $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 less than $.01, decrease net realized and unrealized
gains and losses per share by less than $.01 and increase the ratio of net
investment income to average net assets applicable to common shares by .02%.
Per share, ratios, and supplemental data for the periods prior to October 31,
2002 have not been restated to reflect this change.
(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 divided 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.
I-22
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------------------------------
2002 (A) 2001 2000 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------
$ 15.68 $ 14.38 $ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37 $ 12.90
------- ------- ------- -------- -------- -------- -------- --------
1.11 1.13 1.15 1.14 1.14 1.16 1.17 1.18
(.06) 1.25 .63 (1.86) .51 .63 .13 1.57
(.13) (.31) (.39) (.31) (.34) (.34) (.34) (.38)
------- ------- ------- -------- -------- -------- -------- --------
.92 2.07 1.39 (1.03) 1.31 1.45 .96 2.37
(.97) (.77) (.81) (.81) (.81) (.81) (.83) (.90)
------- ------- ------- -------- -------- -------- -------- --------
$ 15.63 $ 15.68 $ 14.38 $ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37
======= ======= ======= ======== ======== ======== ======== ========
$ 14.37 $ 13.78 $ 12.25 $12.0625 $ 14.75 $13.5625 $ 12.375 $ 12.75
11.50% 19.22% 8.56% -13.29% 15.10% 16.61% 3.70% 27.67%
$ 368.1 $ 369.3 $ 338.7 $ 325.1 $ 368.5 $ 356.6 $ 341.5 $ 338.4
1.46% 1.63% 1.77% 1.67% 1.67% 1.70% 1.77% 1.80%
7.22% 7.49% 8.36% 7.56% 7.41% 7.93% 8.15% 8.67%
38% 30% 25% 35% 24% 32% 42% 50%
.90% 1.00% 1.05% 1.02% 1.03% 1.03% 1.06% 1.06%
6.36% 5.44% 5.55% 5.50% 5.21% 5.61% 5.78% 5.90%
9,000 9,000 9,000 9,000 4,500 4,500 4,500 4,500
$65,910 $66,028 $62,631 $ 61,123 $131,890 $129,243 $125,881 $125,198
$25,000 $25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
I-23
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Value Municipal Income Trust (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 in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment. The Trust commenced investment operations on March 26, 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 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.
Future 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 the 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, 2005, the Trust had no 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 Subchapter M 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, 2004, the Trust had an
I-24
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
accumulated capital loss carryforward for tax purposes of $5,643,037 which will
expire according to the following schedule.
AMOUNT EXPIRATION
$2,246,517.................................................. October 31, 2007
3,396,520.................................................. October 31, 2012
At April 30, 2005, the cost and related gross unrealized appreciation and
depreciation were as follows:
Cost of investments for tax purposes........................ $546,878,897
============
Gross tax unrealized appreciation........................... $ 40,709,557
Gross tax unrealized depreciation........................... (401,401)
------------
Net tax unrealized appreciation on investments.............. $ 40,308,156
============
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,
2004 was as follows:
Distributions paid from:
Ordinary income........................................... $185,505
Long-term capital gain.................................... -0-
--------
$185,505
========
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $169,276
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 .55% of the average daily net assets
of the Trust. Effective November 1, 2004, the investment advisory fee was
reduced from .60% to .55%.
For the six months ended April 30, 2005, the Trust recognized expenses of
approximately $13,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
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, 2005, the Trust recognized expenses of
I-25
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
approximately $31,800 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, in 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
also officers of Van Kampen.
The Trust has implemented 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 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.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $54,605,076 and $52,364,457,
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 may invest up to 15% of its net assets in "inverse floating rate
obligations." The inverse floating rate obligations in which the Trust may
invest are typically created through a division of a fixed-rate municipal
obligation into two separate instruments, a short-term obligation and a
long-term obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation which the Trust
may purchase is the rate the issuer would have paid on the fixed-income
obligation, (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. These securities have varying degrees of liquidity
and the market value of such securities generally will fluctuate in response to
changes in market rates of interest to a greater extent than the value of an
equal principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity. These securities tend to underperform the
market for fixed rate bonds in a rising interest rate environment, but tend to
outperform the market for fixed rate bonds when interest rates decline or remain
relatively stable. Although volatile, inverse floating rate obligations
typically offer the potential for yields exceeding the yields available on fixed
rate bonds with comparable credit quality, coupon, call provisions and maturity.
These securities usually permit the investor to convert the floating rate
security counterpart to a fixed rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against rising rates if
exercised at an opportune time.
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 unrealized
appreciation/depreciation. Upon disposition, a realized
I-26
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an arrangement 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 on 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 futures
commission merchant pursuant to the 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, 2005,
were as follows:
CONTRACTS
Outstanding at October 31, 2004............................. 1,297
Futures Opened.............................................. 2,589
Futures Closed.............................................. (3,001)
------
Outstanding at April 30, 2005............................... 885
======
The futures contracts outstanding as of April 30, 2005, and the description
and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 5-Year Futures June 2005 (Current
Notional Value of $108,453 per contract).................. 885 $(515,181)
--- ---------
5. PREFERRED SHARES
The Trust has outstanding 9,000 Auction Preferred Shares ("APS") in five series.
Series A, B, C and D each contain 2,000 shares and Series E contains 1,000
shares. Dividends are cumulative and the dividend rate is periodically reset
through an auction process. The dividend period for Series A and E is seven
days. The dividend period for Series B, C and D is 28 days. The average rate in
effect on April 30, 2005 was 2.578%. During the six months ended April 30, 2005,
the rates ranged from 1.400% to 2.960%.
I-27
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2005 (UNAUDITED) continued
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 in 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.
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
I-28
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
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
OFFICERS
MITCHELL M. MERIN
President and Chief Executive Officer
RONALD E. ROBISON
Executive Vice President and
Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and
Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
TRANSFER AGENT
EQUISERVE TRUST COMPANY, N.A.
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 REGISTERED
PUBLIC ACCOUNTING FIRM
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.
I-29
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
I-30
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each
time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of
Use of these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
VKV SAR 6/05 RN05-01315P-Y04/05
(VAN KAMPEN INVESTMENTS LOGO)
I-31
APPENDIX J
PRO FORMA FINANCIAL STATEMENTS
The following presents the pro forma financial statements for the combination of
the Van Kampen Advantage Municipal Income Trust II, Van Kampen Municipal
Opportunity Trust II and the Value Municipal Income Trust. The statements are
presented as of January 31, 2005, the most recent period for which financial
information is currently available.
The unaudited Pro Forma Portfolio of Investments and Pro Forma Statement of
Assets and Liabilities reflect the financial position as if the transaction
occurred on January 31, 2005. The Pro Forma Statement of Operations reflects the
expenses for the twelve months ended January 31, 2005. The pro forma statements
give effect to the proposed exchange of Van Kampen Advantage Municipal Income
Trust II shares for the assets and liabilities of the Van Kampen Municipal
Opportunity Trust II and Van Kampen Value Municipal Income Trust, with Van
Kampen Advantage Municipal Income Trust II being the surviving entity. The
proposed transaction will be accounted for as a tax-free reorganization in
accordance with accounting principles generally accepted in the United States of
America. The historical cost basis of the investments is carried over to the
surviving entity. There is no guarantee that the portfolio of investments of the
surviving entity on the closing date of the transaction will match the Pro Forma
Portfolio of Investments presented herein. All or a portion of the securities
acquired in the transaction could be sold by the surviving entity; however,
there is no plan or intention to sell securities acquired in the transaction
other than in the ordinary course of business.
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS 159.6%
ALASKA 0.2%
$1,000 $ 1,000 Alaska St Hsg Fin Corp
Gen Hsg Ser A
(FGIC Insd) 5.250 12/01/41 $ $ $ 1,065,960 $ 1,065,960
-------------------------------------------------------
ALABAMA 2.1%
$1,000 $1,000 2,000 Birmingham Baptist
Med Ctr AL Baptist
Hlth Sys Ser A 5.875 11/15/24 1,066,150 1,066,150 2,132,300
5,000 5,000 Birmingham Baptist
Med Ctr AL Spl Care
Fac Fin Auth Rev
(MBIA Insd) 5.750 11/15/10 5,361,950 5,361,950
4,000 4,000 Jefferson Cnty, AL
Ltd Oblig Sch Wt Ser A 5.250 01/01/23 4,300,320 4,300,320
1,090 1,090 Lee Cnty, AL
Sch Wts Ltd Oblig
(MBIA Insd) (a) 5.000 02/01/17 1,184,917 1,184,917
4 4 Mobile, AL Indl Dev Brd
Solid Waste Disp Rev
Mobile Energy Svc Co
Proj Rfdg 6.950 01/01/20 22 22
1,000 1,000 Valley, AL Spl Care Fac
Fin Auth Rev Lanier Mem
Hosp Ser A 5.600 11/01/16 1,014,250 1,014,250
-------------------------------------------------------
3,265,317 10,728,442 13,993,759
-------------------------------------------------------
ARIZONA 4.8%
5,000 5,000 Arizona Sch Fac Brd
Ctfs Ser B (FGIC Insd) 5.250 09/01/18 5,541,300 5,541,300
5,000 5,000 Arizona Sch Fac Brd
Ctfs Ser B (FSA Insd) 5.250 09/01/19 5,592,550 5,592,550
3,000 3,000 Arizona St Transn Brd
Hwy Rev Ser B 5.250 07/01/19 3,328,260 3,328,260
2,235 2,235 Arizona Tourism &
Sports Auth Tax Rev
Multipurpose Stad Fac
Ser A (MBIA Insd) 5.375 07/01/21 2,510,777 2,510,777
5,250 5,250 Arizona Tourism &
Sports Auth Tax Rev
Multipurpose Stad Fac
Ser A (MBIA Insd) 5.375 07/01/23 5,885,302 5,885,302
2,000 2,000 Phoenix, AZ Civic Impt
Corp Arpt Rev Jr Lien
(AMT) (FGIC Insd) 5.375 07/01/29 2,039,760 2,039,760
2,280 765 3,045 Pima Cnty, AZ Indl Dev
Auth Indl Rev Lease
Oblig Irvington Proj
Tucson Ser A Rfdg
(FSA Insd) 7.250 07/15/10 2,383,512 799,731 3,183,243
2,685 2,685 South Campus Group LLC
AZ Std Hsg Rev AZ St
Univ South Campus Proj
(MBIA Insd) 5.625 09/01/35 3,028,358 3,028,358
1,300 1,300 Tempe, AZ Excise Tax
Rev Rfdg 5.250 07/01/18 1,447,927 1,447,927
-------------------------------------------------------
11,080,435 13,861,364 7,615,678 32,557,477
-------------------------------------------------------
ARKANSAS 0.5%
1,930 1,930 Arkansas St Cap Apprec
College Svg * 06/01/16 1,209,782 1,209,782
2,305 2,305 Arkansas St Dev Fin
Auth Rev St Agy Fac
Donaghey Plaza Proj
(FSA Insd) 5.000 06/01/34 2,408,886 2,408,886
-------------------------------------------------------
3,618,668 3,618,668
-------------------------------------------------------
CALIFORNIA 20.6%
6,215 6,215 ABC, CA Uni Sch Dist
Cap Apprec (FGIC Insd) * 08/01/34 1,404,776 1,404,776
6,000 6,000 Anaheim, CA Pub Fin
Auth Lease Rev Cap
Apprec Pub Impt Proj
Ser C (FSA Insd) * 09/01/19 3,097,680 3,097,680
7,195 7,195 Anaheim, CA Pub Fin
Auth Lease Rev Cap
Apprec Pub Impt Proj
Ser C (FSA Insd) * 09/01/21 3,332,724 3,332,724
5,000 5,000 Anaheim, CA Pub Fin
Auth Lease Rev Cap
Apprec Pub Impt Proj
Ser C (FSA Insd) * 09/01/32 1,234,800 1,234,800
1,300 1,300 Anaheim, CA Pub Fin
Auth Lease Rev Pub
Impt Proj Ser C (FSA
Insd) 6.000 09/01/16 1,568,515 1,568,515
2,095 2,095 Bay Area Govt Assn CA
Rev Tax Alloc CA Redev
Pool Ser A (XLCA Insd) 5.250 09/01/35 2,237,167 2,237,167
8 8 California Rural Home
Mtg Fin Auth Single
Family Mtg Rev Ser B
(AMT) (GNMA
Collateralized) 7.750 09/01/26 7,544 7,544
1,000 1,000 California St
(AMBAC Insd) 5.125 10/01/27 1,057,450 1,057,450
10,000 10,000 California St
(MBIA Insd) 5.500 03/01/17 11,111,200 11,111,200
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
3,000 3,000 California St Dept Wtr
Res Ser A 5.875 05/01/16 3,428,250 3,428,250
2,800 2,800 California St Dept Wtr
Res Pwr Ser A
(AMBAC Insd) 5.500 05/01/16 3,177,468 3,177,468
2,000 2,000 California St Dept Wtr
Res Pwr Ser A 6.000 05/01/15 2,328,960 2,328,960
2,345 2,345 California St Dept Wtr
Res Pwr Supply Rev
Ser A (XLCA Insd) 5.375 05/01/17 2,616,152 2,616,152
5,000 5,000 California St Pub Wks
Brd Dept Gen Svc Cap
East End A (AMBAC Insd) 5.125 12/01/21 5,390,500 5,390,500
2,000 2,000 4,000 California St Pub Wks
Brd Lease Rev Dept of
Corrections St Prisons
Ser A Rfdg (AMBAC Insd)
(c) 5.000 12/01/19 2,210,680 2,210,680 4,421,360
6,000 6,000 California St Pub Wks
Brd Lease Rev Dept of
Corrections St Prisons
Ser A Rfdg (AMBAC Insd) 5.250 12/01/13 6,844,500 6,844,500
2,500 2,500 5,000 California St Pub Wks
Brd Lease Rev Dept of
Mental Hlth Coalinga
Ser A 5.000 06/01/24 2,614,625 2,614,625 5,229,250
4,600 4,600 California St Pub Wks
Brd Lease Rev Var Univ
CA Proj Ser A Rfdg (c) 5.500 06/01/10 5,100,250 5,100,250
5,905 5,905 California St Pub Wks
Brd Lease Rev Var Univ
CA Proj Ser A Rfdg 5.500 06/01/14 6,657,120 6,657,120
5,000 5,000 California St Rfdg 5.000 02/01/19 5,323,050 5,323,050
2,000 2,000 Florin, CA Res Consv
Dist Cap Impt Elk Grove
Wtr Svc Ser A
(MBIA Insd) 5.000 09/01/33 2,091,000 2,091,000
5,000 5,000 Foothill/Eastern
Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg
(MBIA Insd) * 01/15/18 2,597,050 2,597,050
30,000 30,000 Foothill/Eastern
Corridor Agy CA Toll Rd
Rev Ser A Rfdg * 01/15/22 11,384,700 11,384,700
2,000 1,000 3,000 Foothill/Eastern
Corridor Agy CA Toll Rd
Rev Sr Lien Ser A
(Prerefunded @
01/01/07) 6.500 01/01/32 2,157,160 1,078,580 3,235,740
3,350 3,350 Imperial Irr Dist CA
Ctf Part Elec Sys Proj
(FSA Insd) (a) 5.250 11/01/19 3,709,823 3,709,823
3,950 3,950 Los Angeles, CA Dept
Wtr & Pwr Ser A
(FGIC Insd) 5.125 07/01/40 4,123,049 4,123,049
5,000 5,000 Los Angeles, CA Uni Sch
Dist Ser A (FSA Insd) 5.250 07/01/20 5,550,600 5,550,600
2,465 2,465 Los Angeles, CA Uni Sch
Dist Ser B (FGIC Insd) 5.000 07/01/23 2,638,684 2,638,684
5,500 5,500 Port Oakland, CA Ser L
(AMT) (FGIC Insd) 5.000 11/01/32 5,637,005 5,637,005
9,000 9,000 Riverside Cnty, CA
Asset Leasing Corp
Leasehold Rev Riverside
Cnty Hosp Proj
(MBIA Insd) * 06/01/21 4,237,740 4,237,740
5,700 5,700 Sacramento, CA City Fin
Auth Rev Comb Proj B
(MBIA Insd) * 11/01/15 3,626,112 3,626,112
13,880 13,880 San Joaquin Hills, CA
Transn Corridor Agy
Toll Rd Rev Cap Apprec
Ser A Rfdg (MBIA Insd) * 01/15/28 4,422,446 4,422,446
10,225 10,225 Santa Ana, CA Uni Sch
Dist Ctf Part Cap
Apprec Fin Proj
(FSA Insd) * 04/01/32 2,539,788 2,539,788
5,755 5,755 Southwestern Cmnty
College Cap Apprec
Election 2000 (FGIC
Insd) * 08/01/29 1,689,783 1,689,783
2,720 2,720 Washington, CA Uni Sch
Dist Yolo Cnty Election
2004 Ser A (FGIC Insd)
(a) 5.250 08/01/19 3,025,701 3,025,701
3,070 3,070 Washington, CA Uni Sch
Dist Yolo Cnty Ser A
(FGIC Insd) (a) 5.250 08/01/20 3,409,603 3,409,603
-------------------------------------------------------
40,571,443 71,715,031 27,201,066 139,487,540
-------------------------------------------------------
COLORADO 7.3%
4,340 4,340 Adams & Arapahoe Cntys,
CO Jt Sch Dist Ser A
(FSA Insd) 5.250 12/01/18 4,845,133 4,845,133
4,290 4,290 Adams & Arapahoe Cntys,
CO Jt Sch Dist Ser C
(Prerefunded @ 12/01/06)
(MBIA Insd) 5.750 12/01/08 4,630,497 4,630,497
1,000 3,000 1,000 5,000 Arapahoe Cnty, CO Cap
Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded
@ 08/31/05) (b) 7.000 08/31/26 1,058,100 3,174,300 1,058,100 5,290,500
1,000 1,000 Arapahoe Cnty, CO Cap
Impt Tr Fd Hwy Rev
E-470 Proj Ser B
(Prerefunded @
08/31/05) (b) 6.950 08/31/20 1,057,820 1,057,820
7,500 9,000 5,000 21,500 Arapahoe Cnty, CO Cap
Impt Tr Fd Hwy Rev
E-470 Proj Ser C
(Prerefunded @
08/31/05) * 08/31/26 1,546,200 1,855,440 1,030,800 4,432,440
1,475 1,475 Colorado Ed & Cultural
Fac Auth Rev Charter
Sch Proj Impt & Rfdg
(XLCA Insd) 5.250 08/15/19 1,631,704 1,631,704
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
1,945 1,945 Colorado Ed & Cultural
Impt Charter Sch
Pinnacle Rfdg
(XLCA Insd) 5.250 06/01/23 2,115,032 2,115,032
1,000 2,000 3,000 Colorado Hlth Fac Auth
Rev Catholic Hlth
Initiatives Ser A
(Escrowed to Maturity) 5.500 03/01/32 1,130,620 2,261,240 3,391,860
1,250 1,000 2,250 Colorado Hlth Fac Auth
Rev Hosp Portercare
Adventist Hlth 6.500 11/15/31 1,388,962 1,111,170 2,500,132
165 165 Colorado Hsg Fin Auth
Single Family Pgm Sr
Ser A2 (AMT) 7.250 05/01/27 166,685 166,685
109 109 Colorado Hsg Fin Auth
Single Family Pgm Sr
Ser B1 (AMT) 7.650 11/01/26 110,184 110,184
6,495 6,495 Colorado Springs, CO
Utils Rev (Escrowed to
Maturity) 6.600 11/15/18 8,231,308 8,231,308
1,500 1,500 Denver, CO City & Cnty
Arpt Rev Ser D (AMT) 7.750 11/15/13 1,814,460 1,814,460
3,515 3,515 E-470 Pub Hwy Auth CO
Rev Cap Apprec Sr Ser B
(MBIA Insd) * 09/01/13 2,507,706 2,507,706
6,160 6,160 E-470 Pub Hwy Auth CO
Rev Sr Ser A (MBIA Insd) 5.000 09/01/21 6,507,178 6,507,178
-------------------------------------------------------
18,068,258 26,055,738 5,108,643 49,232,639
-------------------------------------------------------
CONNECTICUT 1.1%
5,000 5,000 Connecticut St Ser C
(FGIC Insd) (c) 5.000 04/01/22 5,418,200 5,418,200
1,010 1,010 Mashantucket Western
Pequot Tribe CT Spl Rev
Ser A, 144-A Private
Placement (d) 6.400 09/01/11 1,072,923 1,072,923
990 990 Mashantucket Western
Pequot Tribe CT Spl Rev
Ser A, 144-A Private
Placement (Prerefunded
@ 09/01/07) (d) 6.400 09/01/11 1,085,050 1,085,050
-------------------------------------------------------
5,418,200 2,157,973 7,576,173
-------------------------------------------------------
DISTRICT OF COLUMBIA 0.8%
5,000 5,000 Metropolitan Washington
DC Arpt Auth Sys Ser A
(AMT) (FGIC Insd) 5.250 10/01/32 5,220,150 5,220,150
-------------------------------------------------------
FLORIDA 6.3%
2,500 2,500 Dade Cnty, FL Wtr & Swr
Sys Rev (FGIC Insd) 5.250 10/01/21 2,672,100 2,672,100
5,000 5,000 Escambia Cnty, FL Hlth
Fac Auth Rev
(AMBAC Insd) 5.950 07/01/20 5,087,700 5,087,700
3,980 3,980 Jacksonville, FL Port
Auth (AMT) (MBIA Insd) 5.700 11/01/30 4,373,741 4,373,741
2,780 2,780 Jacksonville, FL Port
Auth (Prerefunded @
11/01/10) (AMT)
(MBIA Insd) 5.700 11/01/30 3,135,673 3,135,673
3,000 3,000 Lake Cnty, FL Sch Brd
Ctf Part (AMBAC Insd) 5.375 07/01/17 3,352,080 3,352,080
11,500 11,500 Miami-Dade Cnty, FL
Aviation Rev Miami Intl
Arpt (AMT) (FGIC Insd) 5.375 10/01/32 12,128,130 12,128,130
5,000 5,000 Osceola Cnty, FL Trans
Rev Osceola Pkwy Proj &
Rfdg (MBIA Insd) 5.000 04/01/22 5,398,200 5,398,200
5,000 5,000 Ocoee, FL Wtr & Swr Sys
Rev Impt & Rfdg
(AMBAC Insd) 5.125 10/01/33 5,289,950 5,289,950
995 995 Pinellas Cnty, FL Hsg
Fin Auth Single Family
Mtg Rev Multi Cnty Pgm
Ser A (AMT)
(GNMA Collateralized) 6.700 02/01/28 1,015,636 1,015,636
-------------------------------------------------------
5,398,200 28,412,980 8,642,030 42,453,210
-------------------------------------------------------
GEORGIA 4.4%
2,000 2,000 Atlanta, GA Wtr &
Wastewtr Rev (FSA Insd) 5.000 11/01/21 2,174,360 2,174,360
5,000 5,000 Clayton Cnty & Clayton
Cnty GA Wtr Auth Wtr &
Swr Rev 5.000 05/01/20 5,476,700 5,476,700
5,000 5,000 Georgia Muni Elec Auth
Pwr Rev Ser B (Escrowed
to Maturity)
(FGIC Insd) 5.700 01/01/19 5,926,150 5,926,150
2,000 2,000 Georgia St Rd & Twy
Auth Rev 5.000 10/01/19 2,186,060 2,186,060
2,700 2,700 Marietta, GA Dev Auth
Rev First Mtg Life
College Ser B
(FSA Insd) (a) 5.375 09/01/09 2,797,524 2,797,524
2,205 2,205 Municipal Elec Auth GA
Comb Cycle Proj Ser A
(MBIA Insd) 5.000 11/01/20 2,394,123 2,394,123
4,995 1,745 6,740 Municipal Elec Auth GA
Comb Turbine Proj Ser A
(MBIA Insd) 5.250 11/01/20 5,540,654 1,935,624 7,476,278
5 5 Municipal Elec Auth GA
Comb Turbine Proj Ser A
(Prerefunded @
11/01/12) (MBIA Insd) 5.250 11/01/20 5,657 5,657
1,000 1,000 Richmond Cnty, GA Dev
Auth ASU Jaguar Student
Hsg LLC Ser A 5.250 02/01/35 1,028,230 1,028,230
-------------------------------------------------------
6,504,930 16,664,108 6,296,044 29,465,082
-------------------------------------------------------
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
HAWAII 1.7%
10,430 10,430 Hawaii St Dept Budget &
Fin Spl Purp Rev
Hawaiian Elec Co Inc
Ser A (AMT) (MBIA Insd) 5.650 10/01/27 11,405,205 11,405,205
-------------------------------------------------------
ILLINOIS 10.2%
3,750 3,750 Bolingbrook, IL Cap
Apprec Ser B
(MBIA Insd) * 01/01/32 876,300 876,300
1,710 1,710 Bolingbrook, IL Cap
Apprec Ser C Rfdg
(MBIA Insd) (a) * 01/01/29 522,405 522,405
5,400 5,400 Chicago, IL Brd of Ed
Cap Apprec Sch Reform
Ser B-1 (FGIC Insd) * 12/01/28 1,667,358 1,667,358
3,365 3,500 6,865 Chicago, IL Cap Apprec
(Prerefunded @ 07/01/05)
(AMBAC Insd) * 01/01/17 1,605,946 1,670,375 3,276,321
6,000 6,000 Chicago, IL Lakefront
Millenium Pkg Fac
(MBIA Insd) (e) 0/5.750 01/01/29 6,076,200 6,076,200
335 335 Chicago, IL Single
Family Mtg Rev Ser A
(AMT) (GNMA
Collateralized) 7.000 09/01/27 336,531 336,531
50 50 Chicago, IL Single
Family Mtg Rev Ser B
(AMT) (GNMA
Collateralized) 7.625 09/01/27 50,213 50,213
3,345 3,345 Cook Cnty, IL Sch Dist
No 100 Berwyn South
Ser D Rfdg (FSA Insd) 5.500 12/01/23 3,803,365 3,803,365
2,540 2,540 Cook Cnty, IL Sch Dist
No 122 Oak Lawn Cap
Apprec (FGIC Insd) (a) * 12/01/15 1,607,312 1,607,312
4,500 4,500 Cook Cnty, IL Ser A
(FGIC Insd) 5.500 11/15/31 4,991,535 4,991,535
1,000 1,000 Illinois Dev Fin Auth
Rev Cmnty Rehab
Providers Fac Ser A 7.375 07/01/25 1,089,980 1,089,980
2,500 2,500 Illinois Fin Auth Rev
Northwestern Mem Hosp
Ser A 5.500 08/15/43 2,677,475 2,677,475
1,325 1,325 Illinois Fin Auth
Student Hsg MJH Rev
Ed Assistance IV-Sr
Ser A 5.125 06/01/35 1,315,221 1,315,221
3,180 3,180 Illinois Hlth Fac Auth
Rev Children's Mem Hosp
(MBIA Insd) 6.250 08/15/13 3,729,599 3,729,599
1,485 1,485 Illinois Hlth Fac Auth
Rev Evangelical Hosp
Ser A Rfdg (FSA Insd) 6.750 04/15/17 1,832,698 1,832,698
825 825 Illinois Hlth Fac Auth
Rev Evangelical Hosp
Ser C (FSA Insd) 6.750 04/15/17 1,018,166 1,018,166
1,000 1,000 Illinois Hlth Fac Auth
Rev Highland Park Hosp
Proj Ser A (Prerefunded
@ 10/01/07) (MBIA Insd) 5.750 10/01/17 1,101,600 1,101,600
8,000 8,000 Illinois St First Ser
(FSA Insd) 5.250 12/01/19 8,875,200 8,875,200
3,400 3,400 Illinois St First Ser
(FSA Insd) 5.250 04/01/27 3,684,614 3,684,614
2,070 2,070 Northern IL Univ Ctf
Part Hoffman Estates
Ctr Proj (FSA Insd) 5.400 09/01/16 2,341,418 2,341,418
300 300 Peoria, Moline &
Freeport, IL Coll Mtg
Ser A (AMT) (GNMA
Collateralized) 7.600 04/01/27 301,332 301,332
5,000 5,000 Regional Trans Auth IL
Ser A (AMBAC Insd) 8.000 06/01/17 6,994,600 6,994,600
10,000 10,000 Will Cnty, IL Sch Dist
No 122 Ser B Rfdg
(FGIC Insd) 5.250 11/01/20 11,042,200 11,042,200
-------------------------------------------------------
31,215,024 35,806,856 2,189,763 69,211,643
-------------------------------------------------------
INDIANA 2.7%
2,805 2,805 Dekalb Eastn High Sch
Bldg Corp IN First Mtg
(FSA Insd) 6.000 01/15/18 3,243,926 3,243,926
4,000 4,000 East Chicago, IN
Elementary Sch Bldg
Corp First Mtg Ser A 6.250 07/05/08 4,385,880 4,385,880
3,000 3,000 Indiana Hlth Fac Fin
Auth Hosp Rev Columbus
Regl Hosp Rfdg
(FSA Insd) 7.000 08/15/15 3,687,150 3,687,150
1,500 1,500 Indiana St Dev Fin Auth
Rev Exempt Fac Conv
Rfdg (AMT) 5.950 08/01/30 1,542,270 1,542,270
2,000 2,000 Petersburg, IN Pollutn
Ctl Rev IN Pwr & Lt
(AMT) 5.950 12/01/29 2,048,620 2,048,620
2,850 2,850 Southwest Parke Cmnty
Sch Bldg First Mtg
(FGIC Insd) (a) 5.250 07/15/21 3,160,108 3,160,108
-------------------------------------------------------
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
16,525,684 1,542,270 18,067,954
-------------------------------------------------------
KANSAS 1.1%
3,430 3,430 Kansas St Dev Fin Auth
Rev KS Proj Ser N
(AMBAC Insd) (a) 5.250 10/01/20 3,770,359 3,770,359
3,615 3,615 Kansas St Dev Fin Auth
Rev KS Proj Ser N
(AMBAC Insd) (a) 5.250 10/01/21 3,957,594 3,957,594
-------------------------------------------------------
7,727,953 7,727,953
-------------------------------------------------------
KENTUCKY 0.1%
500 500 Mount Sterling, KY
Lease Rev KY League
Cities Fdg Ser B 6.100 03/01/18 601,420 601,420
-------------------------------------------------------
LOUISIANA 6.7%
5,000 5,000 Lafayette, LA Util Rev
(MBIA Insd) 5.250 11/01/21 5,583,650 5,583,650
5,970 5,970 Louisiana Loc Govt
Environment Southeastn
LA Student Hsg A
(MBIA Insd) (a) 5.250 08/01/24 6,572,373 6,572,373
2,500 2,500 Louisiana Loc Govt
Envir Fac Pkg Fac Corp
Garage Proj Ser A
(AMBAC Insd) 5.375 10/01/31 2,717,875 2,717,875
1,400 1,400 Louisiana Pub Fac Auth
Rev Hlth Fac Glen
Retirement Ser A 6.700 12/01/25 1,449,476 1,449,476
8,065 8,065 Louisiana St Office Fac
Corp LA St Cap Complex
Pgm (MBIA Insd) (a) 5.000 11/01/20 8,688,989 8,688,989
6,000 6,000 New Orleans, LA Rfdg
(MBIA Insd) 5.125 09/01/21 6,560,700 6,560,700
2,000 2,000 4,000 New Orleans, LA Rfdg
(FGIC Insd) 5.500 12/01/21 2,366,180 2,366,180 4,732,360
2,800 6,000 8,800 Saint Charles Parish,
LA Solid Waste Disp Rev
LA Pwr & Lt Co Proj
(AMT) (FSA Insd) (c) 7.050 04/01/22 2,809,576 6,020,520 8,830,096
-------------------------------------------------------
14,454,331 26,865,532 3,815,656 45,135,519
-------------------------------------------------------
MARYLAND 1.6%
5,000 5,000 Maryland St Econ Dev
Corp MD Aviation Admin
Fac (AMT) (FSA Insd) 5.375 06/01/20 5,465,450 5,465,450
1,000 1,000 Maryland St Econ Dev
Corp Univ MD College Pk
Proj 5.625 06/01/35 1,038,570 1,038,570
4,000 4,000 Maryland St Trans Auth
Arpt Baltimore/WA Intl
Arpt B (AMT)
(AMBAC Insd) 5.125 03/01/24 4,237,400 4,237,400
-------------------------------------------------------
9,702,850 1,038,570 10,741,420
-------------------------------------------------------
MASSACHUSETTS 4.1%
2,500 2,500 Massachusetts Bay Trans
Auth Ser A 5.000 07/01/32 2,597,975 2,597,975
1,200 1,200 Massachusetts Bay Tran
Auth MA Gen Tran Sys
Ser A Rfdg 6.250 03/01/12 1,419,024 1,419,024
2,000 2,000 Massachusetts Muni Whsl
Elec Co Proj No 6-A
(MBIA Insd) 5.250 07/01/16 2,209,300 2,209,300
1,000 1,000 2,000 Massachusetts St Hlth &
Ed Fac Auth Rev Saint
Mem Med Ctr Ser A 6.000 10/01/23 1,006,840 1,006,840 2,013,680
1,750 1,750 Massachusetts St Hlth &
Ed Fac Auth Rev
Hlthcare Sys Covenant
Hlth 6.000 07/01/31 1,869,963 1,869,963
925 925 Massachusetts St Indl
Fin Agy Wtr Treatment
American Hingham (AMT) 6.900 12/01/29 973,590 973,590
925 925 Massachusetts St Indl
Fin Agy Wtr Treatment
American Hingham (AMT) 6.950 12/01/35 974,016 974,016
2,995 5,000 7,995 Massachusetts St Wtr
Pollutn Abatement Tr
Pool Pgm Bds Ser 10 5.000 08/01/21 3,260,656 5,443,500 8,704,156
7,050 7,050 Massachusetts St Wtr
Res Auth Gen Ser J
(FSA Insd) 5.000 08/01/32 7,333,692 7,333,692
-------------------------------------------------------
6,476,796 11,859,044 9,759,556 28,095,396
-------------------------------------------------------
MICHIGAN 4.4%
3,000 3,000 Detroit, MI City Sch
Dist Sch Bldg & Site
Impt Ser A (FGIC Insd) 5.375 05/01/24 3,360,630 3,360,630
5,000 2,000 7,000 Detroit, MI Downtown
Dev Auth Tax Increment
Rev Dev Area No. 1 Proj
Ser C1 (Prerefunded @
07/01/06) 6.250 07/01/25 5,367,850 2,147,140 7,514,990
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
3,185 3,185 Detroit, MI Wtr Supply
Sys Rev Sr Lien Ser A
(MBIA Insd) (a) 5.250 07/01/20 3,535,732 3,535,732
2,790 2,790 Detroit, MI Wtr Supply
Sys Rev Sr Lien Ser C
Rfdg (MBIA Insd) (a) 5.250 07/01/19 3,102,145 3,102,145
2,000 2,000 Grand Rapids, MI Wtr
Supply (FGIC Insd) 5.750 01/01/15 2,271,700 2,271,700
1,495 1,495 Michigan St Hsg Dev
Auth Multi-Family Rev
Ltd Oblig Ser A Rfdg
(GNMA Collateralized) 6.600 04/01/30 1,528,398 1,528,398
2,075 2,075 South Lyon, MI Cmnty
Sch Bldg & Site
(FGIC Insd) 5.250 05/01/18 2,304,184 2,304,184
2,285 2,285 Taylor, MI Bldg Auth
(AMBAC Insd) (a) 6.000 03/01/13 2,703,863 2,703,863
3,090 3,090 Troy, MI Downtown Dev
Auth Dev Rfdg
(MBIA Insd) 5.500 11/01/15 3,498,189 3,498,189
-------------------------------------------------------
4,889,028 12,401,771 12,529,032 29,819,831
-------------------------------------------------------
MINNESOTA 0.2%
1,065 1,065 Duluth, MN Econ Dev
Auth Hlthcare Fac Rev
Benedictine Hlth Sys
Saint Marys 5.250 02/15/33 1,098,611 1,098,611
-------------------------------------------------------
MISSISSIPPI 2.2%
2,000 2,000 Mississippi Bus Fin
Corp MS Pollutn Ctl Rev
Sys Energy Res Inc Proj 5.875 04/01/22 2,006,220 2,006,220
2,000 3,000 5,000 Mississippi Bus Fin
Corp MS Pollutn Ctl Rev
Sys Energy Res Inc Proj
Rfdg 5.900 05/01/22 2,020,160 3,030,240 5,050,400
1,900 1,900 Mississippi Dev Bk Spl
Oblig Cap Proj & Equip
Acquisition Ser A2
(AMBAC Insd) 5.000 07/01/24 2,088,366 2,088,366
1,550 1,550 Mississippi Dev Bk Spl
Oblig Madison Cnty Hosp
Proj (Prerefunded @
07/01/09) 6.400 07/01/29 1,798,170 1,798,170
2,595 2,595 Mississippi Dev Bk Spl
Oblig MS Ltd Oblig Hosp
Impts (MBIA Insd) (a) 5.250 07/01/32 2,755,215 2,755,215
840 840 Mississippi Home Corp
Single Family Rev Mtg
Ser C (AMT) (GNMA
Collateralized) 7.600 06/01/29 872,432 872,432
-------------------------------------------------------
8,661,911 2,006,220 3,902,672 14,570,803
-------------------------------------------------------
MISSOURI 4.4%
2,000 2,000 Cape Girardeau Cnty, MO
Indl Dev Auth Hlthcare
Fac Rev Southeast MO
Hosp Assoc 5.625 06/01/27 2,066,260 2,066,260
1,250 1,250 Cole Cnty, MO Indl Dev
Auth Sr Living Fac Rev
Lutheran Sr Svcs
Heisinger Proj (a) 5.500 02/01/35 1,304,063 1,304,063
2,000 2,000 Curators Univ MO Sys
Fac Rev Ser B Rfdg (a) 5.000 11/01/20 2,171,540 2,171,540
2,195 2,195 Missouri St Hlth & Ed
Fac Rev Univ MO
Columbia Arena Proj (a) 5.000 11/01/16 2,398,191 2,398,191
4,000 4,000 Platte Cnty, MO Indl
Dev Auth Trans Rev 4.500 12/01/24 4,050,720 4,050,720
3,000 3,000 Platte Cnty, MO
Neighborhood Impt
Parkville Ser B
(MBIA Insd) (f) 5.000 02/01/25 3,184,260 3,184,260
1,500 1,500 Saint Louis Cnty, MO
Mtg Rev Ctf Rcpt Ser H
(AMT) (Escrowed to
Maturity) 5.400 07/01/18 1,702,140 1,702,140
5,855 4,000 9,855 Saint Louis, MO Arpt
Rev Arpt Dev Pgm Ser A
(MBIA Insd) 5.250 07/01/31 6,195,761 4,232,800 10,428,561
2,380 2,380 Saint Louis, MO Arpt
Rev Cap Impt Pgm Ser A
(MBIA Insd) (a) 5.375 07/01/19 2,645,061 2,645,061
-------------------------------------------------------
13,913,285 6,448,911 9,588,600 29,950,796
-------------------------------------------------------
NEBRASKA 0.7%
4,260 4,260 University NE Univ Rev
Lincoln Student Fees &
Fac Ser B 5.000 07/01/23 4,549,169 4,549,169
-------------------------------------------------------
NEVADA 3.0%
8,000 8,000 Clark Cnty, NV Arpt Rev
Sub Lien Ser A-2
(FGIC Insd) 5.000 07/01/36 8,294,640 8,294,640
4,000 3,000 7,000 Clark Cnty, NV Indl Dev
Rev Southwest Gas Corp
Proj Ser A (AMT)
(AMBAC Insd) 5.250 07/01/34 4,196,720 3,147,540 7,344,260
4,375 4,375 Las Vegas Valley, NV
Wtr Dist Ser B Rfdg
(MBIA Insd) 5.000 06/01/27 4,578,087 4,578,087
375 375 Nevada Hsg Div Single
Family Pgm Mezz B (AMT)
(FHA/VA Gtd) 6.550 10/01/12 376,890 376,890
-------------------------------------------------------
12,868,250 7,725,627 20,593,877
-------------------------------------------------------
NEW HAMPSHIRE 0.5%
1,000 1,000 New Hampshire Hlth & Ed
Fac Auth Rev Derryfield
Sch 7.000 07/01/30 1,040,300 1,040,300
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
1,400 1,400 New Hampshire Hlth & Ed
Fac Hlthcare Sys
Covenant Hlth 5.500 07/01/34 1,456,588 1,456,588
1,000 1,000 New Hampshire St Bus
Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc
(AMT) (AMBAC Insd) 6.300 05/01/22 1,093,500 1,093,500
-------------------------------------------------------
3,590,388 3,590,388
-------------------------------------------------------
NEW JERSEY 8.3%
5,000 5,000 Essex Cnty, NJ Impt
Auth Rev Cnty Gtd Proj
Consldtn Rfdg
(MBIA Insd) 5.125 10/01/20 5,491,200 5,491,200
1,400 500 1,900 New Jersey Econ Dev
Auth Rev Cigarette Tax 5.750 06/15/29 1,487,948 531,410 2,019,358
1,000 1,000 New Jersey Econ Dev
Auth Rev Cigarette Tax 5.500 06/15/31 1,041,160 1,041,160
5,000 5,000 New Jersey Econ Dev
Auth Rev Sch Fac Constr
Ser I 5.000 09/01/23 5,316,800 5,316,800
2,210 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 2,337,539 2,337,539
4,350 4,350 New Jersey Econ Dev Wtr
NJ Amern Wtr Co Inc
Ser A (AMT) (FGIC Insd) 5.250 07/01/38 4,491,419 4,491,419
1,000 1,000 New Jersey Hlthcare Fac
Fin Auth Rev Cap Hlth
Sys Oblig Grp Ser A 5.375 07/01/33 1,037,280 1,037,280
1,000 1,695 2,695 New Jersey Hlthcare Fac
Fin Auth Rev Gen Hosp
Ctr at Passaic
(Escrowed to Maturity)
(FSA Insd) 6.000 07/01/06 1,031,470 1,748,342 2,779,812
2,500 2,500 New Jersey Hlthcare Fac
Fin Auth Rev Gen Hosp
Ctr at Passaic
(Escrowed to Maturity)
(FSA Insd) 6.750 07/01/19 3,212,450 3,212,450
10,000 10,000 New Jersey St Ed Fac
Auth Higher Ed Cap Impt
Ser A (AMBAC Insd) 5.250 09/01/20 11,084,100 11,084,100
3,830 3,830 New Jersey St Trans Tr
Fd Auth Trans Sys Ser A
(Prerefunded @
06/15/41) (FGIC Insd) 5.250 06/15/19 4,369,034 4,369,034
2,000 2,000 New Jersey St Tpk Auth
Tpk Rev Ser C-1
(AMBAC Insd) 5.000 01/01/35 2,077,900 2,077,900
4,000 6,750 10,750 Salem Cnty, NJ Indl
Pollutn Ctl Fin Auth
Rev Pollutn Ctl Pub Svc
Elec & Gas Ser A (AMT)
(MBIA Insd) 5.450 02/01/32 4,042,480 6,821,685 10,864,165
-------------------------------------------------------
11,431,910 38,706,178 5,984,129 56,122,217
-------------------------------------------------------
NEW MEXICO 0.2%
1,500 1,500 Jicarilla, NM Apache
Nation Rev Adj Ser A
(Acquired 10/23/03,
Cost $1,514,910) (g) 5.000 09/01/18 1,576,290 1,576,290
-------------------------------------------------------
NEW YORK 13.8%
7,000 7,000 Metropolitan Trans Auth
NY Ser A Rfdg
(FGIC Insd) 5.250 11/15/31 7,525,420 7,525,420
3,250 3,250 New York City Hlth &
Hosp Corp Rev Hlth Sys
Ser A (AMBAC Insd) 5.000 02/15/11 3,572,270 3,572,270
3,000 3,000 New York City Muni Wtr
5,000 5,000 New York City Ser A1
(Prerefunded @
08/01/05) 6.375 08/01/10 5,156,550 5,156,550
Fin Auth Wtr & Swr Sys
Rev Ser A (AMBAC Insd) 5.000 06/15/35 3,127,980 3,127,980
3,500 3,500 New York City Ser C 5.500 08/01/13 3,943,135 3,943,135
7,500 7,500 New York City Ser E
(FSA Insd) 5.000 11/01/20 8,185,650 8,185,650
3,000 3,000 New York City Ser G
(Prerefunded @
02/01/06) (c) 6.000 02/01/11 3,156,420 3,156,420
5,000 5,000 New York City Ser H
(MBIA Insd) (a) 5.250 03/15/14 5,567,200 5,567,200
6,000 6,000 New York City
Transitional Fin Auth
Rev Future Tax Secd Ser
A Rfdg (e) 5.500/
14.000 11/01/26 6,735,960 6,735,960
8,240 8,240 New York City
Transitional Future Tax
Secd Ser C Rfdg
(AMBAC Insd) 5.250 08/01/18 9,161,067 9,161,067
7,575 7,575 New York St Dorm Auth
Rev City Univ Sys Con
Ser A 5.625 07/01/16 8,803,589 8,803,589
1,520 1,520 New York St Dorm Auth
Rev Insd John T Mather
Mem Hosp (Connie Lee
Insd) (a) 6.500 07/01/09 1,740,172 1,740,172
3,845 3,845 New York St Dorm Auth
Rev Secd Hosp Gen Hosp
Rfdg 5.750 02/15/20 4,336,007 4,336,007
500 500 New York St Energy Resh
& Dev Auth St Service
Contract Rev Ser B 5.500 04/01/05 502,780 502,780
2,175 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 2,222,545 2,222,545
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
3,000 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 3,064,830 3,064,830
3,000 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 3,065,520 3,065,520
2,310 2,310 New York St Med Care
Fac Fin Agy Rev Saint
Peter's Hosp Proj Ser A
(AMBAC Insd) 5.375 11/01/13 2,338,251 2,338,251
775 775 New York St Ser G 5.750 02/01/14 809,526 809,526
4,225 4,225 New York St Ser G
(Prerefunded @
02/01/06) 5.750 02/01/14 4,434,898 4,434,898
5,000 5,000 New York St Urban Dev
Corp Rev St Fac Rfdg 5.700 04/01/20 5,930,950 5,930,950
-------------------------------------------------------
14,099,752 62,204,453 17,076,515 93,380,720
-------------------------------------------------------
NORTH CAROLINA 0.2%
1,500 1,500 North Carolina Eastn
Muni Pwr Agy Pwr Sys
Rev Ser D 6.700 01/01/19 1,691,505 1,691,505
-------------------------------------------------------
OHIO 4.6%
3,000 3,000 Cincinnati, OH City Sch
Dist Sch Impt
(FSA Insd) 5.250 06/01/18 3,332,940 3,332,940
1,000 1,150 1,000 3,150 Cuyahoga Cnty, OH Hosp
Fac Rev Canton Inc Proj 7.500 01/01/30 1,132,570 1,302,456 1,132,570 3,567,596
2,000 2,000 Cuyahoga Cnty, OH
Multi-Family Rev Hsg
Dale Bridge Apt (AMT)
(GNMA Collateralized) 6.600 10/20/30 2,059,500 2,059,500
1,000 1,000 Dayton, OH Arpt Rev
James M Cox Dayton
Ser C Rfdg (AMT)
(Radian Insd) 5.250 12/01/27 1,036,760 1,036,760
3,540 3,540 Franklin Cnty, OH Hosp
Rev & Impt Doctor's
Hosp Proj Rfdg
(Escrowed to Maturity) 5.875 12/01/23 3,579,790 3,579,790
1,040 1,040 Lorain Cnty, OH Hosp
Rev EMH Regl Med Ctr
Rfdg (AMBAC Insd) 7.750 11/01/13 1,101,090 1,101,090
1,500 1,500 Mahoning Cnty, OH Hosp
Fac Forum Hlth Oblig
Group Ser A 6.000 11/15/32 1,611,495 1,611,495
1,165 1,165 Marion Cnty, OH Rev
Cmnty Hosp Impt & Rfdg 6.100 05/15/06 1,204,435 1,204,435
5,130 5,130 Muskingum Cnty, OH Hosp
Fac Rev Bethesda Care
Sys Impt & Rfdg (Connie
Lee Insd) (a) 6.250 12/01/10 5,553,482 5,553,482
2,000 2,000 Ohio St Wtr Dev Auth
Pollutn Ctl Fac Rev OH
Edison Co Proj Rfdg 5.950 05/15/29 2,014,800 2,014,800
3,170 3,170 Pickerington, OH Loc
Sch Dist Cap Apprec Sch
Fac Contract
(FGIC Insd) * 12/01/11 2,497,009 2,497,009
950 950 Strongsville, OH
(Prerefunded @
12/01/06) 6.700 12/01/11 1,041,495 1,041,495
1,340 1,340 Toledo Lucas Cnty, OH
Port Auth Dev Rev
Northwest OH Bd Fd
Ser C (AMT) (a) 6.600 11/15/15 1,419,435 1,419,435
850 850 Toledo Lucas Cnty, OH
Port Auth Northwest Bd
Fd Ser A (AMT) 6.000 05/15/11 918,374 918,374
-------------------------------------------------------
3,275,155 17,540,958 10,122,088 30,938,201
-------------------------------------------------------
OKLAHOMA 1.6%
1,500 1,500 Jenks, OK Aquarium Auth
Rev First Mtg
(Prerefunded @ 07/01/10)
(MBIA Insd) 6.100 07/01/30 1,743,195 1,743,195
1,000 1,755 2,755 Tulsa Cnty, OK Pub Fac
Auth Cap Impt Rev
(AMBAC Insd) 6.250 11/01/22 1,162,950 2,040,977 3,203,927
2,785 2,785 Tulsa, OK Indl Auth
Hosp Rev Hillcrest Med
Ctr Proj Rfdg (Escrowed
to Maturity) (Connie
Lee Insd) (a) 6.250 06/01/06 2,924,696 2,924,696
2,960 2,960 Tulsa, OK Indl Auth
Hosp Rev Hillcrest Med
Ctr Proj Rfdg (Escrowed
to Maturity) (Connie
Lee Insd) (a) 6.250 06/01/07 3,207,486 3,207,486
-------------------------------------------------------
4,370,436 1,743,195 4,965,673 11,079,304
-------------------------------------------------------
OREGON 3.1%
2,010 2,010 Emerald Peoples Util
Dist OR Rfdg
(FGIC Insd) (a) 7.350 11/01/09 2,398,292 2,398,292
5,000 5,000 Oregon Hlth Sciences
Univ Insd Ser A
(MBIA Insd) 5.250 07/01/22 5,533,300 5,533,300
2,745 2,745 Oregon St Dept Admin
Ser A (Prerefunded @
11/01/05) (MBIA Insd) 5.250 11/01/10 2,835,887 2,835,887
5,000 5,000 Oregon St Dept Admin
Ser C Rfdg (MBIA Insd) 5.250 11/01/18 5,522,050 5,522,050
820 820 Oregon St Vets Welfare
Ser 76A 6.050 10/01/28 824,313 824,313
3,580 3,580 Yamhill Cnty, OR Sch
Dist No 029J Newburg
(MBIA Insd) 5.250 06/15/21 3,954,719 3,954,719
-------------------------------------------------------
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
4,779,032 13,891,237 2,398,292 21,068,561
-------------------------------------------------------
PENNSYLVANIA 3.5%
4,680 4,680 Erie, PA Sch Dist Cap
Apprec Rfdg (FSA Insd) * 09/01/20 2,314,400 2,314,400
5,000 5,000 Harrisburg, PA Auth Res
Gtd Sub Ser D-2
(Variable Rate Coupon)
(FSA Insd) 5.000 12/01/33 5,478,650 5,478,650
1,500 1,500 Harrisburg, PA Res Gtd
Sub Ser D 2 (FSA Insd)
(b) 5.000 12/01/33 1,643,595 1,643,595
1,500 1,500 Pennsylvania Econ Dev
Fin Auth Res Recovery
Rev Colver Proj Ser D
(AMT) 7.050 12/01/10 1,534,635 1,534,635
2,000 2,000 Pennsylvania Econ Dev
Fin Auth Res Recovery
Rev Colver Proj Ser D
(AMT) 7.150 12/01/18 2,046,940 2,046,940
2,535 2,000 4,535 Pennsylvania St Higher
Ed Fac Auth Rev UPMC
Hlth Sys Ser A 6.250 01/15/17 2,901,662 2,289,280 5,190,942
1,000 905 1,905 Pennsylvania St Higher
Ed Fac Auth Rev UPMC
Hlth Sys Ser A 6.250 01/15/18 1,142,340 1,033,818 2,176,158
1,370 1,370 Philadelphia, PA Hosp &
Higher Ed Fac Auth Rev
Cmnty College Ser B
Rfdg (MBIA Insd) (a) 6.500 05/01/08 1,527,934 1,527,934
465 465 Ridley Park, PA Hosp
Auth Rev Taylor Hosp
Ser A (Escrowed to
Maturity) 6.000 12/01/05 477,137 477,137
1,315 1,315 State Pub Sch Bldg Auth
PA Sch Rev Burgettstown
Sch Dist Ser D
(Prerefunded @
02/01/05) (MBIA Insd)
(a) 6.450 02/01/10 1,315,000 1,315,000
-------------------------------------------------------
6,807,630 11,527,723 5,370,038 23,705,391
-------------------------------------------------------
RHODE ISLAND 0.6%
3,775 3,775 Rhode Island St Econ
Dev Corp Arpt Rev Ser A
Rfdg (AMT) (FSA Insd) 5.000 07/01/17 4,024,414 4,024,414
-------------------------------------------------------
SOUTH CAROLINA 2.3%
3,115 3,115 Greenville, SC Impt &
Rfdg (MBIA Insd) (a) 5.250 04/01/21 3,438,244 3,438,244
1,015 1,015 Rock Hill, SC Util Sys
Rev Comb Ser C Rfdg
(FSA Insd) (a) 5.000 01/01/11 1,112,724 1,112,724
6,500 6,500 South Carolina Jobs
Econ Dev Auth Indl Rev
Elec & Gas Co Proj
Ser A (AMBAC Insd) 5.200 11/01/27 6,971,120 6,971,120
3,750 3,750 South Carolina Jobs
Econ Dev Auth Indl Rev
Elec & Gas Co Proj Ser
B (AMT) (AMBAC Insd) 5.450 11/01/32 3,992,775 3,992,775
-------------------------------------------------------
7,431,019 8,083,844 15,514,863
-------------------------------------------------------
SOUTH DAKOTA 0.4%
1,375 1,375 Deadwood, SD Ctf Partn
(ACA Insd) 6.375 11/01/20 1,484,038 1,484,038
1,000 1,000 South Dakota St Hlth &
Ed Fac Auth Rev
Childrens Care Hosp
Rfdg 6.125 11/01/29 1,090,920 1,090,920
-------------------------------------------------------
1,484,038 1,090,920 2,574,958
-------------------------------------------------------
TENNESSEE 1.8%
1,270 1,270 Elizabethton, TN Hlth &
Ed Fac Brd Rev Hosp
First Mtg Ser B Impt &
Rfdg 8.000 07/01/33 1,525,168 1,525,168
12,525 12,525 Johnson City, TN Hlth &
Ed Fac Brd Hosp Rev Cap
Apprec First Mtg Ser A
Rfdg (MBIA Insd) * 07/01/26 4,422,828 4,422,828
1,300 2,500 1,000 4,800 Johnson City, TN Hlth &
Ed Fac Brd Hosp Rev
First Mtg Ser A Rfdg
(MBIA Insd) 7.500 07/01/25 1,652,898 3,178,650 1,271,460 6,103,008
-------------------------------------------------------
1,652,898 7,601,478 2,796,628 12,051,004
-------------------------------------------------------
TEXAS 13.5%
2,335 2,335 Beaumont, TX Wtrwks &
Swr Sys (FGIC Insd) 6.250 09/01/14 2,697,976 2,697,976
2,000 2,000 Brazos Cnty, TX Hlth
Fac Dev Oblig Grp 5.375 01/01/32 2,060,600 2,060,600
1,190 1,585 790 3,565 Brazos River Auth TX
Pollutn Ctl Rev Adj TXU
Elec Co Proj Ser C Rfdg
(AMT) (b) 5.750 05/01/36 1,287,402 1,714,732 854,661 3,856,795
930 930 Brownsville, TX Util
Sys Rev (Escrowed to
Maturity) 7.375 01/01/10 1,053,941 1,053,941
1,515 1,515 Cameron Cnty, TX Ctf
Oblig (AMBAC Insd) (a) 5.750 02/15/16 1,690,831 1,690,831
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
5,000 3,000 8,000 Dallas-Fort Worth, TX
Intl Arpt Rev Jt Ser A
Impt & Rfdg (AMT)
(FGIC Insd) 5.500 11/01/31 5,286,400 3,171,840 8,458,240
2,345 2,345 Denton Cnty, TX Perm
Impt (a) 5.500 07/15/19 2,603,700 2,603,700
1,000 1,000 Harris Cnty, TX Hlth
Fac Dev Mem Hermann
Hlthcare Ser A 6.375 06/01/29 1,100,510 1,100,510
5,000 5,000 Harris Cnty, TX Sr Lien
Toll Rd Rfdg (FSA Insd) 5.125 08/15/32 5,233,300 5,233,300
2,945 2,945 Houston, TX Arpt Sys
Rev (Escrowed to
Maturity) 9.500 07/01/10 3,545,486 3,545,486
4,655 4,655 Houston, TX Arpt Sys
Rev Sub Lien (FSA Insd) 5.500 07/01/15 5,242,182 5,242,182
3,000 3,000 Houston, TX Arpt Sys
Rev Sub Lien Ser A
(AMT) (FSA Insd) 5.625 07/01/30 3,267,180 3,267,180
5,000 5,000 Houston, TX Util Sys
Rev Comb First Lien
Ser A Rfdg (FSA Insd) 5.250 05/15/20 5,552,350 5,552,350
3,920 Lower, CO Riv Auth TX
Svc Corp Proj Rfdg
(FGIC Insd) 5.000 05/15/33 4,033,641 4,033,641
5,000 5,000 Matagorda Cnty, TX
Navig Dist No 1 Rev
Houston Lt Rfdg (AMT)
(AMBAC Insd) (b) 5.125 11/01/28 5,416,750 5,416,750
1,000 1,000 2,000 Mesquite, TX Hlth Fac
Dev Corp Retirement Fac
Christian Care Ctr
Ser A 7.625 02/15/28 1,053,440 1,053,440 2,106,880
1,500 2,000 3,500 Metropolitan Hlth Fac
Dev Corp TX Wilson N
Jones Mem Hosp Proj 7.250 01/01/31 1,504,005 2,005,340 3,509,345
3,325 3,325 North Cent TX Hlth Fac
Dev Hosp Baylor
Hlthcare Sys Proj Ser A 5.125 05/15/29 3,419,164 3,419,164
3,000 3,000 Prosper,TX Indpt Sch
Dist (PSF Gtd) 5.500 08/15/33 3,240,690 3,240,690
5,000 2,000 7,000 San Antonio, TX Elec &
Gas Sys Rfdg 5.375 02/01/16 5,557,900 2,223,160 7,781,060
3,960 3,960 Stafford, TX Econ Dev
Corp (FGIC Insd) 5.500 09/01/30 4,401,421 4,401,421
1,990 1,990 Stafford, TX Econ Dev
Corp (FGIC Insd) (a) 6.000 09/01/19 2,396,458 2,396,458
2,000 1,510 3,510 Texas St Wtr Fin
Assistance 5.500 08/01/35 2,178,240 1,644,571 3,822,811
5,000 5,000 Wylie, TX Indpt Sch
Dist Rfdg (PSF Gtd) 5.000 08/15/30 5,150,150 5,150,150
-------------------------------------------------------
16,334,013 54,432,370 20,875,078 91,641,461
-------------------------------------------------------
UTAH 0.4%
4,950 4,950 Intermountain Pwr Agy
UT Pwr Supply Rev Ser A
Rfdg (Escrowed to
Maturity) (FGIC Insd) * 07/01/17 2,825,510 2,825,510
50 50 Utah St Hsg Fin Agy
Single Family Mtg Sr
Issue Ser B-2 (AMT)
(FHA/VA Gtd) 6.500 07/01/15 50,133 50,133
-------------------------------------------------------
50,133 2,825,510 2,875,643
-------------------------------------------------------
VIRGINIA 1.3%
2,000 2,000 Fairfax Cnty, VA Ctf
Partn 5.300 04/15/23 2,183,680 2,183,680
1,500 1,500 Henrico Cnty, VA Indl
Dev Auth Pub Fac Lease
Rev Henrico Cnty Regl
Jail Proj (Prerefunded
@ 08/01/05) 6.500 08/01/10 1,562,820 1,562,820
1,380 1,380 Richmond, VA Indl Dev
Auth Govt Fac Rev Bds
(AMBAC Insd) (a) 5.000 07/15/14 1,537,513 1,537,513
1,595 1,595 Richmond, VA Indl Dev
Auth Govt Fac Rev Bds
(AMBAC Insd) (a) 5.000 07/15/16 1,784,789 1,784,789
1,715 1,715 Richmond, VA Indl Dev
Auth Govt Fac Rev Bds
(AMBAC Insd) (a) 5.000 07/15/17 1,916,770 1,916,770
-------------------------------------------------------
7,200,783 1,784,789 8,985,572
-------------------------------------------------------
WASHINGTON 5.0%
5,000 5,000 Clark Cnty, WA Sch Dist
114 (FSA Insd) 5.250 06/01/19 5,551,150 5,551,150
3,630 3,630 King City, WA Ser B
(Prerefunded @
12/01/07) 5.900 12/01/14 4,033,293 4,033,293
1,370 1,370 King Cnty, WA Ser B
(Prerefunded @
12/01/07) 5.900 12/01/14 1,522,207 1,522,207
2,245 2,245 King Cnty, WA Ser B
(Prerefunded @
12/01/07) 6.625 12/01/15 2,538,668 2,538,668
1,280 1,280 Pierce Cnty, WA Sch
Dist No. 343 Dieringer
Impt & Rfdg (FSA Insd) 5.000 12/01/20 1,383,475 1,383,475
700 700 Quinault Indian Nation,
WA Quinault Beach Ser A
Rfdg & Impt (ACA Insd) 5.800 12/01/15 749,497 749,497
3,000 3,000 Spokane, WA Pub Fac
Dist Hotel Motel &
Sales Use Tax
(MBIA Insd) 5.250 09/01/33 3,197,220 3,197,220
4,000 4,000 Washington St Pub Pwr
Supply Ser A Rfdg
(FGIC Insd) 7.000 07/01/08 4,542,960 4,542,960
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKV VKI PROFORMA
PAR PAR PAR PAR VKI-
AMOUNT AMOUNT AMOUNT AMOUNT VOT VKV VKI PROFORMA
(000) (000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
10,000 10,000 Washington St Pub Pwr
Supply Ser A Rfdg
(AMBAC Insd) 5.700 07/01/09 10,645,800 10,645,800
-------------------------------------------------------
3,946,717 28,834,078 1,383,475 34,164,270
-------------------------------------------------------
WEST VIRGINIA 1.5%
500 5,920 6,420 Harrison Cnty, WV Cnty
Cmnty Solid Waste Disp
Rev West PA Pwr Co Ser
C (AMT) (AMBAC Insd) 6.750 08/01/24 511,600 6,057,344 6,568,944
3,750 3,750 West Virginia Univ Rev
Impt Univ Proj Ser C
(FGIC Insd) 5.000 10/01/34 3,923,888 3,923,888
-------------------------------------------------------
4,435,488 6,057,344 10,492,832
-------------------------------------------------------
WISCONSIN 1.2%
2,500 2,500 Milwaukee, WI Redev
Auth Rev Milwaukee Pub
Schs (AMBAC Insd) 5.125 08/01/21 2,706,225 2,706,225
2,490 2,490 Wisconsin St Hlth & Ed
Fac Auth Rev Bellin Mem
Hosp (AMBAC Insd) 6.625 02/15/08 2,679,663 2,679,663
2,675 2,675 Wisconsin St Hlth & Ed
Fac FH Hlthcare Dev Inc
Proj 6.250 11/15/28 2,858,853 2,858,853
-------------------------------------------------------
2,679,663 2,858,853 2,706,225 8,244,741
-------------------------------------------------------
PUERTO RICO 4.6%
8,000 7,000 6,000 21,000 Puerto Rico Comwlth Hwy
& Trans Auth Hwy Rev
Ser Y Rfdg (FSA Insd)
(b) (c) 6.250 07/01/21 10,223,760 8,945,790 7,667,820 26,837,370
4,000 4,000 Puerto Rico Pub Bldgs
Auth Gtd Pub Ed & Hlth
Fac Ser M Rfdg
(MBIA Insd) 5.600 07/01/08 4,390,480 4,390,480
-------------------------------------------------------
10,223,760 13,336,270 7,667,820 31,227,850
-------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 159.6%
(Cost $1,002,168,124) 290,899,263 589,032,184 201,258,993 1,081,190,440
TOTAL SHORT-TERM INVESTMENTS 1.2%
(Cost $8,400,000) 800,000 3,800,000 3,800,000 8,400,000
-------------------------------------------------------
TOTAL INVESTMENTS 160.8%
(Cost $1,010,568,124) 291,699,263 592,832,184 205,058,993 1,089,590,440
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2% 3,069,816 6,593,817 (1,806,682) 7,856,951
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (62.0%) (115,020,637) (225,101,630) (80,024,143) (420,146,410)
-------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% $179,748,442 $374,324,371 $123,228,168 $ 677,300,981
=======================================================
Percentages are calculated as a percentage of net assets applicable to common shares.
* Zero coupon bond
(a) The Trust owns 100% of the bond issuance.
(b) Security converts to a fixed coupon rate at a predetermined date.
(c) All or a portion of these securities have been physically segregated in connection with open futures contracts.
(d) 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.
(e) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date.
(f) Securities purchased on a when-issued or delayed delivery basis.
(g) This security is restricted and may be resold only in transactions exempt from registration which are normally
those transactions with qualified institutional buyers. Restricted securities comprise 0.2% of net assets
applicable to common shares.
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV)
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
ACA - American Capital Access Insurance Co.
AMBAC - AMBAC Indemnity Corp.
AMT - Alternative Minimum Tax
Connie Lee - Connie Lee Insurance Co.
FGIC - Financial Guaranty Insurance Co.
FHA/VA - Federal Housing Administration/Department of Veterans Affairs
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance Corp.
PSF - Public School Fund
Radian - Radian Asset Assurance
XLCA - XL Capital Assurance Inc.
Future contracts outstanding as of January 31, 2005:
Unrealized Appreciation/
Short Contracts: Contracts Depreciation
---------------- --------- ------------
U.S. Treasury Notes 10-Year Futures March 05
(Current Notional Value $112,266 per contract) .......... 218 $ (297,216)
U.S. Treasury Notes 5-Year Futures March 05
(Current Notional Value $109,250 per contract) .......... 2,154 (801,669)
----- ------------
2,372 $ (1,098,885)
===== ============
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds 162.4%
ALASKA 0.4%
$ 1,000 $ 1,000 Alaska St Hsg Fin Corp Gen Hsg Ser
A (FGIC Insd) 5.250 12/01/41 $ $ 1,065,960 $ 1,065,960
------------------------------------------
ALABAMA 1.1%
$ 1,000 1,000 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A 5.875 11/15/24 1,066,150 1,066,150
1,090 1,090 Lee Cnty, AL Sch Wts Ltd Oblig
(MBIA Insd) (a) 5.000 02/01/17 1,184,917 1,184,917
1,000 1,000 Valley, AL Spl Care Fac Fin Auth
Rev Lanier Mem Hosp Ser A 5.600 11/01/16 1,014,250 1,014,250
------------------------------------------
3,265,317 3,265,317
------------------------------------------
ARIZONA 6.2%
5,000 5,000 Arizona Sch Fac Brd Ctfs Ser B
(FGIC Insd) 5.250 09/01/18 5,541,300 5,541,300
3,000 3,000 Arizona St Transn Brd Hwy Rev Ser B 5.250 07/01/19 3,328,260 3,328,260
2,235 2,235 Arizona Tourism & Sports Auth Tax
Rev Multipurpose Stad Fac Ser A
(MBIA Insd) 5.375 07/01/21 2,510,777 2,510,777
2,000 2,000 Phoenix, AZ Civic Impt Corp Arpt
Rev Jr Lien (AMT) (FGIC Insd) 5.375 07/01/29 2,039,760 2,039,760
765 765 Pima Cnty, AZ Indl Dev Auth Indl
Rev Lease Oblig Irvington Proj
Tucson Ser A Rfdg (FSA Insd) 7.250 07/15/10 799,731 799,731
2,685 2,685 South Campus Group LLC AZ Std Hsg
Rev AZ St Univ South Campus Proj
(MBIA Insd) 5.625 09/01/35 3,028,358 3,028,358
1,300 1,300 Tempe, AZ Excise Tax Rev Rfdg 5.250 07/01/18 1,447,927 1,447,927
------------------------------------------
11,080,435 7,615,678 18,696,113
------------------------------------------
CALIFORNIA 22.4%
6,000 6,000 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Pub Impt Proj Ser C
(FSA Insd) * 09/01/19 3,097,680 3,097,680
7,195 7,195 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Pub Impt Proj Ser C
(FSA Insd) * 09/01/21 3,332,724 3,332,724
5,000 5,000 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Pub Impt Proj Ser C
(FSA Insd) * 09/01/32 1,234,800 1,234,800
1,300 1,300 Anaheim, CA Pub Fin Auth Lease Rev
Pub Impt Proj Ser C (FSA Insd) 6.000 09/01/16 1,568,515 1,568,515
2,095 2,095 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Pool Ser A (XLCA Insd) 5.250 09/01/35 2,237,167 2,237,167
1,000 1,000 California St (AMBAC Insd) 5.125 10/01/27 1,057,450 1,057,450
2,800 2,800 California St Dept Wtr Res Pwr Ser
A (AMBAC Insd) 5.500 05/01/16 3,177,468 3,177,468
2,000 2,000 California St Dept Wtr Res Pwr
Ser A 6.000 05/01/15 2,328,960 2,328,960
2,345 2,345 California St Dept Wtr Res Pwr
Supply Rev Ser A (XLCA Insd) 5.375 05/01/17 2,616,152 2,616,152
2,000 2,000 California St Pub Wks Brd Lease Rev
Dept of Corrections St Prisons Ser
A Rfdg (AMBAC Insd) (c) 5.000 12/01/19 2,210,680 2,210,680
2,500 2,500 5,000 California St Pub Wks Brd Lease Rev
Dept of Mental Hlth Coalinga Ser A 5.000 06/01/24 2,614,625 2,614,625 5,229,250
4,600 4,600 California St Pub Wks Brd Lease Rev
Var Univ CA Proj Ser A Rfdg (c) 5.500 06/01/10 5,100,250 5,100,250
5,905 5,905 California St Pub Wks Brd Lease Rev
Var Univ CA Proj Ser A Rfdg 5.500 06/01/14 6,657,120 6,657,120
5,000 5,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Cap Apprec Rfdg
(MBIA Insd) * 01/15/18 2,597,050 2,597,050
2,000 2,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Sr Lien Ser A
(Prerefunded @ 01/01/07) 6.500 01/01/32 2,157,160 2,157,160
3,950 3,950 Los Angeles, CA Dept Wtr & Pwr Ser
A (FGIC Insd) 5.125 07/01/40 4,123,049 4,123,049
5,000 5,000 Los Angeles, CA Uni Sch Dist Ser A
(FSA Insd) 5.250 07/01/20 5,550,600 5,550,600
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
2,465 2,465 Los Angeles, CA Uni Sch Dist Ser B
(FGIC Insd) 5.000 07/01/23 2,638,684 2,638,684
13,880 13,880 San Joaquin Hills, CA Transn
Corridor Agy Toll Rd Rev Cap Apprec
Ser A Rfdg (MBIA Insd) * 01/15/28 4,422,446 4,422,446
2,720 2,720 Washington, CA Uni Sch Dist Yolo
Cnty Election 2004 Ser A
(FGIC Insd) (a) 5.250 08/01/19 3,025,701 3,025,701
3,070 3,070 Washington, CA Uni Sch Dist Yolo
Cnty Ser A (FGIC Insd) (a) 5.250 08/01/20 3,409,603 3,409,603
------------------------------------------
40,571,443 27,201,066 67,772,509
------------------------------------------
COLORADO 7.6%
1,000 1,000 2,000 Arapahoe Cnty, CO Cap Impt Tr Fd
Hwy Rev E-470 Proj (Prerefunded @
08/31/05) (b) 7.000 08/31/26 1,058,100 1,058,100 2,116,200
7,500 5,000 12,500 Arapahoe Cnty, CO Cap Impt Tr Fd
Hwy Rev E-470 Proj Ser C
(Prerefunded @ 08/31/05) * 08/31/26 1,546,200 1,030,800 2,577,000
1,475 1,475 Colorado Ed & Cultural Fac Auth Rev
Charter Sch Proj Impt & Rfdg
(XLCA Insd) 5.250 08/15/19 1,631,704 1,631,704
1,945 1,945 Colorado Ed & Cultural Impt Charter
Sch Pinnacle Rfdg (XLCA Insd) 5.250 06/01/23 2,115,032 2,115,032
1,000 1,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A (Escrowed to
Maturity) 5.500 03/01/32 1,130,620 1,130,620
1,250 1,000 2,250 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth 6.500 11/15/31 1,388,962 1,111,170 2,500,132
165 165 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser A2 (AMT) 7.250 05/01/27 166,685 166,685
109 109 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1 (AMT) 7.650 11/01/26 110,184 110,184
1,500 1,500 Denver, CO City & Cnty Arpt Rev Ser
D (AMT) 7.750 11/15/13 1,814,460 1,814,460
3,515 3,515 E-470 Pub Hwy Auth CO Rev Cap
Apprec Sr Ser B (MBIA Insd) * 09/01/13 2,507,706 2,507,706
6,160 6,160 E-470 Pub Hwy Auth CO Rev Sr Ser A
(MBIA Insd) 5.000 09/01/21 6,507,178 6,507,178
------------------------------------------
18,068,258 5,108,643 23,176,901
------------------------------------------
CONNECTICUT 0.7%
1,010 1,010 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144-A Private
Placement (d) 6.400 09/01/11 1,072,923 1,072,923
990 990 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144-A Private
Placement (Prerefunded @ 09/01/07)
(d) 6.400 09/01/11 1,085,050 1,085,050
------------------------------------------
2,157,973 2,157,973
------------------------------------------
FLORIDA 4.6%
3,000 3,000 Lake Cnty, FL Sch Brd Ctf Part
(AMBAC Insd) 5.375 07/01/17 3,352,080 3,352,080
5,000 5,000 Osceola Cnty, FL Trans Rev Osceola
Pkwy Proj & Rfdg (MBIA Insd) 5.000 04/01/22 5,398,200 5,398,200
5,000 5,000 Ocoee, FL Wtr & Swr Sys Rev Impt &
Rfdg (AMBAC Insd) 5.125 10/01/33 5,289,950 5,289,950
------------------------------------------
5,398,200 8,642,030 14,040,230
------------------------------------------
GEORGIA 4.2%
2,000 2,000 Atlanta, GA Wtr & Wastewtr Rev (FSA
Insd) 5.000 11/01/21 2,174,360 2,174,360
5,000 5,000 Clayton Cnty & Clayton Cnty GA Wtr
Auth Wtr & Swr Rev 5.000 05/01/20 5,476,700 5,476,700
2,000 2,000 Georgia St Rd & Twy Auth Rev 5.000 10/01/19 2,186,060 2,186,060
1,745 1,745 Municipal Elec Auth GA Comb Turbine
Proj Ser A (MBIA Insd) 5.250 11/01/20 1,935,624 1,935,624
1,000 1,000 Richmond Cnty, GA Dev Auth ASU
Jaguar Student Hsg LLC Ser A 5.250 02/01/35 1,028,230 1,028,230
------------------------------------------
6,504,930 6,296,044 12,800,974
------------------------------------------
ILLINOIS 11.0%
3,750 3,750 Bolingbrook, IL Cap Apprec Ser B
(MBIA Insd) * 01/01/32 876,300 876,300
1,710 1,710 Bolingbrook, IL Cap Apprec Ser C
Rfdg (MBIA Insd) (a) * 01/01/29 522,405 522,405
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
5,400 5,400 Chicago, IL Brd of Ed Cap Apprec
Sch Reform Ser B-1 (FGIC Insd) * 12/01/28 1,667,358 1,667,358
3,365 3,365 Chicago, IL Cap Apprec (Prerefunded
@ 07/01/05) (AMBAC Insd) * 01/01/17 1,605,946 1,605,946
335 335 Chicago, IL Single Family Mtg Rev
Ser A (AMT) (GNMA Collateralized) 7.000 09/01/27 336,531 336,531
50 50 Chicago, IL Single Family Mtg Rev
Ser B (AMT) (GNMA Collateralized) 7.625 09/01/27 50,213 50,213
3,345 3,345 Cook Cnty, IL Sch Dist No 100
Berwyn South Ser D Rfdg (FSA Insd) 5.500 12/01/23 3,803,365 3,803,365
2,540 2,540 Cook Cnty, IL Sch Dist No 122 Oak
Lawn Cap Apprec (FGIC Insd) (a) * 12/01/15 1,607,312 1,607,312
4,500 4,500 Cook Cnty, IL Ser A (FGIC Insd) 5.500 11/15/31 4,991,535 4,991,535
1,000 1,000 Illinois Dev Fin Auth Rev Cmnty
Rehab Providers Fac Ser A 7.375 07/01/25 1,089,980 1,089,980
2,500 2,500 Illinois Fin Auth Rev Northwestern
Mem Hosp Ser A 5.500 08/15/43 2,677,475 2,677,475
1,325 1,325 Illinois Fin Auth Student Hsg MJH
Rev Ed Assistance IV-Sr Ser A 5.125 06/01/35 1,315,221 1,315,221
8,000 8,000 Illinois St First Ser (FSA Insd) 5.250 12/01/19 8,875,200 8,875,200
3,400 3,400 Illinois St First Ser (FSA Insd) 5.250 04/01/27 3,684,614 3,684,614
300 300 Peoria, Moline & Freeport, IL Coll
Mtg Ser A (AMT) (GNMA
Collateralized) 7.600 04/01/27 301,332 301,332
------------------------------------------
31,215,024 2,189,763 33,404,787
------------------------------------------
INDIANA 6.0%
2,805 2,805 Dekalb Eastn High Sch Bldg Corp IN
First Mtg (FSA Insd) 6.000 01/15/18 3,243,926 3,243,926
4,000 4,000 East Chicago, IN Elementary Sch
Bldg Corp First Mtg Ser A 6.250 07/05/08 4,385,880 4,385,880
3,000 3,000 Indiana Hlth Fac Fin Auth Hosp Rev
Columbus Regl Hosp Rfdg (FSA Insd) 7.000 08/15/15 3,687,150 3,687,150
1,500 1,500 Indiana St Dev Fin Auth Rev Exempt
Fac Conv Rfdg (AMT) 5.950 08/01/30 1,542,270 1,542,270
2,000 2,000 Petersburg, IN Pollutn Ctl Rev IN
Pwr & Lt (AMT) 5.950 12/01/29 2,048,620 2,048,620
2,850 2,850 Southwest Parke Cmnty Sch Bldg
First Mtg (FGIC Insd) (a) 5.250 07/15/21 3,160,108 3,160,108
------------------------------------------
16,525,684 1,542,270 18,067,954
------------------------------------------
LOUISIANA 6.0%
2,500 2,500 Louisiana Loc Govt Envir Fac Pkg
Fac Corp Garage Proj Ser A (AMBAC
Insd) 5.375 10/01/31 2,717,875 2,717,875
1,400 1,400 Louisiana Pub Fac Auth Rev Hlth Fac
Glen Retirement Ser A 6.700 12/01/25 1,449,476 1,449,476
6,000 6,000 New Orleans, LA Rfdg (MBIA Insd) 5.125 09/01/21 6,560,700 6,560,700
2,000 2,000 4,000 New Orleans, LA Rfdg (FGIC Insd) 5.500 12/01/21 2,366,180 2,366,180 4,732,360
2,800 2,800 Saint Charles Parish, LA Solid
Waste Disp Rev LA Pwr & Lt Co Proj
(AMT) (FSA Insd) (c) 7.050 04/01/22 2,809,576 2,809,576
------------------------------------------
14,454,331 3,815,656 18,269,987
------------------------------------------
MARYLAND 0.3%
1,000 1,000 Maryland St Econ Dev Corp Univ MD
College Pk Proj 5.625 06/01/35 1,038,570 1,038,570
------------------------------------------
MASSACHUSETTS 5.3%
1,200 1,200 Massachusetts Bay Tran Auth MA Gen
Tran Sys Ser A Rfdg 6.250 03/01/12 1,419,024 1,419,024
2,000 2,000 Massachusetts Muni Whsl Elec Co
Proj No 6-A (MBIA Insd) 5.250 07/01/16 2,209,300 2,209,300
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
1,000 1,000 2,000 Massachusetts St Hlth & Ed Fac Auth
Rev Saint Mem Med Ctr Ser A 6.000 10/01/23 1,006,840 1,006,840 2,013,680
2,995 2,995 Massachusetts St Wtr Pollutn
Abatement Tr Pool Pgm Bds Ser 10 5.000 08/01/21 3,260,656 3,260,656
7,050 7,050 Massachusetts St Wtr Res Auth Gen
Ser J (FSA Insd) 5.000 08/01/32 7,333,692 7,333,692
------------------------------------------
6,476,796 9,759,556 16,236,352
------------------------------------------
MICHIGAN 5.7%
3,000 3,000 Detroit, MI City Sch Dist Sch Bldg
& Site Impt Ser A (FGIC Insd) 5.375 05/01/24 3,360,630 3,360,630
2,000 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 2,147,140 2,147,140
2,790 2,790 Detroit, MI Wtr Supply Sys Rev Sr
Lien Ser C (MBIA Insd) (a) 5.250 07/01/19 3,102,145 3,102,145
2,000 2,000 Grand Rapids, MI Wtr Supply
(FGIC Insd) 5.750 01/01/15 2,271,700 2,271,700
1,495 1,495 Michigan St Hsg Dev Auth Multi-
Family Rev Ltd Oblig Ser A Rfdg
(GNMA Collateralized) 6.600 04/01/30 1,528,398 1,528,398
2,075 2,075 South Lyon, MI Cmnty Sch Bldg &
Site (FGIC Insd) 5.250 05/01/18 2,304,184 2,304,184
2,285 2,285 Taylor, MI Bldg Auth (AMBAC Insd)
(a) 6.000 03/01/13 2,703,863 2,703,863
------------------------------------------
4,889,028 12,529,032 17,418,060
------------------------------------------
MINNESOTA 0.4%
1,065 1,065 Duluth, MN Econ Dev Auth Hlthcare
Fac Rev Benedictine Hlth Sys Saint
Marys 5.250 02/15/33 1,098,611 1,098,611
------------------------------------------
MISSISSIPPI 4.1%
2,000 3,000 5,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj
Rfdg 5.900 05/01/22 2,020,160 3,030,240 5,050,400
1,900 1,900 Mississippi Dev Bk Spl Oblig Cap
Proj & Equip Acquisition Ser A2
(AMBAC Insd) 5.000 07/01/24 2,088,366 2,088,366
1,550 1,550 Mississippi Dev Bk Spl Oblig
Madison Cnty Hosp Proj (Prerefunded
@ 07/01/09) 6.400 07/01/29 1,798,170 1,798,170
2,595 2,595 Mississippi Dev Bk Spl Oblig MS Ltd
Oblig Hosp Impts (MBIA Insd) (a) 5.250 07/01/32 2,755,215 2,755,215
840 840 Mississippi Home Corp Single Family
Rev Mtg Ser C (AMT) (GNMA
Collateralized) 7.600 06/01/29 872,432 872,432
------------------------------------------
8,661,911 3,902,672 12,564,583
------------------------------------------
MISSOURI 7.8%
2,000 2,000 Cape Girardeau Cnty, MO Indl Dev
Auth Hlthcare Fac Rev Southeast MO
Hosp Assoc 5.625 06/01/27 2,066,260 2,066,260
1,250 1,250 Cole Cnty, MO Indl Dev Auth Sr
Living Fac Rev Lutheran Sr Svcs
Heisinger Proj (a) 5.500 02/01/35 1,304,063 1,304,063
2,000 2,000 Curators Univ MO Sys Fac Rev Ser B
Rfdg (a) 5.000 11/01/20 2,171,540 2,171,540
3,000 3,000 Platte Cnty, MO Neighborhood Impt
Parkville Ser B (MBIA Insd) (e) 5.000 02/01/25 3,184,260 3,184,260
1,500 1,500 Saint Louis Cnty, MO Mtg Rev Ctf
Rcpt Ser H (AMT) (Escrowed to
Maturity) 5.400 07/01/18 1,702,140 1,702,140
5,855 4,000 9,855 Saint Louis, MO Arpt Rev Arpt Dev
Pgm Ser A (MBIA Insd) 5.250 07/01/31 6,195,761 4,232,800 10,428,561
2,380 2,380 Saint Louis, MO Arpt Rev Cap Impt
Pgm Ser A (MBIA Insd) (a) 5.375 07/01/19 2,645,061 2,645,061
------------------------------------------
13,913,285 9,588,600 23,501,885
------------------------------------------
NEBRASKA 1.5%
4,260 4,260 University NE Univ Rev Lincoln
Student Fees & Fac Ser B 5.000 07/01/23 4,549,169 4,549,169
------------------------------------------
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
NEVADA 2.5%
3,000 3,000 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser A (AMT)
(AMBAC Insd) 5.250 07/01/34 3,147,540 3,147,540
4,375 4,375 Las Vegas Valley, NV Wtr Dist Ser B
Rfdg (MBIA Insd) 5.000 06/01/27 4,578,087 4,578,087
------------------------------------------
7,725,627 7,725,627
------------------------------------------
NEW HAMPSHIRE 1.2%
1,000 1,000 New Hampshire Hlth & Ed Fac Auth
Rev Derryfield Sch 7.000 07/01/30 1,040,300 1,040,300
1,400 1,400 New Hampshire Hlth & Ed Fac
Hlthcare Sys Covenant Hlth 5.500 07/01/34 1,456,588 1,456,588
1,000 1,000 New Hampshire St Bus Fin Auth Wtr
Fac Rev Pennichuck Wtrwks Inc (AMT)
(AMBAC Insd) 6.300 05/01/22 1,093,500 1,093,500
------------------------------------------
3,590,388 3,590,388
------------------------------------------
NEW JERSEY 5.7%
500 500 New Jersey Econ Dev Auth Rev
Cigarette Tax 5.750 06/15/29 531,410 531,410
1,000 1,000 New Jersey Econ Dev Auth Rev
Cigarette Tax 5.500 06/15/31 1,041,160 1,041,160
5,000 5,000 New Jersey Econ Dev Auth Rev Sch
Fac Constr Ser I 5.000 09/01/23 5,316,800 5,316,800
2,210 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 2,337,539 2,337,539
1,000 1,000 New Jersey Hlthcare Fac Fin Auth
Rev Cap Hlth Sys Oblig Grp Ser A 5.375 07/01/33 1,037,280 1,037,280
1,000 1,000 New Jersey Hlthcare Fac Fin Auth
Rev Gen Hosp Ctr at Passaic
(Escrowed to Maturity) (FSA Insd) 6.000 07/01/06 1,031,470 1,031,470
2,000 2,000 New Jersey St Tpk Auth Tpk Rev Ser
C-1 (AMBAC Insd) 5.000 01/01/35 2,077,900 2,077,900
4,000 4,000 Salem Cnty, NJ Indl Pollutn Ctl Fin
Auth Rev Pollutn Ctl Pub Svc Elec &
Gas Ser A (AMT) (MBIA Insd) 5.450 02/01/32 4,042,480 4,042,480
------------------------------------------
11,431,910 5,984,129 17,416,039
------------------------------------------
NEW MEXICO 0.5%
1,500 1,500 Jicarilla, NM Apache Nation Rev Adj
Ser A (Acquired 10/23/03, Cost
$1,514,910) (f) 5.000 09/01/18 1,576,290 1,576,290
------------------------------------------
NEW YORK 10.3%
3,250 3,250 New York City Hlth & Hosp Corp Rev
Hlth Sys Ser A (AMBAC Insd) 5.000 02/15/11 3,572,270 3,572,270
3,000 3,000 New York City Muni Wtr Fin Auth Wtr
& Sew Sys Rev Ser A (AMBAC Insd) 5.000 06/15/35 3,127,980 3,127,980
5,000 5,000 New York City Ser A1 (Prerefunded @
08/01/05) 6.375 08/01/10 5,156,550 5,156,550
3,000 3,000 New York City Ser G (Prerefunded
@ 02/01/06) (c) 6.000 02/01/11 3,156,420 3,156,420
5,000 5,000 New York City Ser H (MBIA Insd) (a) 5.250 03/15/14 5,567,200 5,567,200
1,520 1,520 New York St Dorm Auth Rev Insd John
T Mather Mem Hosp (Connie Lee Insd)
(a) 6.500 07/01/09 1,740,172 1,740,172
500 500 New York St Energy Resh & Dev Auth
St Service Contract Rev Ser B 5.500 04/01/05 502,780 502,780
2,175 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 2,222,545 2,222,545
3,000 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 3,064,830 3,064,830
3,000 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 3,065,520 3,065,520
------------------------------------------
14,099,752 17,076,515 31,176,267
------------------------------------------
NORTH CAROLINA 0.6%
1,500 1,500 North Carolina Eastn Muni Pwr Agy
Pwr Sys Rev Ser D 6.700 01/01/19 1,691,505 1,691,505
------------------------------------------
OHIO 4.4%
3,000 3,000 Cincinnati, OH City Sch Dist Sch
Impt (FSA Insd) 5.250 06/01/18 3,332,940 3,332,940
1,000 1,000 2,000 Cuyahoga Cnty, OH Hosp Fac Rev
Canton Inc Proj 7.500 01/01/30 1,132,570 1,132,570 2,265,140
1,000 1,000 Dayton, OH Arpt Rev James M Cox
Dayton Ser C Rfdg (AMT)
(Radian Insd) 5.250 12/01/27 1,036,760 1,036,760
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
1,040 1,040 Lorain Cnty, OH Hosp Rev EMH Regl
Med Ctr Rfdg (AMBAC Insd) 7.750 11/01/13 1,101,090 1,101,090
1,165 1,165 Marion Cnty, OH Rev Cmnty Hosp Impt
& Rfdg 6.100 05/15/06 1,204,435 1,204,435
3,170 3,170 Pickerington, OH Loc Sch Dist Cap
Apprec Sch Fac Contract (FGIC Insd) * 12/01/11 2,497,009 2,497,009
950 950 Strongsville, OH (Prerefunded @
12/01/06) 6.700 12/01/11 1,041,495 1,041,495
850 850 Toledo Lucas Cnty, OH Port Auth
Northwest Bd Fd Ser A (AMT) 6.000 05/15/11 918,374 918,374
------------------------------------------
3,275,155 10,122,088 13,397,243
------------------------------------------
OKLAHOMA 3.1%
1,000 1,755 2,755 Tulsa Cnty, OK Pub Fac Auth Cap
Impt Rev (AMBAC Insd) 6.250 11/01/22 1,162,950 2,040,977 3,203,927
2,785 2,785 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Ctr Proj Rfdg
(Escrowed to Maturity) (Connie Lee
Insd) (a) 6.250 06/01/06 2,924,696 2,924,696
2,960 2,960 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Ctr Proj Rfdg
(Escrowed to Maturity) (Connie Lee
Insd) (a) 6.250 06/01/07 3,207,486 3,207,486
------------------------------------------
4,370,436 4,965,673 9,336,109
------------------------------------------
OREGON 2.4%
2,010 2,010 Emerald Peoples Util Dist OR Rfdg
(FGIC Insd) (a) 7.350 11/01/09 2,398,292 2,398,292
820 820 Oregon St Vets Welfare Ser 76A 6.050 10/01/28 824,313 824,313
3,580 3,580 Yamhill Cnty, OR Sch Dist No 029J
Newburg (MBIA Insd) 5.250 06/15/21 3,954,719 3,954,719
------------------------------------------
4,779,032 2,398,292 7,177,324
------------------------------------------
PENNSYLVANIA 4.0%
4,680 4,680 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd) * 09/01/20 2,314,400 2,314,400
1,500 1,500 Harrisburg, PA Res Gtd Sub Ser D 2
(FSA Insd) (b) 5.000 12/01/33 1,643,595 1,643,595
1,500 1,500 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D
(AMT) 7.050 12/01/10 1,534,635 1,534,635
2,000 2,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D
(AMT) 7.150 12/01/18 2,046,940 2,046,940
2,000 2,000 Pennsylvania St Higher Ed Fac Auth
Rev UPMC Hlth Sys Ser A 6.250 01/15/17 2,289,280 2,289,280
905 905 Pennsylvania St Higher Ed Fac Auth
Rev UPMC Hlth Sys Ser A 6.250 01/15/18 1,033,818 1,033,818
1,315 1,315 State Pub Sch Bldg Auth PA Sch Rev
Burgettstown Sch Dist Ser D
(Prerefunded @ 02/01/05)
(MBIA Insd) (a) 6.450 02/01/10 1,315,000 1,315,000
------------------------------------------
6,807,630 5,370,038 12,177,668
----------------------------------------
RHODE ISLAND 1.3%
3,775 3,775 Rhode Island St Econ Dev Corp Arpt
Rev Ser A Rfdg (AMT) (FSA Insd) 5.000 07/01/17 4,024,414 4,024,414
------------------------------------------
SOUTH CAROLINA 2.5%
3,115 3,115 Greenville, SC Impt & Rfdg (MBIA
Insd) (a) 5.250 04/01/21 3,438,244 3,438,244
3,750 3,750 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser B
(AMT) (AMBAC Insd) 5.450 11/01/32 3,992,775 3,992,775
------------------------------------------
7,431,019 7,431,019
------------------------------------------
SOUTH DAKOTA 0.8%
1,375 1,375 Deadwood, SD Ctf Partn (ACA Insd) 6.375 11/01/20 1,484,038 1,484,038
1,000 1,000 South Dakota St Hlth & Ed Fac Auth
Rev Childrens Care Hosp Rfdg 6.125 11/01/29 1,090,920 1,090,920
------------------------------------------
1,484,038 1,090,920 2,574,958
------------------------------------------
TENNESSEE 1.5%
1,270 1,270 Elizabethton, TN Hlth & Ed Fac Brd
Rev Hosp First Mtg Ser B Impt &
Rfdg 8.000 07/01/33 1,525,168 1,525,168
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
1,300 1,000 2,300 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Ser A Rfdg
(MBIA Insd) 7.500 07/01/25 1,652,898 1,271,460 2,924,358
------------------------------------------
1,652,898 2,796,628 4,449,526
------------------------------------------
TEXAS 12.3%
2,335 2,335 Beaumont, TX Wtrwks & Swr Sys
(FGIC Insd) 6.250 09/01/14 2,697,976 2,697,976
2,000 2,000 Brazos Cnty, TX Hlth Fac Dev
Oblig Grp 5.375 01/01/32 2,060,600 2,060,600
1,190 790 1,980 Brazos River Auth TX Pollutn Ctl
Rev Adj TXU Elec Co Proj Ser C Rfdg
(AMT) (b) 5.750 05/01/36 1,287,402 854,661 2,142,063
930 930 Brownsville, TX Util Sys Rev
(Escrowed to Maturity) 7.375 01/01/10 1,053,941 1,053,941
1,515 1,515 Cameron Cnty, TX Ctf Oblig
(AMBAC Insd) (a) 5.750 02/15/16 1,690,831 1,690,831
3,000 3,000 Dallas-Fort Worth, TX Intl Arpt Rev
Jt Ser A Impt & Rfdg (AMT)
(FGIC Insd) 5.500 11/01/31 3,171,840 3,171,840
2,945 2,945 Houston, TX Arpt Sys Rev (Escrowed
to Maturity) 9.500 07/01/10 3,545,486 3,545,486
5,000 5,000 Houston, TX Util Sys Rev Comb First
Lien Ser A Rfdg (FSA Insd) 5.250 05/15/20 5,552,350 5,552,350
1,000 1,000 2,000 Mesquite, TX Hlth Fac Dev Corp
Retirement Fac Christian Care Ctr
Ser A 7.625 02/15/28 1,053,440 1,053,440 2,106,880
1,500 1,500 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj 7.250 01/01/31 1,504,005 1,504,005
3,000 3,000 Prosper,TX Indpt Sch Dist (PSF Gtd) 5.500 08/15/33 3,240,690 3,240,690
2,000 2,000 San Antonio, TX Elec & Gas Sys Rfdg 5.375 02/01/16 2,223,160 2,223,160
1,990 1,990 Stafford, TX Econ Dev Corp (FGIC
Insd) (a) 6.000 09/01/19 2,396,458 2,396,458
2,000 1,510 3,510 Texas St Wtr Fin Assistance 5.500 08/01/35 2,178,240 1,644,571 3,822,811
------------------------------------------
16,334,013 20,875,078 37,209,091
------------------------------------------
UTAH 0.0%
50 50 Utah St Hsg Fin Agy Single Family
Mtg Sr Issue Ser B-2 (AMT)
(FHA/VA Gtd) 6.500 07/01/15 50,133 50,133
------------------------------------------
VIRGINIA 3.0%
2,000 2,000 Fairfax Cnty, VA Ctf Partn 5.300 04/15/23 2,183,680 2,183,680
1,500 1,500 Henrico Cnty, VA Indl Dev Auth Pub
Fac Lease Rev Henrico Cnty Regl
Jail Proj (Prerefunded @ 08/01/05) 6.500 08/01/10 1,562,820 1,562,820
1,380 1,380 Richmond, VA Indl Dev Auth Govt Fac
Rev Bds (AMBAC Insd) (a) 5.000 07/15/14 1,537,513 1,537,513
1,595 1,595 Richmond, VA Indl Dev Auth Govt Fac
Rev Bds (AMBAC Insd) (a) 5.000 07/15/16 1,784,789 1,784,789
1,715 1,715 Richmond, VA Indl Dev Auth Govt Fac
Rev Bds (AMBAC Insd) (a) 5.000 07/15/17 1,916,770 1,916,770
------------------------------------------
7,200,783 1,784,789 8,985,572
------------------------------------------
WASHINGTON 1.8%
1,280 1,280 Pierce Cnty, WA Sch Dist No. 343
Dieringer Impt & Rfdg (FSA Insd) 5.000 12/01/20 1,383,475 1,383,475
700 700 Quinault Indian Nation, WA Quinaul
Beach Ser A Rfdg & Impt (ACA Insd) 5.800 12/01/15 749,497 749,497
3,000 3,000 Spokane, WA Pub Fac Dist Hotel
Motel & Sales Use Tax (MBIA Insd) 5.250 09/01/33 3,197,220 3,197,220
------------------------------------------
3,946,717 1,383,475 5,330,192
------------------------------------------
WEST VIRGINIA 1.5%
500 500 Harrison Cnty, WV Cnty Cmnty Solid
Waste Disp Rev West PA Pwr Co Ser C
(AMT) (AMBAC Insd) 6.750 08/01/24 511,600 511,600
3,750 3,750 West Virginia Univ Rev Impt Univ
Proj Ser C (FGIC Insd) 5.000 10/01/34 3,923,888 3,923,888
------------------------------------------
4,435,488 4,435,488
------------------------------------------
WISCONSIN 1.8%
2,500 2,500 Milwaukee, WI Redev Auth Rev
Milwaukee Pub Schs (AMBAC Insd) 5.125 08/01/21 2,706,225 2,706,225
VAN KAPEN MUNICIPAL OPPORTUNITY TRUST II (VOT) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VOT VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VOT VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
-----------------------------------------------------------------------------------------------------------------------------------
2,490 2,490 Wisconsin St Hlth & Ed Fac Auth Rev
Bellin Mem Hosp (AMBAC Insd) 6.625 02/15/08 2,679,663 2,679,663
------------------------------------------
2,679,663 2,706,225 5,385,888
------------------------------------------
PUERTO RICO 5.9%
8,000 6,000 14,000 Puerto Rico Comwlth Hwy & Trans
Auth Hwy Rev Ser Y Rfdg (FSA Insd)
(b) (c) 6.250 07/01/21 10,223,760 7,667,820 17,891,580
------------------------------------------
TOTAL LONG-TERM INVESTMENTS 162.4%
(Cost $457,665,853) 290,899,263 201,258,993 492,158,256
TOTAL SHORT-TERM INVESTMENTS 1.5%
(Cost $4,600,000) 800,000 3,800,000 4,600,000
------------------------------------------
TOTAL INVESTMENTS 163.9%
(Cost $462,265,853) 291,699,263 205,058,993 496,758,256
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5% 3,069,816 (1,806,682) 1,263,134
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (64.4%) (115,020,637) (80,024,143) (195,044,780)
------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% $179,748,442 $123,228,168 $302,976,610
==========================================
Percentages are calculated as a percentage of net assets applicable to common shares.
* Zero coupon bond
(a) The Trust owns 100% of the bond issuance.
(b) Security converts to a fixed coupon rate at a predetermined date.
(c) All or a portion of these securities have been physically segregated in connection with open futures contracts.
(d) 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.
(e) Securities purchased on a when-issued or delayed delivery basis.
(f) This security is restricted and may be resold only in transactions exempt from registration which are normally
those transactions with qualified institutional buyers. Restricted securities comprise 0.5% of net assets
applicable to common shares.
ACA - American Capital Access Insurance Co.
AMBAC - AMBAC Indemnity Corp.
AMT - Alternative Minimum Tax
Connie Lee - Connie Lee Insurance Co.
FGIC - Financial Guaranty Insurance Co.
FHA/VA - Federal Housing Administration/Department of Veterans Affairs
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance Corp.
PSF - Public School Fund
Radian - Radian Asset Assurance
XLCA - XL Capital Assurance Inc.
Future contracts outstanding as of January 31, 2005:
Unrealized
Appreciation/
Short Contracts: Contracts Depreciation
U.S. Treasury Notes 10-Year Futures March 05 (Current Notional Value $112,266 per contract) 178 $ (242,681)
U.S. Treasury Notes 5-Year Futures March 05 (Current Notional Value $109,250 per contract) 943 (314,317)
------ ----------
1,121 $ (556,998)
====== ==========
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds 158.8%
ALASKA 0.2%
$ 1,000 $ 1,000 Alaska St Hsg Fin Corp Gen Hsg
Ser A (FGIC Insd) 5.250 12/01/41 $ $ 1,065,960 $ 1,065,960
----------------------------------------
ALABAMA 2.2%
$ 1,000 1,000 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A 5.875 11/15/24 1,066,150 1,066,150
5,000 5,000 Birmingham Baptist Med Ctr AL Spl
Care Fac Fin Auth Rev (MBIA Insd) 5.750 11/15/10 5,361,950 5,361,950
4,000 4,000 Jefferson Cnty, AL Ltd Oblig Sch Wt
Ser A 5.250 01/01/23 4,300,320 4,300,320
4 4 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svc Co Proj
Rfdg 6.950 01/01/20 22 22
----------------------------------------
10,728,442 10,728,442
----------------------------------------
ARIZONA 4.3%
5,000 5,000 Arizona Sch Fac Brd Ctfs Ser B (FSA
Insd) 5.250 09/01/19 5,592,550 5,592,550
3,000 3,000 Arizona St Transn Brd Hwy Rev Ser B 5.250 07/01/19 3,328,260 3,328,260
5,250 5,250 Arizona Tourism & Sports Auth Tax
Rev Multipurpose Stad Fac Ser A
(MBIA Insd) 5.375 07/01/23 5,885,302 5,885,302
2,000 2,000 Phoenix, AZ Civic Impt Corp Arpt
Rev Jr Lien (AMT) (FGIC Insd) 5.375 07/01/29 2,039,760 2,039,760
2,280 765 3,045 Pima Cnty, AZ Indl Dev Auth Indl
Rev Lease Oblig Irvington Proj
Tucson Ser A Rfdg (FSA Insd) 7.250 07/15/10 2,383,512 799,731 3,183,243
1,300 1,300 Tempe, AZ Excise Tax Rev Rfdg 5.250 07/01/18 1,447,927 1,447,927
----------------------------------------
13,861,364 7,615,678 21,477,042
----------------------------------------
ARKANSAS 0.7%
1,930 1,930 Arkansas St Cap Apprec College Svg * 06/01/16 1,209,782 1,209,782
2,305 2,305 Arkansas St Dev Fin Auth Rev St Agy
Fac Donaghey Plaza Proj (FSA Insd) 5.000 06/01/34 2,408,886 2,408,886
----------------------------------------
3,618,668 3,618,668
----------------------------------------
CALIFORNIA 19.9%
6,215 6,215 ABC, CA Uni Sch Dist Cap Apprec
(FGIC Insd) * 08/01/34 1,404,776 1,404,776
6,000 6,000 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Pub Impt Proj Ser C (FSA
Insd) * 09/01/19 3,097,680 3,097,680
5,000 5,000 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Pub Impt Proj Ser C (FSA
Insd) * 09/01/32 1,234,800 1,234,800
2,095 2,095 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Pool Ser A (XLCA Insd) 5.250 09/01/35 2,237,167 2,237,167
8 8 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser B (AMT)
(GNMA Collateralized) 7.750 09/01/26 7,544 7,544
1,000 1,000 California St (AMBAC Insd) 5.125 10/01/27 1,057,450 1,057,450
10,000 10,000 California St (MBIA Insd) 5.500 03/01/17 11,111,200 11,111,200
3,000 3,000 California St Dept Wtr Res Ser A 5.875 05/01/16 3,428,250 3,428,250
2,800 2,800 California St Dept Wtr Res Pwr
Ser A (AMBAC Insd) 5.500 05/01/16 3,177,468 3,177,468
5,000 5,000 California St Pub Wks Brd Dept Gen
Svc Cap East End A (AMBAC Insd) 5.125 12/01/21 5,390,500 5,390,500
2,000 2,000 4,000 California St Pub Wks Brd Lease Rev
Dept of Corrections St Prisons
Ser A Rfdg (AMBAC Insd) (b) 5.000 12/01/19 2,210,680 2,210,680 4,421,360
6,000 6,000 California St Pub Wks Brd Lease Rev
Dept of Corrections St Prisons
Ser A Rfdg (AMBAC Insd) 5.250 12/01/13 6,844,500 6,844,500
2,500 2,500 California St Pub Wks Brd Lease Rev
Dept of Mental Hlth Coalinga Ser A 5.000 06/01/24 2,614,625 2,614,625
5,000 5,000 California St Rfdg 5.000 02/01/19 5,323,050 5,323,050
2,000 2,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser A (MBIA Insd) 5.000 09/01/33 2,091,000 2,091,000
30,000 30,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Ser A Rfdg * 01/15/22 11,384,700 11,384,700
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
1,000 1,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Sr Lien Ser A
(Prerefunded @ 01/01/07) 6.500 01/01/32 1,078,580 1,078,580
3,350 3,350 Imperial Irr Dist CA Ctf Part Elec
Sys Proj (FSA Insd) (c) 5.250 11/01/19 3,709,823 3,709,823
3,950 3,950 Los Angeles, CA Dept Wtr & Pwr
Ser A (FGIC Insd) 5.125 07/01/40 4,123,049 4,123,049
5,500 5,500 Port Oakland, CA Ser L (AMT) (FGIC
Insd) 5.000 11/01/32 5,637,005 5,637,005
9,000 9,000 Riverside Cnty, CA Asset Leasing
Corp Leasehold Rev Riverside Cnty
Hosp Proj (MBIA Insd) * 06/01/21 4,237,740 4,237,740
5,700 5,700 Sacramento, CA City Fin Auth Rev
Comb Proj B (MBIA Insd) * 11/01/15 3,626,112 3,626,112
13,880 13,880 San Joaquin Hills, CA Transn
Corridor Agy Toll Rd Rev Cap Apprec
Ser A Rfdg (MBIA Insd) * 01/15/28 4,422,446 4,422,446
10,225 10,225 Santa Ana, CA Uni Sch Dist Ctf Part
Cap Apprec Fin Proj (FSA Insd) * 04/01/32 2,539,788 2,539,788
5,755 5,755 Southwestern Cmnty College Cap
Apprec Election 2000 (FGIC Insd) * 08/01/29 1,689,783 1,689,783
2,720 2,720 Washington, CA Uni Sch Dist Yolo
Cnty Election 2004 Ser A (FGIC
Insd)(c) 5.250 08/01/19 3,025,701 3,025,701
----------------------------------------
71,715,031 27,201,066 98,916,097
----------------------------------------
COLORADO 6.3%
4,340 4,340 Adams & Arapahoe Cntys, CO Jt Sch
Dist Ser A (FSA Insd) 5.250 12/01/18 4,845,133 4,845,133
4,290 4,290 Adams & Arapahoe Cntys, CO Jt Sch
Dist Ser C (Prerefunded @ 12/01/06)
(MBIA Insd) 5.750 12/01/08 4,630,497 4,630,497
3,000 1,000 4,000 Arapahoe Cnty, CO Cap Impt Tr Fd
Rev E-470 Proj (Prerefunded @
Hwy 08/31/05) (a) 7.000 08/31/26 3,174,300 1,058,100 4,232,400
1,000 1,000 Arapahoe Cnty, CO Cap Impt Tr Fd
Hwy Rev E-470 Proj Ser B
(Prerefunded @ 08/31/05) (a) 6.950 08/31/20 1,057,820 1,057,820
9,000 5,000 14,000 Arapahoe Cnty, CO Cap Impt Tr Fd
Hwy Rev E-470 Proj Ser C
(Prerefunded @ 08/31/05) * 08/31/26 1,855,440 1,030,800 2,886,240
1,475 1,475 Colorado Ed & Cultural Fac Auth Rev
Charter Sch Proj Impt & Rfdg (XLCA
Insd) 5.250 08/15/19 1,631,704 1,631,704
2,000 2,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A (Escrowed to
Maturity) 5.500 03/01/32 2,261,240 2,261,240
1,000 1,000 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth 6.500 11/15/31 1,111,170 1,111,170
165 165 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser A2 (AMT) 7.250 05/01/27 166,685 166,685
109 109 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1 (AMT) 7.650 11/01/26 110,184 110,184
6,495 6,495 Colorado Springs, CO Utils Rev
(Escrowed to Maturity) 6.600 11/15/18 8,231,308 8,231,308
----------------------------------------
26,055,738 5,108,643 31,164,381
----------------------------------------
CONNECTICUT 1.5%
5,000 5,000 Connecticut St Ser C (FGIC Insd)(b) 5.000 04/01/22 5,418,200 5,418,200
1,010 1,010 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144-A Private
Placement (d) 6.400 09/01/11 1,072,923 1,072,923
990 990 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144-A Private
Placement (Prerefunded @ 09/01/07)
(d) 6.400 09/01/11 1,085,050 1,085,050
----------------------------------------
5,418,200 2,157,973 7,576,173
----------------------------------------
----------------------------------------
DISTRICT OF COLUMBIA 1.1%
5,000 5,000 Metropolitan Washington DC Arpt
Auth Sys Ser A (AMT) (FGIC Insd) 5.250 10/01/32 5,220,150 5,220,150
----------------------------------------
FLORIDA 7.5%
2,500 2,500 Dade Cnty, FL Wtr & Swr Sys Rev
(FGIC Insd) 5.250 10/01/21 2,672,100 2,672,100
5,000 5,000 Escambia Cnty, FL Hlth Fac Auth
Rev (AMBAC Insd) 5.950 07/01/20 5,087,700 5,087,700
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
3,980 3,980 Jacksonville, FL Port Auth (AMT)
(MBIA Insd) 5.700 11/01/30 4,373,741 4,373,741
2,780 2,780 Jacksonville, FL Port Auth
(Prerefunded @ 11/01/10) (AMT)
(MBIA Insd) 5.700 11/01/30 3,135,673 3,135,673
3,000 3,000 Lake Cnty, FL Sch Brd Ctf Part
(AMBAC Insd) 5.375 07/01/17 3,352,080 3,352,080
11,500 11,500 Miami-Dade Cnty, FL Aviation Rev
Miami Intl Arpt (AMT) (FGIC Insd) 5.375 10/01/32 12,128,130 12,128,130
5,000 5,000 Ocoee, FL Wtr & Swr Sys Rev Impt &
Rfdg (AMBAC Insd) 5.125 10/01/33 5,289,950 5,289,950
995 995 Pinellas Cnty, FL Hsg Fin Auth
Single Family Mtg Rev Multi Cnty
Pgm Ser A (AMT) (GNMA
Collateralized) 6.700 02/01/28 1,015,636 1,015,636
----------------------------------------
28,412,980 8,642,030 37,055,010
----------------------------------------
GEORGIA 4.6%
2,000 2,000 Atlanta, GA Wtr & Wastewtr Rev (FSA
Insd) 5.000 11/01/21 2,174,360 2,174,360
5,000 5,000 Georgia Muni Elec Auth Pwr Rev
Ser B (Escrowed to Maturity) (FGIC
Insd) 5.700 01/01/19 5,926,150 5,926,150
2,000 2,000 Georgia St Rd & Twy Auth Rev 5.000 10/01/19 2,186,060 2,186,060
2,700 2,700 Marietta, GA Dev Auth Rev First Mtg
Life College Ser B (FSA Insd) (c) 5.375 09/01/09 2,797,524 2,797,524
2,205 2,205 Municipal Elec Auth GA Comb Cycle
Proj Ser A (MBIA Insd) 5.000 11/01/20 2,394,123 2,394,123
4,995 1,745 6,740 Municipal Elec Auth GA Comb Turbine
Proj Ser A (MBIA Insd) 5.250 11/01/20 5,540,654 1,935,624 7,476,278
5 5 Municipal Elec Auth GA Comb Turbine
Proj Ser A (Prerefunded @ 11/01/12)
(MBIA Insd) 5.250 11/01/20 5,657 5,657
----------------------------------------
16,664,108 6,296,044 22,960,152
----------------------------------------
HAWAII 2.3%
10,430 10,430 Hawaii St Dept Budget & Fin Spl
Purp Rev Hawaiian Elec Co Inc Ser A
(AMT) (MBIA Insd) 5.650 10/01/27 11,405,205 11,405,205
----------------------------------------
ILLINOIS 7.6%
1,710 1,710 Bolingbrook, IL Cap Apprec Ser C
Rfdg (MBIA Insd) (c) * 01/01/29 522,405 522,405
5,400 5,400 Chicago, IL Brd of Ed Cap Apprec
Sch Reform Ser B-1 (FGIC Insd) * 12/01/28 1,667,358 1,667,358
3,500 3,500 Chicago, IL Cap Apprec (Prerefunded
@ 07/01/05) (AMBAC Insd) * 01/01/17 1,670,375 1,670,375
6,000 6,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd) (e) 0/5.750 01/01/29 6,076,200 6,076,200
3,180 3,180 Illinois Hlth Fac Auth Rev
Children's Mem Hosp (MBIA Insd) 6.250 08/15/13 3,729,599 3,729,599
1,485 1,485 Illinois Hlth Fac Auth Rev
Evangelical Hosp Ser A Rfdg (FSA
Insd) 6.750 04/15/17 1,832,698 1,832,698
825 825 Illinois Hlth Fac Auth Rev
Evangelical Hosp Ser C (FSA Insd) 6.750 04/15/17 1,018,166 1,018,166
1,000 1,000 Illinois Hlth Fac Auth Rev Highland
Park Hosp Proj Ser A (Prerefunded @
10/01/07) (MBIA Insd) 5.750 10/01/17 1,101,600 1,101,600
2,070 2,070 Northern IL Univ Ctf Part Hoffman
Estates Ctr Proj (FSA Insd) 5.400 09/01/16 2,341,418 2,341,418
5,000 5,000 Regional Trans Auth IL Ser A (AMBAC
Insd) 8.000 06/01/17 6,994,600 6,994,600
10,000 10,000 Will Cnty, IL Sch Dist No 122 Ser B
Rfdg (FGIC Insd) 5.250 11/01/20 11,042,200 11,042,200
----------------------------------------
35,806,856 2,189,763 37,996,619
----------------------------------------
INDIANA 0.3%
1,500 1,500 Indiana St Dev Fin Auth Rev Exempt
Fac Conv Rfdg (AMT) 5.950 08/01/30 1,542,270 1,542,270
----------------------------------------
KANSAS 1.6%
3,430 3,430 Kansas St Dev Fin Auth Rev KS Proj
Ser N (AMBAC Insd) (c) 5.250 10/01/20 3,770,359 3,770,359
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
3,615 3,615 Kansas St Dev Fin Auth Rev KS Proj
Ser N (AMBAC Insd) (c) 5.250 10/01/21 3,957,594 3,957,594
----------------------------------------
7,727,953 7,727,953
----------------------------------------
KENTUCKY 0.1%
500 500 Mount Sterling, KY Lease Rev KY
League Cities Fdg Ser B 6.100 03/01/18 601,420 601,420
----------------------------------------
LOUISIANA 6.2%
5,000 5,000 Lafayette, LA Util Rev (MBIA Insd) 5.250 11/01/21 5,583,650 5,583,650
5,970 5,970 Louisiana Loc Govt Environment
Southeastn LA Student Hsg A (MBIA
Insd) (c) 5.250 08/01/24 6,572,373 6,572,373
1,400 1,400 Louisiana Pub Fac Auth Rev Hlth Fac
Glen Retirement Ser A 6.700 12/01/25 1,449,476 1,449,476
8,065 8,065 Louisiana St Office Fac Corp LA St
Cap Complex Pgm (MBIA Insd) (c) 5.000 11/01/20 8,688,989 8,688,989
2,000 2,000 New Orleans, LA Rfdg (FGIC Insd) 5.500 12/01/21 2,366,180 2,366,180
6,000 6,000 Saint Charles Parish, LA Solid
Waste Disp Rev LA Pwr & Lt Co Proj
(AMT) (FSA Insd) (b) 7.050 04/01/22 6,020,520 6,020,520
----------------------------------------
26,865,532 3,815,656 30,681,188
----------------------------------------
MARYLAND 2.2%
5,000 5,000 Maryland St Econ Dev Corp MD
Aviation Admin Fac (AMT) (FSA Insd) 5.375 06/01/20 5,465,450 5,465,450
1,000 1,000 Maryland St Econ Dev Corp Univ MD
College Pk Proj 5.625 06/01/35 1,038,570 1,038,570
4,000 4,000 Maryland St Trans Auth Arpt
Baltimore/WA Intl Arpt B (AMT)
(AMBAC Insd) 5.125 03/01/24 4,237,400 4,237,400
----------------------------------------
9,702,850 1,038,570 10,741,420
----------------------------------------
MASSACHUSETTS 4.3%
2,500 2,500 Massachusetts Bay Trans Auth Ser A 5.000 07/01/32 2,597,975 2,597,975
1,200 1,200 Massachusetts Bay Tran Auth MA Gen
Tran Sys Ser A Rfdg 6.250 03/01/12 1,419,024 1,419,024
1,000 1,000 Massachusetts St Hlth & Ed Fac Auth
Rev Saint Mem Med Ctr Ser A 6.000 10/01/23 1,006,840 1,006,840
1,750 1,750 Massachusetts St Hlth & Ed Fac Auth
Rev Hlthcare Sys Covenant Hlth 6.000 07/01/31 1,869,963 1,869,963
925 925 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT) 6.900 12/01/29 973,590 973,590
925 925 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham (AMT) 6.950 12/01/35 974,016 974,016
5,000 5,000 Massachusetts St Wtr Pollutn
Abatement Tr Pool Pgm Bds Ser 10 5.000 08/01/21 5,443,500 5,443,500
7,050 7,050 Massachusetts St Wtr Res Auth Gen
Ser J (FSA Insd) 5.000 08/01/32 7,333,692 7,333,692
----------------------------------------
11,859,044 9,759,556 21,618,600
----------------------------------------
MICHIGAN 5.0%
5,000 2,000 7,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No. 1 Proj
Ser C1 (Prerefunded @ 07/01/06) 6.250 07/01/25 5,367,850 2,147,140 7,514,990
3,185 3,185 Detroit, MI Wtr Supply Sys Rev Sr
Lien Ser A (MBIA Insd) (c) 5.250 07/01/20 3,535,732 3,535,732
2,790 2,790 Detroit, MI Wtr Supply Sys Rev Sr
Lien Ser C Rfdg (MBIA Insd) (c) 5.250 07/01/19 3,102,145 3,102,145
2,000 2,000 Grand Rapids, MI Wtr Supply (FGIC
Insd) 5.750 01/01/15 2,271,700 2,271,700
2,075 2,075 South Lyon, MI Cmnty Sch Bldg &
Site (FGIC Insd) 5.250 05/01/18 2,304,184 2,304,184
2,285 2,285 Taylor, MI Bldg Auth (AMBAC 6.000 03/01/13 2,703,863 2,703,863
Insd) (c)
3,090 3,090 Troy, MI Downtown Dev Auth Dev Rfdg
(MBIA Insd) 5.500 11/01/15 3,498,189 3,498,189
----------------------------------------
12,401,771 12,529,032 24,930,803
----------------------------------------
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI 1.2%
2,000 2,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj 5.875 04/01/22 2,006,220 2,006,220
3,000 3,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj
Rfdg 5.900 05/01/22 3,030,240 3,030,240
840 840 Mississippi Home Corp Single Family
Rev Mtg Ser C (AMT) (GNMA
Collateralized) 7.600 06/01/29 872,432 872,432
----------------------------------------
2,006,220 3,902,672 5,908,892
----------------------------------------
MISSOURI 3.2%
2,000 2,000 Curators Univ MO Sys Fac Rev Ser B
Rfdg (c) 5.000 11/01/20 2,171,540 2,171,540
2,195 2,195 Missouri St Hlth & Ed Fac Rev Univ
MO Columbia Arena Proj (c) 5.000 11/01/16 2,398,191 2,398,191
4,000 4,000 Platte Cnty, MO Indl Dev Auth Trans
Rev 4.500 12/01/24 4,050,720 4,050,720
3,000 3,000 Platte Cnty, MO Neighborhood Impt
Parkville Ser B (MBIA Insd) (f) 5.000 02/01/25 3,184,260 3,184,260
4,000 4,000 Saint Louis, MO Arpt Rev Arpt Dev
Pgm Ser A (MBIA Insd) 5.250 07/01/31 4,232,800 4,232,800
----------------------------------------
6,448,911 9,588,600 16,037,511
----------------------------------------
NEVADA 4.1%
8,000 8,000 Clark Cnty, NV Arpt Rev Sub Lien
Ser A-2 (FGIC Insd) 5.000 07/01/36 8,294,640 8,294,640
4,000 3,000 7,000 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser A (AMT)
(AMBAC Insd) 5.250 07/01/34 4,196,720 3,147,540 7,344,260
4,375 4,375 Las Vegas Valley, NV Wtr Dist Ser B
Rfdg (MBIA Insd) 5.000 06/01/27 4,578,087 4,578,087
375 375 Nevada Hsg Div Single Family Pgm
Mezz B (AMT) (FHA/VA Gtd) 6.550 10/01/12 376,890 376,890
----------------------------------------
12,868,250 7,725,627 20,593,877
----------------------------------------
NEW HAMPSHIRE 0.7%
1,000 1,000 New Hampshire Hlth & Ed Fac Auth
Rev Derryfield Sch 7.000 07/01/30 1,040,300 1,040,300
1,400 1,400 New Hampshire Hlth & Ed Fac
Hlthcare Sys Covenant Hlth 5.500 07/01/34 1,456,588 1,456,588
1,000 1,000 New Hampshire St Bus Fin Auth Wtr
Fac Rev Pennichuck Wtrwks Inc (AMT)
(AMBAC Insd) 6.300 05/01/22 1,093,500 1,093,500
----------------------------------------
3,590,388 3,590,388
----------------------------------------
NEW JERSEY 9.0%
5,000 5,000 Essex Cnty, NJ Impt Auth Rev Cnty
Gtd Proj Consldtn Rfdg (MBIA Insd) 5.125 10/01/20 5,491,200 5,491,200
1,400 500 1,900 New Jersey Econ Dev Auth Rev
Cigarette Tax 5.750 06/15/29 1,487,948 531,410 2,019,358
2,210 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 2,337,539 2,337,539
4,350 4,350 New Jersey Econ Dev Wtr NJ Amern
Wtr Co Inc Ser A (AMT) (FGIC Insd) 5.250 07/01/38 4,491,419 4,491,419
1,000 1,000 New Jersey Hlthcare Fac Fin Auth
Rev Cap Hlth Sys Oblig Grp Ser A 5.375 07/01/33 1,037,280 1,037,280
1,695 1,695 New Jersey Hlthcare Fac Fin Auth
Rev Gen Hosp Ctr at Passaic
(Escrowed to Maturity) (FSA Insd) 6.000 07/01/06 1,748,342 1,748,342
2,500 2,500 New Jersey Hlthcare Fac Fin Auth
Rev Gen Hosp Ctr at Passaic
(Escrowed to Maturity) (FSA Insd) 6.750 07/01/19 3,212,450 3,212,450
10,000 10,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd) 5.250 09/01/20 11,084,100 11,084,100
3,830 3,830 New Jersey St Trans Tr Fd Auth
Trans Sys Ser A (FGIC Insd) 5.250 06/15/19 4,369,034 4,369,034
2,000 2,000 New Jersey St Tpk Auth Tpk Rev Ser
C-1 (AMBAC Insd) 5.000 01/01/35 2,077,900 2,077,900
6,750 6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin
Auth Rev Pollutn Ctl Pub Svc Elec &
Gas Ser A (AMT) (MBIA Insd) 5.450 02/01/32 6,821,685 6,821,685
----------------------------------------
38,706,178 5,984,129 44,690,307
----------------------------------------
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO 0.3%
1,500 1,500 Jicarilla, NM Apache Nation Rev Adj
Ser A (Acquired 10/23/03, Cost
$1,514,910) (g) 5.000 09/01/18 1,576,290 1,576,290
----------------------------------------
NEW YORK 15.9%
7,000 7,000 Metropolitan Trans Auth NY Ser A 7,525,420 7,525,420
Rfdg (FGIC Insd) 5.250 11/15/31
3,500 3,500 New York City Ser C 5.500 08/01/13 3,943,135 3,943,135
7,500 7,500 New York City Ser E (FSA Insd) 5.000 11/01/20 8,185,650 8,185,650
3,000 3,000 New York City Ser G (Prerefunded @ 3,156,420 3,156,420
02/01/06) (b) 6.000 02/01/11
5,000 5,000 New York City Ser H (MBIA Insd) (c) 5.250 03/15/14 5,567,200 5,567,200
6,000 6,000 New York City Transitional Fin Auth
Rev Future Tax Secd Ser A Rfdg (e) 5.500/14.000 11/01/26 6,735,960 6,735,960
8,240 8,240 New York City Transitional Future
Tax Secd Ser C Rfdg (AMBAC Insd) 5.250 08/01/18 9,161,067 9,161,067
7,575 7,575 New York St Dorm Auth Rev City Univ
Sys Con Ser A 5.625 07/01/16 8,803,589 8,803,589
3,845 3,845 New York St Dorm Auth Rev Secd Hosp
Gen Hosp Rfdg 5.750 02/15/20 4,336,007 4,336,007
2,175 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 2,222,545 2,222,545
3,000 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 3,064,830 3,064,830
3,000 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 3,065,520 3,065,520
2,310 2,310 New York St Med Care Fac Fin Agy
Rev Saint Peter's Hosp Proj Ser A
(AMBAC Insd) 5.375 11/01/13 2,338,251 2,338,251
775 775 New York St Ser G 5.750 02/01/14 809,526 809,526
4,225 4,225 New York St Ser G (Prerefunded @
02/01/06) 5.750 02/01/14 4,434,898 4,434,898
5,000 5,000 New York St Urban Dev Corp Rev St
Fac Rfdg 5.700 04/01/20 5,930,950 5,930,950
----------------------------------------
62,204,453 17,076,515 79,280,968
----------------------------------------
NORTH CAROLINA 0.3%
1,500 1,500 North Carolina Eastn Muni Pwr Agy
Pwr Sys Rev Ser D 6.700 01/01/19 1,691,505 1,691,505
----------------------------------------
OHIO 5.6%
3,000 3,000 Cincinnati, OH City Sch Dist Sch
Impt (FSA Insd) 5.250 06/01/18 3,332,940 3,332,940
1,150 1,000 2,150 Cuyahoga Cnty, OH Hosp Fac Rev
Canton Inc Proj 7.500 01/01/30 1,302,456 1,132,570 2,435,026
2,000 2,000 Cuyahoga Cnty, OH Multi-Family Rev
Hsg Dale Bridge Apt (AMT) (GNMA
Collateralized) 6.600 10/20/30 2,059,500 2,059,500
1,000 1,000 Dayton, OH Arpt Rev James M Cox
Dayton Ser C Rfdg (AMT) (Radian
Insd) 5.250 12/01/27 1,036,760 1,036,760
3,540 3,540 Franklin Cnty, OH Hosp Rev & Impt
Doctor's Hosp Proj Rfdg (Escrowed
to Maturity) 5.875 12/01/23 3,579,790 3,579,790
1,500 1,500 Mahoning Cnty, OH Hosp Fac Forum
Hlth Oblig Group Ser A 6.000 11/15/32 1,611,495 1,611,495
1,165 1,165 Marion Cnty, OH Rev Cmnty Hosp Impt
& Rfdg 6.100 05/15/06 1,204,435 1,204,435
5,130 5,130 Muskingum Cnty, OH Hosp Fac Rev
Bethesda Care Sys Impt & Rfdg
(Connie Lee Insd) (c) 6.250 12/01/10 5,553,482 5,553,482
2,000 2,000 Ohio St Wtr Dev Auth Pollutn Ctl
Fac Rev OH Edison Co Proj Rfdg 5.950 05/15/29 2,014,800 2,014,800
3,170 3,170 Pickerington, OH Loc Sch Dist Cap
Apprec Sch Fac Contract (FGIC Insd) * 12/01/11 2,497,009 2,497,009
1,340 1,340 Toledo Lucas Cnty, OH Port Auth Dev
Rev Northwest OH Bd Fd Ser C (AMT)
(c) 6.600 11/15/15 1,419,435 1,419,435
850 850 Toledo Lucas Cnty, OH Port Auth
Northwest Bd Fd Ser A (AMT) 6.000 05/15/11 918,374 918,374
----------------------------------------
17,540,958 10,122,088 27,663,046
----------------------------------------
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
OKLAHOMA 1.3%
1,500 1,500 Jenks, OK Aquarium Auth Rev First
Mtg (Prerefunded @ 07/01/10) (MBIA
Insd) 6.100 07/01/30 1,743,195 1,743,195
1,755 1,755 Tulsa Cnty, OK Pub Fac Auth Cap
Impt Rev (AMBAC Insd) 6.250 11/01/22 2,040,977 2,040,977
2,785 2,785 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Ctr Proj Rfdg
(Escrowed to Maturity) (Connie Lee
Insd) (c) 6.250 06/01/06 2,924,696 2,924,696
----------------------------------------
1,743,195 4,965,673 6,708,868
----------------------------------------
OREGON 3.3%
2,010 2,010 Emerald Peoples Util Dist OR Rfdg
(FGIC Insd) (c) 7.350 11/01/09 2,398,292 2,398,292
5,000 5,000 Oregon Hlth Sciences Univ Insd
Ser A (MBIA Insd) 5.250 07/01/22 5,533,300 5,533,300
2,745 2,745 Oregon St Dept Admin Ser A
(Prerefunded @ 11/01/05)(MBIA Insd) 5.250 11/01/10 2,835,887 2,835,887
5,000 5,000 Oregon St Dept Admin Ser C Rfdg
(MBIA Insd) 5.250 11/01/18 5,522,050 5,522,050
----------------------------------------
13,891,237 2,398,292 16,289,529
----------------------------------------
PENNSYLVANIA 3.4%
5,000 5,000 Harrisburg, PA Auth Res Gtd Sub Ser
D-2 (Variable Rate Coupon)
(FSA Insd) 5.000 12/01/33 5,478,650 5,478,650
2,000 2,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D(AMT) 7.150 12/01/18 2,046,940 2,046,940
2,535 2,000 4,535 Pennsylvania St Higher Ed Fac Auth
Rev UPMC Hlth Sys Ser A 6.250 01/15/17 2,901,662 2,289,280 5,190,942
1,000 905 1,905 Pennsylvania St Higher Ed Fac Auth
Rev UPMC Hlth Sys Ser A 6.250 01/15/18 1,142,340 1,033,818 2,176,158
1,370 1,370 Philadelphia, PA Hosp & Higher Ed
Fac Auth Rev Cmnty College Ser B
Rfdg (MBIA Insd) (c) 6.500 05/01/08 1,527,934 1,527,934
465 465 Ridley Park, PA Hosp Auth Rev
Taylor Hosp Ser A (Escrowed to
Maturity) 6.000 12/01/05 477,137 477,137
----------------------------------------
11,527,723 5,370,038 16,897,761
----------------------------------------
SOUTH CAROLINA 1.6%
1,015 1,015 Rock Hill, SC Util Sys Rev Comb Ser
C Rfdg (FSA Insd) (c) 5.000 01/01/11 1,112,724 1,112,724
6,500 6,500 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser A
(AMBAC Insd) 5.200 11/01/27 6,971,120 6,971,120
----------------------------------------
8,083,844 8,083,844
----------------------------------------
SOUTH DAKOTA 0.2%
1,000 1,000 South Dakota St Hlth & Ed Fac Auth
Rev Childrens Care Hosp Rfdg 6.125 11/01/29 1,090,920 1,090,920
----------------------------------------
TENNESSEE 2.1%
1,270 1,270 Elizabethton, TN Hlth & Ed Fac Brd
Rev Hosp First Mtg Ser B Impt &
Rfdg 8.000 07/01/33 1,525,168 1,525,168
12,525 12,525 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev Cap Apprec First Mtg Ser A
Rfdg (MBIA Insd) * 7/01/26 4,422,828 4,422,828
2,500 1,000 3,500 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Ser A Rfdg (MBIA
Insd) 7.500 07/01/25 3,178,650 1,271,460 4,450,110
----------------------------------------
7,601,478 2,796,628 10,398,106
----------------------------------------
TEXAS 15.1%
1,585 790 2,375 Brazos River Auth TX Pollutn Ctl
Rev Adj TXU Elec Co Proj Ser C Rfdg
(AMT) (a) 5.750 05/01/36 1,714,732 854,661 2,569,393
930 930 Brownsville, TX Util Sys Rev
(Escrowed to Maturity) 7.375 01/01/10 1,053,941 1,053,941
1,515 1,515 Cameron Cnty, TX Ctf Oblig (AMBAC
Insd) (c) 5.750 02/15/16 1,690,831 1,690,831
5,000 3,000 8,000 Dallas-Fort Worth, TX Intl Arpt Rev
Jt Ser A Impt & Rfdg (AMT) (FGIC
Insd) 5.500 11/01/31 5,286,400 3,171,840 8,458,240
2,345 2,345 Denton Cnty, TX Perm Impt (c) 5.500 07/15/19 2,603,700 2,603,700
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
1,000 1,000 Harris Cnty, TX Hlth Fac Dev Mem
Hermann Hlthcare Ser A 6.375 06/01/29 1,100,510 1,100,510
5,000 5,000 Harris Cnty, TX Sr Lien Toll Rd
Rfdg (FSA Insd) 5.125 08/15/32 5,233,300 5,233,300
2,945 2,945 Houston, TX Arpt Sys Rev (Escrowed
to Maturity) 9.500 07/01/10 3,545,486 3,545,486
4,655 4,655 Houston, TX Arpt Sys Rev Sub Lien
(FSA Insd) 5.500 07/01/15 5,242,182 5,242,182
3,000 3,000 Houston, TX Arpt Sys Rev Sub Lien
Ser A (AMT) (FSA Insd) 5.625 07/01/30 3,267,180 3,267,180
3,920 3,920 Lower, CO Riv Auth TX Svc Corp Proj
Rfdg (FGIC Insd) 5.000 05/15/33 4,033,641 4,033,641
5,000 5,000 Matagorda Cnty, TX Navig Dist No 1
Rev Houston Lt Rfdg (AMT) (AMBAC
Insd) (a) 5.125 11/01/28 5,416,750 5,416,750
1,000 1,000 Mesquite, TX Hlth Fac Dev Corp
Retirement Fac Christian Care Ctr
Ser A 7.625 02/15/28 1,053,440 1,053,440
2,000 2,000 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj 7.250 01/01/31 2,005,340 2,005,340
3,325 3,325 North Cent TX Hlth Fac Dev Hosp
Baylor Hlthcare Sys Proj Ser A 5.125 05/15/29 3,419,164 3,419,164
3,000 3,000 Prosper,TX Indpt Sch Dist (PSF Gtd) 5.500 08/15/33 3,240,690 3,240,690
5,000 2,000 7,000 San Antonio, TX Elec & Gas Sys Rfdg 5.375 02/01/16 5,557,900 2,223,160 7,781,060
3,960 3,960 Stafford, TX Econ Dev Corp (FGIC
Insd) 5.500 09/01/30 4,401,421 4,401,421
1,990 1,990 Stafford, TX Econ Dev Corp (FGIC
Insd) (c) 6.000 09/01/19 2,396,458 2,396,458
1,510 1,510 Texas St Wtr Fin Assistance 5.500 08/01/35 1,644,571 1,644,571
5,000 5,000 Wylie, TX Indpt Sch Dist Rfdg (PSF
Gtd) 5.000 08/15/30 5,150,150 5,150,150
----------------------------------------
54,432,370 20,875,078 75,307,448
----------------------------------------
UTAH 0.6%
4,950 4,950 Intermountain Pwr Agy UT Pwr Supply
Rev Ser A Rfdg (Escrowed to
Maturity) (FGIC Insd) * 07/01/17 2,825,510 2,825,510
----------------------------------------
VIRGINIA 0.4%
1,595 1,595 Richmond, VA Indl Dev Auth Govt Fac
Rev Bds (AMBAC Insd) (c) 5.000 07/15/16 1,784,789 1,784,789
----------------------------------------
WASHINGTON 6.1%
5,000 5,000 Clark Cnty, WA Sch Dist 114 (FSA
Insd) 5.250 06/01/19 5,551,150 5,551,150
3,630 3,630 King City, WA Ser B (Prerefunded @
12/01/07) 5.900 12/01/14 4,033,293 4,033,293
1,370 1,370 King Cnty, WA Ser B (Prerefunded @
12/01/07) 5.900 12/01/14 1,522,207 1,522,207
2,245 2,245 King Cnty, WA Ser B (Prerefunded @
12/01/07) 6.625 12/01/15 2,538,668 2,538,668
1,280 1,280 Pierce Cnty, WA Sch Dist No. 343
Dieringer Impt & Rfdg (FSA Insd) 5.000 12/01/20 1,383,475 1,383,475
4,000 4,000 Washington St Pub Pwr Supply Ser A
Rfdg (FGIC Insd) 7.000 07/01/08 4,542,960 4,542,960
10,000 10,000 Washington St Pub Pwr Supply Ser A
Rfdg (AMBAC Insd) 5.700 07/01/09 10,645,800 10,645,800
----------------------------------------
28,834,078 1,383,475 30,217,553
----------------------------------------
WEST VIRGINIA 1.2%
5,920 5,920 Harrison Cnty, WV Cnty Cmnty Solid
Waste Disp Rev West PA Pwr Co Ser C
(AMT) (AMBAC Insd) 6.750 08/01/24 6,057,344 6,057,344
----------------------------------------
WISCONSIN 1.1%
2,500 2,500 Milwaukee, WI Redev Auth Rev
Milwaukee Pub Schs (AMBAC Insd) 5.125 08/01/21 2,706,225 2,706,225
2,675 2,675 Wisconsin St Hlth & Ed Fac FH
Hlthcare Dev Inc Proj 6.250 11/15/28 2,858,853 2,858,853
----------------------------------------
2,858,853 2,706,225 5,565,078
----------------------------------------
PUERTO RICO 4.2%
7,000 6,000 13,000 Puerto Rico Comwlth Hwy & Trans
Auth Hwy Rev Ser Y Rfdg (FSA
Insd) (a) (b) 6.250 07/01/21 8,945,790 7,667,820 16,613,610
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST (VKV) -
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II (VKI)
PROFORMA PORTFOLIO OF INVESTMENTS
JANUARY 31, 2005
(UNAUDITED)
VKI-
VKV VKI PROFORMA VKI-
PAR AMOUNT PAR AMOUNT PAR AMOUNT VKV VKI PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
------------------------------------------------------------------------------------------------------------------------------------
4,000 4,000 Puerto Rico Pub Bldgs Auth Gtd Pub
Ed & Hlth Fac Ser M Rfdg
(MBIA Insd) 5.600 07/01/08 4,390,480 4,390,480
----------------------------------------
13,336,270 7,667,820 21,004,090
----------------------------------------
TOTAL LONG-TERM INVESTMENTS 158.8% 589,032,184 201,258,993 790,291,177
(Cost $732,334,946)
TOTAL SHORT-TERM INVESTMENTS 1.5% 3,800,000 3,800,000 7,600,000
(Cost $7,600,000) ---------------------------------------
TOTAL INVESTMENTS 160.3% 592,832,184 205,058,993 797,891,177
(Cost $739,934,946)
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0% 6,593,817 (1,806,682) 4,787,135
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (61.3%) (225,101,630) (80,024,143) (305,125,773)
----------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% $374,324,371 $123,228,168 $497,552,539
========================================
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) Security converts to a fixed coupon rate at a predetermined date.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) The Trust owns 100% of the bond issuance.
(d) 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.
(e) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(f) Securities purchased on a when-issued or delayed delivery basis.
(g) This security is restricted and may be resold only in transactions exempt
from registration which are normally those transactions with qualified
institutional buyers. Restricted securities comprise 0.3% 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.
FHA/VA - Federal Housing Administration/Department of Veterans Affairs
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance Corp.
PSF - Public School Fund
Radian - Radian Asset Assurance
XLCA - XL Capital Assurance Inc.
Future contracts outstanding as of January 31, 2005:
Short Contracts:
Unrealized
Contracts Appreciation/Depreciation
--------- -------------------------
U.S. Treasury Notes 10-Year Futures March 05 (Current Notional Value $112,266 per contract) 104 $ (141,791)
U.S. Treasury Notes 5-Year Futures March 05 (Current Notional Value $109,250 per contract) 1,616 (585,159)
----- --------
1,720 $ (726,950)
===== ==========
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II - VAN KAMPEN
VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2005
(UNAUDITED)
AMOUNTS IN THOUSANDS
PROFORMA-
VAN KAMPEN VAN KAMPEN VAN KAMPEN
VAN KAMPEN VALUE ADVANTAGE ADVANTAGE
MUNICIPAL OPPORTUNITY MUNICIPAL INCOME MUNICIPAL INCOME MUNICIPAL INCOME
TRUST II TRUST TRUST II ADJUSTMENTS TRUST II
----------------- ------------------ ----------------- -------------- ---------------
ASSETS:
Total Investments (Cost of $270,633,$548,302,
$191,633 and $1,010,568, respectively) $ 291,699 $ 592,832 $ 205,059 $1,089,590
Cash 59 77 198 334
Receivables:
Interest 3,453 6,955 2,261 12,669
Investment Sold 2,591 275 6,469 9,335
Variation Margin on Futures 40 94 31 165
Other 4 6 3 13
----------------- ---------------- ----------------- --------------- ------------
Total Assets 297,846 600,239 214,021 1,112,106
----------------- ---------------- ----------------- --------------- ------------
LIABILITIES:
Payable:
Investment Purchased 2,576 - 10,356 12,932
Investment Advisory Fee 137 278 94 509
Income Distributions-Common Shares 27 62 18 107
Other Affiliates 11 22 6 39
Trustees' Deferred Compensation and
Retirement Plans 257 323 237 817
Merger Cost $ 502 (2) 502
Accrued Expenses 69 128 58 255
----------------- ---------------- ----------------- --------------- ------------
Total Liabilities 3,077 813 10,769 502 15,161
Preferred Shares (including
accrued distributions) 115,021 225,102 80,024 420,147
----------------- ---------------- ----------------- --------------- ------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 179,748 $ 374,324 $ 123,228 $ (502) $ 676,798
================= ================ ================= =============== ============
Net Assets Applicable to Common Shares $ 179,748 $ 374,324 $ 123,228 $ (502)(2) $ 676,798
Common Shares Outstanding 11,681 23,555 8,176 1,559 (1) 44,971
----------------- ---------------- ----------------- ------------
Net Asset Value Per Common Share $ 15.39 $ 15.89 $ 15.07 $ 15.05
================= ================ ================= ============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value) $ 117 $ 236 $ 82 $ 15 (1)(2) $ 450
Paid in Surplus 158,834 331,229 108,295 (517)(1)(2) 597,841
Net Unrealized Appreciation 20,694 43,988 13,241 77,923
Accumulated Undistributed Net Investment Income 848 1,625 916 3,389
Accumulated Net Realized Gain/ Loss (745) (2,754) 694 (2,805)
----------------- ---------------- ----------------- --------------- ------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 179,748 $ 374,324 $ 123,228 $ (502) $ 676,798
================= ================ ================= =============== ============
PREFERRED SHARES $ 115,000 $ 225,000 $ 80,000 $ 420,000
================= ================ ================= =============== ============
NET ASSETS INCLUDING PREFERRED SHARES $ 294,748 $ 599,324 $ 203,228 $ (502) $1,096,798
================= ================ ================= =============== ============
(1) The proforma statements presume the issuance by the Van Kampen Advantage
Municipal Income Trust II of approximately 11,929,742 and 24,865,047 common
shares in exchange for the assets and liabilities of the Van Kampen Municipal
Opportunity Trust II and Van Kampen Value Municipal Income Trust, respectively.
(2) A non-recurring cost associated with this transaction of approximately
$502,000 will be incurred. The approximate cost and per share cost that will be
borne by the common shareholders are as follows:
Approximate Cost Cost Per Share
------------------ --------------
Van Kampen Municipal Opportunity Trust II $ 205,820 $ 0.02
Van Kampen Value Municipal Income Trust 105,420 0.00
Van Kampen Advantage Municipal Income Trust II 190,760 0.02
------------------
$ 502,000
------------------
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
January 31, 2005
(Unaudited)
AMOUNTS IN THOUSANDS
PROFORMA -
VAN KAMPEN VAN KAMPEN
VAN KAMPEN ADVANTAGE ADVANTAGE
MUNICIPAL OPPORTUNITY MUNICIPAL INCOME MUNICIPAL INCOME
TRUST II TRUST II ADJUSTMENTS TRUST II
--------------------- ------------------- -------------- ----------------
ASSETS:
Total Investments (Cost of $270,633,
$191,633 and $462,266, respectively) $ 291,699 $ 205,059 $ 496,758
Cash 59 198 257
Receivables:
Interest 3,453 2,261 5,714
Investment Sold 2,591 6,469 9,060
Variation Margin on Futures 40 31 71
Other 4 3 7
--------------------- ------------------- --------------- --------------
Total Assets 297,846 214,021 511,867
--------------------- ------------------- --------------- --------------
LIABILITIES:
Payable:
Investment Purchased 2,576 10,356 12,932
Investment Advisory Fee 137 94 231
Income Distributions-Common Shares 27 18 45
Other Affiliates 11 6 17
Trustees' Deferred Compensation and
Retirement Plans 257 237 494
Merger Cost $ 314 (2) 314
Accrued Expenses 69 58 127
--------------------- ------------------- --------------- --------------
Total Liabilities 3,077 10,769 314 14,160
Preferred Shares (including
accrued distributions) 115,021 80,024 195,045
--------------------- ------------------- --------------- --------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 179,748 $ 123,228 $ (314) $ 302,662
===================== =================== =============== ==============
Net Assets Applicable to Common Shares $ 179,748 $ 123,228 $ (314)(2) $ 302,662
Common Shares Outstanding 11,681 8,176 253 (1) 20,110
--------------------- ------------------- --------------
Net Asset Value Per Common Share $ 15.39 $ 15.07 $ 15.05
===================== =================== ==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value) $ 117 $ 82 $ 2 (1)(2) $ 201
Paid in Surplus 158,834 108,295 (316)(1)(2) 266,813
Net Unrealized Appreciation 20,694 13,241 33,935
Accumulated Undistributed Net Investment Income 848 916 1,764
Accumulated Net Realized Gain/ Loss (745) 694 (51)
--------------------- ------------------- --------------- --------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 179,748 $ 123,228 $ (314) $ 302,662
===================== =================== =============== ==============
PREFERRED SHARES $ 115,000 $ 80,000 $ 195,000
===================== =================== =============== ==============
NET ASSETS INCLUDING PREFERRED SHARES $ 294,748 $ 203,228 $ (314) $ 497,662
===================== =================== =============== ==============
(1) The proforma statements presume the issuance by the Van Kampen Advantage
Municipal Income Trust II of approximately 11,934,029 common shares in exchange
for the assets and liabilities of the Van Kampen Municipal Opportunity Trust II.
(2) A non-recurring cost associated with this transaction of approximately
$314,000 will be incurred. The approximate cost and per share cost that will be
borne by the common shareholders are as follows:
Approximate Cost Cost Per Share
---------------- --------------
Van Kampen Municipal Opportunity Trust II $ 141,300 $ 0.01
Van Kampen Advantage Municipal Income Trust II 172,700 0.02
---------------
$ 314,000
===============
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2005
(Unaudited)
AMOUNTS IN THOUSANDS
PROFORMA-
VAN KAMPEN VAN KAMPEN VAN KAMPEN
VALUE ADVANTAGE ADVANTAGE
MUNICIPAL INCOME MUNICIPAL INCOME MUNICIPAL INCOME
TRUST TRUST II ADJUSTMENTS TRUST II
-------------------- ------------------- --------------- ----------------
ASSETS:
Total Investments (Cost of $548,302,
$191,633 and $739,935, respectively) $ 592,832 $ 205,059 $ 797,891
Cash 77 198 275
Receivables:
Interest 6,955 2,261 9,216
Investment Sold 275 6,469 6,744
Variation Margin on Futures 94 31 125
Other 6 3 9
-------------------- ------------------- --------------- -------------
Total Assets 600,239 214,021 814,260
-------------------- ------------------- --------------- -------------
LIABILITIES:
Payable:
Investment Purchased - 10,356 10,356
Investment Advisory Fee 278 94 372
Income Distributions-Common Shares 62 18 80
Other Affiliates 22 6 28
Trustees' Deferred Compensation and
Retirement Plans 323 237 560
Merger Cost $ 364 (2) 364
Accrued Expenses 128 58 186
-------------------- ------------------- --------------- -------------
Total Liabilities 813 10,769 364 11,946
Preferred Shares (including
accrued distributions) 225,102 80,024 305,126
-------------------- ------------------- --------------- -------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 374,324 $ 123,228 $ (364) $ 497,188
==================== =================== =============== =============
Net Assets Applicable to Common Shares $ 374,324 $ 123,228 $ (364) (2) $ 497,188
Common Shares Outstanding 23,555 8,176 1,326 (1) 33,057
-------------------- ------------------- -------------
Net Asset Value Per Common Share $ 15.89 $ 15.07 $ 15.04
==================== =================== =============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value) $ 236 $ 82 $ 13 (1)(2) $ 331
Paid in Surplus 331,229 108,295 (377)(1)(2) 439,147
Net Unrealized Appreciation 43,988 13,241 57,229
Accumulated Undistributed Net Investment Income 1,625 916 2,541
Accumulated Net Realized Gain/ Loss (2,754) 694 (2,060)
-------------------- ------------------- --------------- -------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 374,324 $ 123,228 $ (364) $ 497,188
==================== =================== =============== =============
PREFERRED SHARES $ 225,000 $ 80,000 $ 305,000
==================== =================== =============== =============
NET ASSETS INCLUDING PREFERRED SHARES $ 599,324 $ 203,228 $ (364) $ 802,188
==================== =================== =============== =============
(1) The proforma statements presume the issuance by the Van Kampen Advantage
Municipal Income Trust II of approximately 24,881,570 common shares in exchange
for the assets and liabilities of the Van Kampen Value Municipal Income Trust.
(2) A non-recurring cost associated with this transaction of approximately
$364,000 will be incurred. The approximate cost and per share cost that will be
borne by the common shareholders are as follows:
Approximate Cost Cost Per Share
---------------- --------------
Van Kampen Value Municipal Income Trust $ 105,560 $ 0.00
Van Kampen Advantage Municipal Income Trust II 258,440 0.03
----------------
$ 364,000
----------------
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II - VAN KAMPEN
VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF OPERATIONS
For the Twelve Months Ended January 31, 2005
(Unaudited)
Amounts in thousands
Proforma-
Van Kampen
Van Kampen Van Kampen Van Kampen Advantage
Municipal Value Advantage Municipal
Opportunity Municipal Income Municipal Income Income
Trust II Trust Trust II Adjustments Trust II
------------------- ------------------ ---------------- -------------- ----------
INVESTMENT INCOME:
Interest $ 14,499 $ 29,473 $ 10,092 $ 54,064
------------------ ------------------ ------------------- ---------- ----------
EXPENSES:
Investment Advisory Fee 1,706 3,468 1,177 6,351
Preferred Share Maintenance 352 639 233 $ (121) (1) 1,103
Trustee's Fees and Related Expenses 68 99 59 (119) (2) 107
Administration Fee 48 98 33 - 179
Legal 38 63 27 (76) (1) 52
Custody 17 37 13 (6) (1) 61
Other 179 253 149 (220) (1) 361
------------------- ------------------ ------------------ ----------- ---------
Total Expenses 2,408 4,657 1,691 (542) 8,214
------------------- ------------------ ------------------ ----------- ---------
NET INVESTMENT INCOME $ 12,091 $ 24,816 $ 8,401 $ 542 $ 45,850
=================== ================== ================== =========== ==========
REALIZED AND UNREALIZED GAIN/ LOSS:
Realized Gain/ Loss:
Investments $ 841 $ 1,960 $ 2,863 $ 5,664
Futures (885) (1,896) (661) (3,442)
------------------ ------------------ ------------------- ---------- ----------
Net Realized Gain/Loss (44) 64 2,202 2,222
------------------ ------------------ ------------------- ---------- ----------
Unrealized Appreciation/Depreciation
Beginning of the Period 18,303 40,211 13,846 72,360
End of the Period 20,694 43,988 13,241 77,923
------------------ ------------------ ------------------- ---------- ----------
Net Unrealized Appreciation/Depreciation
During the Period 2,391 3,777 (605) 5,563
------------------ ------------------ ------------------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN $ 2,347 $ 3,841 $ 1,597 $ 7,785
------------------ ------------------ ------------------- ---------- ----------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (1,362) $ (2,815) $ (990) $ (5,167)
=================== ================== ================== =========== ==========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 13,076 $ 25,842 $ 9,008 $ 542 $ 48,468
=================== ================== ================== =========== ==========
(1) Reflects the reduction in certain operating expenses as a result of the
elimination of certain duplicative expenses and the result of operating a
larger, more efficient fund.
(2) Reflects the exclusion of unrealized net appreciation related to the
trustees' deferred compensation plan and the elimination of certain duplicate
expenses.
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF OPERATIONS
For the Twelve Months Ended January 31, 2005
(Unaudited)
Amounts in thousands
Proforma-
Van Kampen Van Kampen
Van Kampen Advantage Advantage
Municipal Opportunity Municipal Income Municipal Income
Trust II Trust II Adjustments Trust II
---------------------- -------------------- ------------- ----------------
INVESTMENT INCOME:
Interest $ 14,499 $ 10,092 $ 24,591
---------------------- -------------------- -------------- --------------
EXPENSES:
Investment Advisory Fee 1,706 1,177 2,883
Preferred Share Maintenance 352 233 $ (52)(1) 533
Trustee's Fees and Related Expenses 68 59 (22)(2) 105
Administration Fee 48 33 - 81
Legal 38 27 (28)(1) 37
Custody 17 13 (2)(1) 28
Other 179 149 (101)(1) 227
---------------------- -------------------- -------------- --------------
Total Expenses 2,408 1,691 (205) 3,894
---------------------- -------------------- -------------- --------------
NET INVESTMENT INCOME $ 12,091 $ 8,401 $ 205 $ 20,697
====================== ==================== ============== ==============
REALIZED AND UNREALIZED GAIN/ LOSS:
Realized Gain/ Loss:
Investments $ 841 $ 2,863 $ 3,704
Futures (885) (661) (1,546)
---------------------- -------------------- -------------- --------------
Net Realized Gain/Loss (44) 2,202 2,158
---------------------- -------------------- -------------- --------------
Unrealized Appreciation/Depreciation
Beginning of the Period 18,303 13,846 32,149
End of the Period 20,694 13,241 33,935
---------------------- -------------------- -------------- --------------
Net Unrealized Appreciation/Depreciation
During the Period 2,391 (605) 1,786
---------------------- -------------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN $ 2,347 $ 1,597 $ 3,944
---------------------- -------------------- -------------- --------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (1,362) $ (990) $ (2,352)
====================== ==================== ============== ==============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 13,076 $ 9,008 $ 205 $ 22,289
====================== ==================== ============== ==============
(1) Reflects the reduction in certain operating expenses as a result of the
elimination of certain duplicative expenses and the result of operating a
larger, more efficient fund.
(2) Reflects the exclusion of unrealized net appreciation related to the
trustees' deferred compensation plan and the elimination of certain duplicate
expenses.
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
PROFORMA CONDENSED STATEMENT OF OPERATIONS
For the Twelve Months Ended January 31, 2005
(Unaudited)
Amounts in thousands
Proforma-
Van Kampen Van Kampen Van Kampen
Value Advantage Advantage
Municipal Income Municipal Income Municipal Income
Trust Trust II Adjustments Trust II
--------------------- -------------------- ------------- ------------
INVESTMENT INCOME:
Interest $ 29,473 $ 10,092 $ 39,565
--------------------- -------------------- ------------- ------------
EXPENSES:
Investment Advisory Fee 3,468 1,177 4,645
Preferred Share Maintenance 639 233 $ (70)(1) 802
Trustee's Fees and Related Expenses 99 59 (52)(2) 106
Administration Fee 98 33 - 131
Legal 63 27 (47)(1) 43
Custody 37 13 (3)(1) 47
Other 253 149 (109)(1) 293
--------------------- -------------------- ------------- ------------
Total Expenses 4,657 1,691 (281) 6,067
--------------------- -------------------- ------------- ------------
NET INVESTMENT INCOME $ 24,816 $ 8,401 $ 281 $ 33,498
===================== ==================== ============= ============
REALIZED AND UNREALIZED GAIN/ LOSS:
Realized Gain/ Loss:
Investments $ 1,960 $ 2,863 $ 4,823
Futures (1,896) (661) (2,557)
--------------------- -------------------- ------------- ------------
Net Realized Gain/Loss 64 2,202 2,266
--------------------- -------------------- ------------- ------------
Unrealized Appreciation/Depreciation
Beginning of the Period 40,211 13,846 54,057
End of the Period 43,988 13,241 57,229
--------------------- -------------------- ------------- ------------
Net Unrealized Appreciation/Depreciation During
the Period 3,777 (605) 3,172
--------------------- -------------------- ------------- ------------
NET REALIZED AND UNREALIZED GAIN $ 3,841 $ 1,597 $ 5,438
--------------------- -------------------- ------------- ------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (2,815) $ (990) $ (3,805)
===================== ==================== ============= ============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 25,842 $ 9,008 $ 281 $ 35,131
===================== ==================== ============= ============
(1) Reflects the reduction in certain operating expenses as a result of the
elimination of certain duplicative expenses and the result of operating a
larger, more efficient fund.
(2) Reflects the exclusion of unrealized net appreciation related to the
trustees' deferred compensation plan and the elimination of certain duplicate
expenses.
Van Kampen Advantage Municipal Income Trust II-Van Kampen Municipal
Opportunity Trust II - Van Kampen Value Municipal Income Trust
NOTES TO PRO FORMA FINANCIAL STATEMENTS
JANUARY 31, 2005 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Acquiring Trust, Van Kampen Advantage Municipal Income Trust II ("Acquiring
Trust") is registered as a diversified, closed-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"), as amended. The
Acquiring 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 Acquiring Trust will invest substantially all of its assets in
municipal securities rated investment grade at the time of investment. The
Acquiring Trust commenced investment operations on August 27, 1993.
The following is a summary of significant accounting policies
consistently followed by the Acquiring 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
Acquiring 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
Acquiring Trust will segregate assets with the custodian having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made.
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 Acquiring Trust's policy to comply with the
requirements of Subchapter M 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.
E. DISTRIBUTION OF INCOME AND GAINS The Acquiring 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.
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust, a copy of which is
filed as an exhibit hereto, provides for indemnification, as set forth below:
"Section 5.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words, "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or its Shareholders by
reason of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been either a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or a
reasonable determination, based upon a review of readily available
facts (as opposed to a full trial-type inquiry) that he did not engage
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in such conduct:
(A) by vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided by be insured
against by policies maintained by the Trust, shall be severable, shall not
effect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be
such Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators, and assigns of such Person. Nothing contained
herein shall affect any rights to indemnification to which personnel of the
Trust other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit, or proceeding of the character described in paragraph
(a) of this Section 5.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is
not entitled to indemnification under this Section 5.3, provided that
either
(i) such undertaking is secured by a surety bond or
some other appropriate security or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or an independent
legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending."
ITEM 16. EXHIBITS
1. (a) Declaration of Trust of the Registrant and amendments thereto+
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(b) Certificate of Vote Establishing Preferred Shares+
2. Bylaws of the Registrant and amendments thereto+
3. Not applicable
4. Form of Agreement and Plan of Reorganization++
5. (a) Specimen share certificate for common shares of the
Registrant+
(b) Specimen share certificate for preferred shares of the
Registrant+
6. Investment Advisory Agreement and amendment thereto+
7. Not Applicable
8. (a) Form of Amended and Restated Deferred Compensation Plan+
(b) Form of Retirement Plan for Each Closed End Fund+
9. Custodian Contract and amendments thereto+
10. Not Applicable
11. Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP+
12. Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP+++
13.(a) Transfer Agency and Service Agreement+
(b) Auction Agency Agreement+
(c) Form of Broker-Dealer Agreement+
(d)(i) Letter of Representation+
(ii) Form of Letter of Representation+
(e) Fund Accounting Agreement and amendment thereto+
(f) Amended and Restated Legal Services Agreement+
14. Consent of independent registered public accounting firm for the
Registrant and the Target Funds+
15. Not Applicable
16.(a) Power of Attorney-Trustees+
(b) Power of Attorney-Fund Officers+
17.(a) Code of Ethics of the Investment Adviser+
(b) Code of Ethics of the Funds+
(c) Proxy cards for the Target Funds+
(d) Proxy card for the Acquiring Fund+
+ Filed herewith.
++ Filed as Appendix A to the Statement of Additional Information and
incorporated herein by reference to Registrant's Registration Statement on
Form N-14 as filed via EDGAR on June 30, 2005.
+++ To be filed by post-effective amendment.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by other items of the applicable form.
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(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees that, if the Reorganizations
discussed in the registration statement close, it shall file by post-effective
amendment either a copy of the Internal Revenue Service private letter ruling
applied for or an opinion supporting the tax matter discussed in the
registration statement.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and the State of New York, on August 9, 2005.
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
By: /s/ Stefanie V. Chang Yu
------------------------------------
Stefanie V. Chang Yu
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
SIGNATURES TITLE
---------- -----
Principal Executive Officer:
/s/ Ronald E. Robison* Executive Vice President and
------------------------------------------- Principal Executive Officer
Ronald E. Robison
Principal Financial Officer:
/s/ James W. Garrett*
------------------------------------------- Chief Financial
James W. Garrett Officer and Treasurer
Trustees:
/s/ David C. Arch* Trustee
-------------------------------------------
David C. Arch
/s/ Jerry D. Choate* Trustee
-------------------------------------------
Jerry D. Choate
/s/ Rod Dammeyer* Trustee
-------------------------------------------
Rod Dammeyer
C-5
/s/ Linda Hutton Heagy* Trustee
-------------------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy* Trustee
-------------------------------------------
R. Craig Kennedy
/s/ Howard J Kerr* Trustee
-------------------------------------------
Howard J Kerr
/s/ Mitchell M. Merin* Trustee
-------------------------------------------
Mitchell M. Merin
/s/ Jack E. Nelson* Trustee
-------------------------------------------
Jack E. Nelson
/s/ Richard F. Powers, III* Trustee
-------------------------------------------
Richard F. Powers, III
/s/ Hugo F. Sonnenschein* Trustee
-------------------------------------------
Hugo F. Sonnenschein
/s/ Wayne W. Whalen* Trustee
-------------------------------------------
Wayne W. Whalen
/s/ Suzanne H. Woolsey* Trustee
-------------------------------------------
Suzanne H. Woolsey
* Signed by Stefanie V. Chang Yu pursuant to a power of attorney filed herewith.
/s/ Stefanie V. Chang Yu August 9, 2005
-------------------------------------------
Stefanie V. Chang Yu
Attorney-in-Fact
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SCHEDULE OF EXHIBITS TO FORM N-14
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
Exhibit
-------
1(a) Declaration of Trust of the Registrant and amendments thereto
2 Bylaws of the Registrant and amendment thereto
5(a) Specimen share certificate for common shares of the Registrant
(b) Specimen share certificate for preferred shares of the Registrant
6 Investment Advisory Agreement and amendment thereto
8(a) Form of Amended and Restated Deferred Compensation Plan
(b) Form of Retirement Plan for Each Closed End Fund
9 Custodian Contract and amendments thereto
11 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
13(a) Transfer Agency and Service Agreement
(b) Auction Agency Agreement
(c) Form of Broker-Dealer Agreement
(d)(i) Letter of Representation
(ii) Form of Letter of Representation
(e) Fund Accounting Agreement and amendment thereto
(f) Amended and Restated Legal Services Agreement
14 Consent of independent registered public accounting firm for the
Registrant and the Target Funds
16(a) Power of Attorney - Trustees
(b) Power of Attorney - Fund Officers
17(a) Code of Ethics of the Investment Adviser
(b) Code of Ethics of the Funds
(c) Proxy cards for the Target Funds
(d) Proxy card for the Acquiring Fund