UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-7676
Van Kampen Municipal Opportunity Trust II
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas
New York, NY 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
-----------------------------
Date of fiscal year end: 10/31/03
-----------
Date of reporting period: 04/30/03
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Item 1. Report to Shareholders
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2003)
- ------------------------------
NYSE Ticker Symbol - VOT
- ------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 7.36%
- -----------------------------------------------------------------------
One-year total return(1) 11.73%
- -----------------------------------------------------------------------
Five-year average annual total return(1) 7.32%
- -----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 6.00%
- -----------------------------------------------------------------------
Commencement date 6/25/93
- -----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 6.92%
- -----------------------------------------------------------------------
Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.27%
- -----------------------------------------------------------------------
Preferred share (Series A) rate(4) 1.250%
- -----------------------------------------------------------------------
Preferred share (Series B) rate(4) 1.150%
- -----------------------------------------------------------------------
Preferred share (Series C) rate(4) 1.250%
- -----------------------------------------------------------------------
Net asset value $15.29
- -----------------------------------------------------------------------
Closing common share market price $14.31
- -----------------------------------------------------------------------
Six-month high common share market price (04/09/03) $14.38
- -----------------------------------------------------------------------
Six-month low common share market price (01/16/03) $13.68
- -----------------------------------------------------------------------
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
1
(1) 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.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) The taxable-equivalent distribution rate is calculated assuming the maximum
38.6% federal income tax bracket effective for calendar year 2003.
(4) See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject
to the federal alternative minimum tax (AMT).
Past performance is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
2
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
AAA/Aaa........................... 68.9%
AA/Aa............................. 12.4%
A/A............................... 13.4%
BBB/Baa........................... 3.8%
BB/Ba............................. 0.3%
B/B............................... 0.5%
Non-Rated......................... 0.7%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
General Purpose................... 17.9%
Health Care....................... 16.2%
Public Education.................. 9.5%
Transportation.................... 9.0%
Retail Electric/Gas/Telephone..... 8.6%
</Table>
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--June 1993 through April 2003)
[INVESTMENT PERFORMANCE GRAPH]
<Table>
<Caption>
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
6/93 $14.9500 $14.9500
$15.6900 $14.7500
$15.4800 $14.0000
$13.2100 $12.2500
6/94 $13.0900 $12.5000
$12.7800 $11.1250
$12.0600 $10.2500
$13.3200 $11.7500
6/95 $13.1300 $11.1250
$13.3900 $11.2500
$14.3000 $11.5000
$13.5700 $11.5000
6/96 $13.4300 $11.1250
$13.7500 $11.6250
$14.0000 $11.5000
$13.6300 $11.7500
6/97 $14.0600 $12.2500
$14.4700 $12.8750
$14.8000 $13.5000
$14.7800 $13.5000
6/98 $14.8200 $13.6250
$15.2100 $13.9375
$15.0300 $14.5000
$14.8800 $14.1250
6/99 $14.1700 $12.9370
$13.6500 $11.9375
$13.0900 $11.6875
$13.4400 $11.5000
6/00 $13.4000 $11.3125
$13.6600 $12.0620
$14.2700 $12.3750
$14.4600 $12.4800
6/01 $14.2600 $12.6400
$14.7200 $13.0900
$14.2800 $12.9300
$14.1200 $13.0100
6/02 $14.6700 $14.2500
$15.6100 $14.4900
$15.2200 $14.0700
$15.1800 $14.2500
4/03 $15.2900 $14.3100
</Table>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates 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.
3
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN MUNICIPAL OPPORTUNITY
TRUST II ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE TRUST'S RETURN DURING THE SIX MONTHS ENDED APRIL 30, 2003.
TIMOTHY D. HANEY, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1996 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE FOLLOWING DISCUSSION REFLECTS
HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q WHAT WAS THE MARKET
ENVIRONMENT OF THE PAST SIX MONTHS, AND HOW DID THE TRUST PERFORM IN THAT
ENVIRONMENT?
A The environment over the past six months has been defined by two major
themes. The first of these was the level of interest rates. The period began
with interest rates at levels not seen in over three decades and, surprisingly
for many, ended with rates slightly lower. The Federal Reserve Board (the Fed)
helped keep rates low with a widely anticipated rate cut in November, driven by
economic uncertainty and geopolitical risk. The low level of rates led to a boom
in issuance by municipalities seeking to lock in low financing costs. As a
result, issuance reached a record level of $354 billion in 2002 and continued to
be exceptional in the first quarter of 2003.
The other theme in the market during the period was the relative
attractiveness of municipal bonds, which produced enough demand to absorb the
record issuance. Investors, wary of volatility in the equity market and in the
geopolitical arena, flocked to perceived safe haven investments. Their risk
aversion counteracted growing expectations for economic recovery and rising
interest rates and was a key factor in keeping interest rates at historically
low levels. In their ongoing preference for low-risk assets, investors bid
Treasury prices up to such high levels that municipal bonds became as
attractively valued as they have ever been relative to Treasuries. Insurance
companies also moved heavily into municipal bonds as their mainstay corporate
bond holdings became less attractive. At the same time, issuers recognized
investor concerns over economic weakness by insuring roughly 50 percent of all
issuance. This credit enhancement made municipal bonds even more attractive to
risk-averse investors.
While lower financing costs were a boon to municipal issuers, the continuing
weakness in the economy had a negative impact on municipal credit quality,
particularly in the first quarter of 2003. Moody's upgrades barely exceeded the
number of downgrades in the first quarter, with
4
credit quality facing continued pressure from rising social service costs and
weak national and regional economic conditions. As a result, many municipalities
face enormous deficits in 2003, when their combined shortfall is expected to
reach $90 billion.
Performance along the yield curve was varied. The Fed's November rate cut
fueled a rally in short-term bonds that helped pull yields lower at the front
end of the curve. Despite that rally, the best performing segment of the curve
was the long-intermediate portion where performance was largely driven by buying
activity among institutional investors drawn to the bonds' attractive total
return potential.
The portfolio continued to offer what we believe to be a competitive level
of tax-exempt income. The trust's monthly dividend of $0.0825 per share
translated to a distribution rate of 6.92 percent based on the trust's closing
common share market price on April 30, 2003. Based on these figures, investors
would have to earn a distribution rate of 11.27 percent on a taxable investment
(for an investor in the 38.60 percent federal income tax bracket) to match the
tax-exempt yield provided by the trust.
For the six months ended April 30, 2003, the trust produced a total return
of 7.36 percent based on common share market price. By comparison, the Lehman
Brothers Municipal Bond Index posted a total return of 3.59 percent for the same
period. Of course, past performance is no guarantee of future results.
Investment return, common share market price and net asset value will fluctuate
and trust shares, when sold, may be worth more or less than their original cost.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor.
The Lehman Brothers Municipal Bond Index is an unmanaged, broad-based
statistical composite of municipal bonds. Index returns do not include any sales
charges or fees that would be paid by an investor purchasing the securities the
index represents. Such costs would lower performance. It is not possible to
invest directly in an index. For additional information, please refer to the
performance summary section.
Q WHAT STRATEGIES DID YOU PURSUE
IN MANAGING THE TRUST?
A With interest rates hovering near record lows, we were focused on protecting
the portfolio from the potential adverse effects of rising interest rates while
maintaining its yield. One of our primary methods for doing this was to purchase
premium bonds with maturities of between 15 and 20 years, priced to a ten-year
call date. Our quantitative analysis showed that this segment of the yield curve
offered a favorable combination of total return potential and downside
protection. The yield of these bonds is competitive, corresponding to their
15-to 20-year maturity dates, yet their interest rate volatility is more closely
related to the 10-year call feature. We funded our purchases in this maturity
range chiefly through sales of bonds in the 10- and 30-year segments of the
5
yield curve. This alteration of the trust's yield curve exposure should benefit
shareholders if rates rise on the short end of the yield curve.
Our preference for long-intermediate bonds led to several shifts in the
portfolio's sector composition, though these were generally not reflective of
strong sector views as much as the availability of bonds at key points on the
curve. The strategy of shifting assets along the curve resulted in declines in
the trust's holdings transportation (down 5.0 percent), and water and sewer
(down 4.0 percent). In turn, general purpose bond holdings were up by 4.1
percent, public building exposure rose by 4.2 percent and public education
sector increased by 3.7 percent.
One of the sectors we avoided during the period was tobacco bonds. These
bonds were issued by states seeking to securitize their future income streams
resulting from settlements from class action suits against the major tobacco
companies. Recent litigation in Illinois resulted in a judge awarding billions
more in a suit alleging that the companies misled smokers about the amount of
nicotine in "light" cigarettes. In order to appeal, the law required the
companies to put up such substantial amounts of money that some began talking
about potential bankruptcy, and the tobacco bonds' credit ratings and price
performance suffered accordingly. Our decision not to invest in these securities
appears to have been a benefit to shareholders during the period.
6
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MUNICIPAL BONDS 161.9%
ALABAMA 1.1%
$1,000 Birmingham Baptist Med Ctr AL Baptist Hlth
Sys Ser A.................................. 5.875% 11/15/24 $ 1,055,630
1,000 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A............................. 5.600 11/01/16 926,430
-------------
1,982,060
-------------
ARIZONA 3.3%
2,235 Arizona Tourism & Sports Auth Tax Rev
Multipurpose Stad Fac Ser A (MBIA Insd).... 5.375 07/01/21 2,441,693
1,785 Maricopa Cnty, AZ Uni Sch Dist No 41
Gilbert Rfdg (FSA Insd).................... 4.500 07/01/13 1,910,164
1,500 Scottsdale, AZ Indl Dev Auth Hosp Rev
Scottsdale Hlthcare........................ 5.800 12/01/31 1,551,960
-------------
5,903,817
-------------
CALIFORNIA 25.7%
7,195 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impt Proj Ser C (FSA
Insd)...................................... * 09/01/21 2,896,131
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt
Proj Ser C (FSA Insd)...................... 6.000 09/01/16 1,579,435
2,000 California St Dept Wtr Res Pwr Ser A....... 6.000 05/01/15 2,308,180
2,345 California St Dept Wtr Res Pwr Ser A (XLCA
Insd)...................................... 5.375 05/01/17 2,594,742
4,600 California St Pub Wks Brd Lease Rev Var
Univ CA Proj Ser A Rfdg (a)................ 5.500 06/01/10 5,233,742
5,905 California St Pub Wks Brd Lease Rev Var
Univ CA Proj Ser A Rfdg (a)................ 5.500 06/01/14 6,797,423
5,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg (MBIA Insd)............ * 01/15/18 2,343,000
2,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Sr Lien Ser A (Prerefunded @
01/01/07).................................. 6.500 01/01/32 2,327,240
11,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant
Rev Crossover Rfdg (FGIC Insd) (a)......... 5.375 09/01/23 11,877,775
</Table>
See Notes to Financial Statements
7
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CALIFORNIA (CONTINUED)
$5,000 Los Angeles, CA Uni Sch Dist Ser A (FSA
Insd)...................................... 5.250% 07/01/20 $ 5,450,050
2,465 Los Angeles, CA Uni Sch Dist Ser B (FGIC
Insd)...................................... 5.000 07/01/23 2,551,669
-------------
45,959,387
-------------
COLORADO 8.7%
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded @ 08/31/05)........ 7.000 08/31/26 1,156,670
7,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Ser C (Prerefunded @ 08/31/05)....... * 08/31/26 1,510,200
1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A.......................... 5.500 03/01/32 1,029,890
1,250 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth............................. 6.500 11/15/31 1,363,087
1,500 Denver, CO City & Cnty Arpt Rev Ser D...... 7.750 11/15/13 1,859,445
3,515 E-470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser
B (MBIA Insd).............................. * 09/01/13 2,280,462
6,160 E-470 Pub Hwy Auth CO Rev Sr Ser A (MBIA
Insd) (a).................................. 5.000 09/01/21 6,358,783
-------------
15,558,537
-------------
ILLINOIS 18.3%
3,750 Bolingbrook, IL Cap Apprec Ser B (MBIA
Insd)...................................... * 01/01/32 770,625
2,850 Chicago, IL Brd Ed Cap Apprec Sch Reform
B-1 (FGIC Insd)............................ * 12/01/23 985,416
3,365 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd)..................... * 01/01/17 1,567,148
3,000 Chicago, IL Pk Dist Harbor Fac Rev......... 5.700 01/01/21 3,204,840
1,220 Chicago, IL Single Family Mtg Rev Ser A
(GNMA Collateralized)...................... 7.000 09/01/27 1,244,107
240 Chicago, IL Single Family Mtg Rev Ser B
(GNMA Collateralized)...................... 7.625 09/01/27 250,565
2,540 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap
Apprec (FGIC Insd)......................... * 12/01/15 1,450,721
4,500 Cook Cnty, IL Ser A (FGIC Insd) (a)........ 5.500 11/15/31 4,789,800
1,000 Illinois Dev Fin Auth Rev Cmnty Rehab
Providers Fac Ser A........................ 7.375 07/01/25 1,071,180
4,305 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg (a)................................... 6.000 11/15/10 4,433,892
8,000 Illinois St First Ser (FSA Insd)........... 5.250 12/01/19 8,680,000
</Table>
See Notes to Financial Statements
8
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS (CONTINUED)
$3,400 Illinois St First Ser (FSA Insd)........... 5.250% 04/01/27 $ 3,572,754
665 Peoria, Moline & Freeport, IL Coll Mtg Ser
A (GNMA Collateralized).................... 7.600 04/01/27 713,326
-------------
32,734,374
-------------
INDIANA 5.7%
4,000 East Chicago, IN Elementary Sch Bldg Corp
First Mtg Ser A (a)........................ 6.250 07/05/08 4,593,400
3,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus
Regl Hosp Rfdg (FSA Insd) (a).............. 7.000 08/15/15 3,769,440
2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr &
Lt......................................... 5.950 12/01/29 1,830,960
-------------
10,193,800
-------------
LOUISIANA 7.9%
2,500 Louisiana Loc Govt Envir Fac Pkg Fac Corp
Garage Proj Ser A (AMBAC Insd)............. 5.375 10/01/31 2,625,875
6,000 New Orleans, LA Rfdg (MBIA Insd) (a)....... 5.125 09/01/21 6,356,160
2,000 New Orleans, LA Rfdg (FGIC Insd)........... 5.500 12/01/21 2,292,420
2,800 Saint Charles Parish, LA Solid Waste Disp
Rev LA Pwr & Lt Co Proj (FSA Insd) (a)..... 7.050 04/01/22 2,811,396
-------------
14,085,851
-------------
MASSACHUSETTS 6.6%
2,000 Massachusetts Muni Whsl Elec Co Proj No 6-A
(MBIA Insd)................................ 5.250 07/01/16 2,190,320
5,000 Massachusetts St Cons Ln Ser E (FSA
Insd)...................................... 5.250 01/01/20 5,403,050
1,000 Massachusetts St Hlth & Ed Fac Auth Rev
Saint Mem Med Ctr Ser A.................... 6.000 10/01/23 909,660
3,065 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A Rfdg (AMBAC Insd)............. 6.600 07/01/14 3,186,895
-------------
11,689,925
-------------
MICHIGAN 5.6%
1,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @ 05/01/04)..... 7.600 05/01/16 1,083,560
3,000 Detroit, MI City Sch Dist Sch Bldg & Site
Impt Ser A (FGIC Insd)..................... 5.375 05/01/24 3,220,830
1,000 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Ctr................... 5.250 05/15/26 862,900
1,490 Michigan St Hsg Dev Auth Multi-Family Rev
Ltd Oblig Hsg Orion Four Ser A (Var Rate
Cpn)....................................... 6.250 08/01/39 1,523,525
</Table>
See Notes to Financial Statements
9
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MICHIGAN (CONTINUED)
$1,500 Michigan St Hsg Dev Auth Multi-Family Rev
Ltd Oblig Ser A Rfdg (GNMA
Collateralized)............................ 6.600% 04/01/30 $ 1,569,855
1,750 Michigan St Strategic Fd Ltd Oblig Rev
Detroit Edison Poll Ctl Ser B Rfdg......... 5.650 09/01/29 1,787,502
-------------
10,048,172
-------------
MISSISSIPPI 4.9%
2,000 Mississippi Business Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj Rfdg....... 5.900 05/01/22 1,980,860
2,000 Mississippi Dev Bk Spl Oblig Cap Proj &
Equip Acquisition Ser A2................... 5.000 07/01/24 2,111,560
1,550 Mississippi Dev Bk Spl Oblig Madison Cnty
Hosp Proj (Prerefunded @ 07/01/09)......... 6.400 07/01/29 1,885,745
2,595 Mississippi Dev Bk Spl Oblig MS Ltd Oblig
Hosp Impts (MBIA Insd)..................... 5.250 07/01/32 2,686,863
-------------
8,665,028
-------------
MISSOURI 7.0%
2,000 Cape Girardeau Cnty, MO Indl Dev Auth
Hlthcare Fac Rev Southeast MO Hosp Assoc... 5.625 06/01/27 2,047,020
1,500 Saint Louis Cnty, MO Mtg Rev Ctf Rcpt Ser H
(Escrowed to Maturity) (GNMA
Collateralized)............................ 5.400 07/01/18 1,690,425
5,855 St Louis, MO Arpt Rev Arpt Dev Pgm Ser A
(MBIA Insd) (a)............................ 5.250 07/01/31 6,105,301
2,380 St Louis, MO Arpt Rev Cap Impt Pgm Ser A
(MBIA Insd)................................ 5.375 07/01/19 2,603,173
-------------
12,445,919
-------------
NEVADA 2.0%
3,500 Clark Cnty, NV Arpt Rev Sub Lien Ser B
(FGIC Insd)................................ 5.250 07/01/34 3,628,625
-------------
</Table>
See Notes to Financial Statements
10
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NEW JERSEY 4.4%
$1,000 New Jersey Hlthcare Fac Fin Auth Rev Gen
Hosp Ctr at Passaic (Escrowed to Maturity)
(FSA Insd)................................. 6.000% 07/01/06 $ 1,112,500
4,000 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth
Rev Pollutn Ctl Pub Svc Elec & Gas Ser A
(MBIA Insd) (a)............................ 5.450 02/01/32 4,089,480
2,500 Secaucus, NJ Muni Util Auth Swr Rev Ser A
Rfdg....................................... 6.000 12/01/08 2,731,025
-------------
7,933,005
-------------
NEW YORK 13.1%
4,000 New York City Hlth & Hosp Corp Rev Hlth Sys
Ser A (AMBAC Insd)......................... 5.000 02/15/11 4,392,440
2,500 New York City Ser A........................ 7.000 08/01/04 2,663,500
3,950 New York City Ser A1....................... 6.375 08/01/10 4,275,914
1,050 New York City Ser A1 (Prerefunded @
08/01/05).................................. 6.375 08/01/10 1,177,039
2,000 New York City Ser B1 (Prerefunded @
08/15/04) (MBIA Insd)...................... 6.950 08/15/12 2,169,460
1,000 New York St Dorm Auth Rev City Univ Third
Gen Res Ser 2 (Prerefunded @ 07/01/04)
(MBIA Insd)................................ 6.250 07/01/19 1,059,960
1,520 New York St Dorm Auth Rev Insd John T
Mather Mem Hosp (Connie Lee Insd).......... 6.500 07/01/09 1,819,410
155 New York St Energy Res & Dev Auth St Svc
Contract Rev Ser B......................... 5.400 04/01/04 160,868
500 New York St Energy Res & Dev Auth St Svc
Contract Rev Ser B......................... 5.500 04/01/05 535,575
2,000 New York St Urban Dev Corp Rev Correctional
Fac Ser A Rfdg............................. 5.500 01/01/16 2,086,760
3,000 New York St Urban Dev Corp Rev Personal
Income Tax Ser C-1......................... 5.000 03/15/33 3,061,980
-------------
23,402,906
-------------
</Table>
See Notes to Financial Statements
11
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
OHIO 2.5%
$1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj....................................... 7.500% 01/01/30 $ 1,109,430
1,000 Franklin Cnty, OH Hosp Rev Holy Cross Hlth
Sys Ser B Rfdg (MBIA Insd)................. 5.250 06/01/08 1,061,750
1,040 Lorain Cnty, OH Hosp Rev EMH Regl Med Ctr
Rfdg (AMBAC Insd).......................... 7.750 11/01/13 1,208,418
950 Strongsville, OH (Prerefunded @
12/01/06).................................. 6.700 12/01/11 1,128,211
-------------
4,507,809
-------------
OKLAHOMA 2.6%
1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev
(AMBAC Insd)............................... 6.250 11/01/22 1,190,660
2,960 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med
Ctr Proj Rfdg (Escrowed to Maturity)
(Connie Lee Insd).......................... 6.250 06/01/07 3,428,598
-------------
4,619,258
-------------
OREGON 3.1%
1,610 Oregon St Vets Welfare Ser 76A............. 6.050 10/01/28 1,691,498
3,580 Yamhill Cnty, OR Sch Dist No 029J Newburg
(MBIA Insd)................................ 5.250 06/15/21 3,844,061
-------------
5,535,559
-------------
PENNSYLVANIA 6.7%
4,780 Erie, PA Sch Dist Cap Apprec Rfdg (FSA
Insd)...................................... * 09/01/20 2,082,694
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D...................... 7.050 12/01/10 1,552,965
1,650 Pennsylvania Hsg Fin Agy Single Family Ser
56A (FHA/VA Gtd)........................... 6.150 10/01/27 1,742,565
5,080 Philadelphia, PA Gas Wks Rev 14th Ser 02
(Prerefunded @ 07/01/03) (FSA Insd) (a).... 6.250 07/01/08 5,225,694
1,315 State Pub Sch Bldg Auth PA Sch Rev
Burgettstown Sch Dist Ser D (Prerefunded @
02/01/05) (MBIA Insd)...................... 6.450 02/01/10 1,431,180
-------------
12,035,098
-------------
SOUTH CAROLINA 4.1%
3,115 Greenville, SC Impt & Rfdg (MBIA Insd)..... 5.250 04/01/21 3,350,494
3,750 South Carolina Jobs Econ Dev Auth Indl Rev
Elec & Gas Co Proj Ser B (AMBAC Insd)...... 5.450 11/01/32 3,916,200
-------------
7,266,694
-------------
SOUTH DAKOTA 0.8%
1,375 Deadwood, SD Ctf Partn (ACA Insd).......... 6.375 11/01/20 1,490,748
-------------
</Table>
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TENNESSEE 2.6%
$2,500 Harpeth Vly Utils Dist TN Davidson &
Williamson Cntys Rev (MBIA Insd)........... 5.250% 09/01/17 $ 2,836,850
1,300 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Ser A Rfdg (MBIA Insd)........... 7.500 07/01/25 1,650,805
80 Tennessee Hsg Dev Agy Mtg Fin Ser A........ 7.125 07/01/26 82,863
-------------
4,570,518
-------------
TEXAS 7.4%
2,335 Beaumont, TX Wtrwks & Swr Sys (FGIC Insd).. 6.250 09/01/14 2,777,086
2,250 Brazos Cnty, TX Hlth Fac Dev Oblig Grp..... 5.375 01/01/32 2,231,933
1,500 Brazos River Auth TX Pollutn Adj TXU Elec
Co Proj Ser C Rfdg......................... 5.750 05/01/36 1,476,675
2,000 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Hermann Hosp Proj (Prerefunded @ 10/01/04)
(MBIA Insd)................................ 6.375 10/01/24 2,165,920
1,000 Mesquite, TX Hlth Fac Dev Corp Retirement
Fac Christian Ser A........................ 7.625 02/15/28 1,046,100
1,500 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj........................ 7.250 01/01/31 1,356,360
2,000 Texas St Wtr Fin Assistance................ 5.500 08/01/35 2,154,760
-------------
13,208,834
-------------
UTAH 0.2%
315 Utah St Hsg Fin Agy Single Family Mtg Sr
Issue Ser B-2 (FHA/VA Gtd)................. 6.500 07/01/15 317,287
-------------
VIRGINIA 5.8%
2,000 Fairfax Cnty, VA Ctf Partn................. 5.300 04/15/23 2,088,040
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 1,697,655
2,000 Loudoun Cnty, VA Ctf Part (FSA Insd) (a)... 6.900 03/01/19 2,128,320
1,380 Richmond, VA Indl Dev Auth Govt Fac Rev
Bonds (AMBAC Insd)......................... 5.000 07/15/14 1,535,926
1,715 Richmond, VA Indl Dev Auth Govt Fac Rev
Bonds (AMBAC Insd)......................... 5.000 07/15/17 1,902,364
1,000 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg....................................... 5.900 11/01/17 1,026,780
-------------
10,379,085
-------------
</Table>
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
WASHINGTON 0.4%
$ 700 Quinault Indian Nation, WA Quinault Beach
Ser A Rfdg & Impt (ACA Insd)............... 5.800% 12/01/15 $ 751,709
-------------
WEST VIRGINIA 3.4%
500 Harrison Cnty, WV Cnty Cmnty Solid Waste
Disp Rev West PA Pwr Co Ser C (AMBAC
Insd)...................................... 6.750 08/01/24 537,730
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co
Proj Ser C (MBIA Insd)..................... 6.850 06/01/22 3,102,300
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 2,441,927
-------------
6,081,957
-------------
WISCONSIN 2.4%
1,305 Wisconsin Hsg & Econ Dev Auth Home
Ownership Rev Ser F........................ 5.250 07/01/29 1,330,630
2,490 Wisconsin St Hlth & Ed Fac Auth Rev Bellin
Mem Hosp (AMBAC Insd)...................... 6.625 02/15/08 2,857,101
-------------
4,187,731
-------------
PUERTO RICO 5.6%
8,000 Puerto Rico Comwlth Hwy & Trans Auth Hwy
Rev Ser Y Rfdg (FSA Insd) (a).............. 6.250 07/01/21 10,004,880
-------------
TOTAL LONG-TERM INVESTMENTS 161.9%
(Cost $267,951,055).................................................. 289,188,573
SHORT-TERM INVESTMENT 0.1%
(Cost $200,000)...................................................... 200,000
-------------
TOTAL INVESTMENTS 162.0%
(Cost $268,151,055).................................................. 289,388,573
OTHER ASSETS IN EXCESS OF LIABILITIES 2.4%............................ 4,234,430
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (64.4%)............ (115,008,867)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%......................... $ 178,614,136
=============
</Table>
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
* Zero coupon bond
(a) Assets segregated as collateral for open futures transactions.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
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
15
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $268,151,055)....................... $289,388,573
Cash........................................................ 251,480
Receivables:
Interest.................................................. 4,527,424
Investments Sold.......................................... 2,507,944
Other....................................................... 527
------------
Total Assets............................................ 296,675,948
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,443,850
Variation Margin on Futures............................... 224,156
Investment Advisory Fee................................... 143,991
Administrative Fee........................................ 12,000
Affiliates................................................ 6,763
Trustees' Deferred Compensation and Retirement Plans........ 164,749
Accrued Expenses............................................ 57,436
------------
Total Liabilities....................................... 3,052,945
Preferred Shares (including accrued distributions).......... 115,008,867
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $178,614,136
============
NET ASSET VALUE PER COMMON SHARE ($178,614,136 divided by
11,681,272 shares outstanding)............................ $ 15.29
============
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............................................. 170,224,249
Net Unrealized Appreciation................................. 21,050,495
Accumulated Undistributed Net Investment Income............. 1,716,686
Accumulated Net Realized Loss............................... (14,494,107)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $178,614,136
------------
PREFERRED SHARES ($.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....................... $293,614,136
============
</Table>
See Notes to Financial Statements
16
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 7,630,183
-----------
EXPENSES:
Investment Advisory Fee..................................... 866,486
Preferred Share Maintenance................................. 175,481
Administrative Fee.......................................... 72,208
Trustees' Fees and Related Expenses......................... 28,086
Legal....................................................... 14,376
Custody..................................................... 9,050
Other....................................................... 105,471
-----------
Total Expenses.......................................... 1,271,158
-----------
NET INVESTMENT INCOME....................................... $ 6,359,025
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,875,464
Futures................................................... (1,027,759)
-----------
Net Realized Gain........................................... 847,705
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 18,554,996
End of the Period:
Investments............................................. 21,237,518
Futures................................................. (187,023)
-----------
21,050,495
-----------
Net Unrealized Appreciation During the Period............... 2,495,499
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 3,343,204
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (647,279)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 9,054,950
===========
</Table>
See Notes to Financial Statements
17
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 6,359,025 $ 12,773,766
Net Realized Gain.................................. 847,705 2,378,157
Net Unrealized Appreciation/Depreciation During the
Period........................................... 2,495,499 (1,686,633)
Distributions to Preferred Shareholders:
Net Investment Income............................ (647,279) (1,548,593)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 9,054,950 11,916,697
Distributions to Common Shareholders:
Net Investment Income............................ (5,752,767) (10,775,468)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ 3,302,183 1,141,229
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 175,311,953 174,170,724
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $1,716,686
and $1,757,707, respectively).................... $178,614,136 $175,311,953
============ ============
</Table>
See Notes to Financial Statements
18
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, -----------------------------
2003 2002 (a) 2001 2000
------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD
(b)........................................ $ 15.01 $ 14.91 $ 13.77 $ 13.28
------- ------- ------- --------
Net Investment Income...................... .55 1.09 1.10 1.13
Net Realized and Unrealized Gain/Loss...... .28 .06 1.11 .54
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................... (.06) (.13) (.31) (.40)
Net Realized Gain........................ -0- -0- -0- -0-
------- ------- ------- --------
Total from Investment Operations............. .77 1.02 1.90 1.27
Distributions Paid to Common Shareholders:
Net Investment Income.................... (.49) (.92) (.76) (.78)
Net Realized Gain........................ -0- -0- -0- -0-
------- ------- ------- --------
NET ASSET VALUE, END OF THE PERIOD........... $ 15.29 $ 15.01 $ 14.91 $ 13.77
======= ======= ======= ========
Common Share Market Price at End of the
Period..................................... $ 14.31 $ 13.80 $ 13.36 $11.8125
Total Return (c)............................. 7.36%* 10.36% 20.07% 9.19%
Net Assets at End of the Period (In
millions).................................. $ 178.6 $ 175.3 $ 174.2 $ 160.8
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (d)............ 1.45% 1.55% 1.76% 1.85%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)..... 7.28% 7.44% 7.66% 8.44%
Portfolio Turnover........................... 22%* 44% 45% 22%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (d)............. .88% .93% 1.04% 1.06%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (e)..... 6.54% 6.54% 5.48% 5.48%
SENIOR SECURITIES:
Total Preferred Shares Outstanding........... 4,600 4,600 4,600 4,600
Asset Coverage Per Preferred Share (f)....... $63,831 $63,114 $62,863 $ 59,963
Involuntary Liquidating Preference Per
Preferred Share............................ $25,000 $25,000 $25,000 $ 25,000
Average Market Value Per Preferred Share..... $25,000 $25,000 $25,000 $ 25,000
</Table>
* 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, increase the ratio of net investment
income to average net asset applicable to common shares by .04% 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) Net Asset Value at June 25, 1993, is adjusted for common and preferred share
offering costs of $.234 per common share.
(c) 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.
(d) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(e) Ratios reflect the effect of dividend payments to preferred shareholders.
(f) 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.
19
<Table>
<Caption>
JUNE 25, 1993
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF INVESTMENT
- ------------------------------------------------------------------- OPERATIONS) TO
1999 1998 1997 1996 1995 1994 OCTOBER 31, 1993
- --------------------------------------------------------------------------------------
$ 15.08 $ 14.51 $ 13.88 $ 13.72 $ 12.20 $ 15.58 $ 14.77
-------- -------- -------- -------- -------- -------- --------
1.12 1.12 1.13 1.14 1.15 1.11 .31
(1.82) .57 .60 .12 1.55 (3.28) .71
(.32) (.34) (.35) (.35) (.38) (.25) (.06)
-0- -0- -0- -0- -0- (.01) -0-
-------- -------- -------- -------- -------- -------- --------
(1.02) 1.35 1.38 .91 2.32 (2.43) .96
(.78) (.78) (.75) (.75) (.80) (.90) (.15)
-0- -0- -0- -0- -0- (.05) -0-
-------- -------- -------- -------- -------- -------- --------
$ 13.28 $ 15.08 $ 14.51 $ 13.88 $ 13.72 $ 12.20 $ 15.58
======== ======== ======== ======== ======== ======== ========
$11.5625 $14.0625 $12.6875 $ 11.625 $ 11.375 $ 10.50 $ 15.00
-12.84% 17.23% 16.02% 8.98% 16.07% -24.59% 1.01%*
$ 155.1 $ 176.1 $ 169.5 $ 162.1 $ 160.2 $ 142.5 $ 182.0
1.79% 1.79% 1.83% 1.90% 1.94% 1.82% 1.59%
7.68% 7.54% 8.04% 8.31% 8.85% 7.95% 5.75%
25% 13% 23% 37% 58% 115% 55%*
1.06% 1.08% 1.08% 1.10% 1.10% 1.06% 1.11%
5.50% 5.20% 5.56% 5.77% 5.88% 6.11% 4.76%
4,600 2,300 2,300 2,300 2,300 2,300 2,300
$ 58,717 $126,569 $123,694 $120,481 $119,666 $111,967 $129,150
$ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements
20
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (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.
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
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At April 30, 2003, 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.
21
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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, 2002, the Trust had an accumulated capital loss
carryforward for tax purposes of $15,338,313 which will expire between October
31, 2003 and October 31, 2008. Of this amount, $13,922,645 will expire on
October 31, 2003.
At April 30, 2003 the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $267,794,500
============
Gross tax unrealized appreciation........................... $ 22,125,799
Gross tax unrealized depreciation........................... (531,726)
------------
Net tax unrealized appreciation on investments.............. $ 21,594,073
============
</Table>
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, which are included as ordinary income for tax
purposes.
The tax character of distributions paid for the year ended October 31, 2002
was as follows:
<Table>
<Caption>
2002
Distributions paid from:
Ordinary income........................................... $117,168
Long-term capital gain.................................... -0-
--------
$117,168
========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $12,965
</Table>
22
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Net realized gains and 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
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .60% of the average
daily net assets of the Trust. In addition, the Trust will pay 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. The administrative services
provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
For the six months ended April 30, 2003, the Trust recognized expenses of
approximately $6,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
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, 2003, the Trust recognized expenses of approximately $19,700
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
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.
At April 30, 2003, Van Kampen owned 6,700 common shares of the Trust.
23
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $65,311,793 and $64,227,880,
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 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 close the contract prior to 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.
24
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Transactions in futures contracts for the six months ended April 30, 2003,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 313
Futures Opened.............................................. 1,100
Futures Closed.............................................. (958)
-----
Outstanding at April 30, 2003............................... 455
=====
</Table>
The futures contracts outstanding as of April 30, 2003 and the descriptions
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Notes Future June 2003 (Current
Notional Value of $115,125 per contract)................ 87 (25,517)
5-Year U.S. Treasury Notes Future June 2003 (Current
Notional Value of $113,750 per contract)................ 368 (161,506)
--- ---------
455 $(187,023)
=== =========
</Table>
5. PREFERRED SHARES
As of April 30, 2003, 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, 2003 was 1.215%. During the six months ended April 30, 2003,
the rates ranged from .790% to 1.800%.
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.
25
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
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 (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
26
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
VOT SAR 6/03 Member NASD/SIPC.
11215F03-AS-6/03
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. [Reserved.]
Item 9.
The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits.
(a) Code of Ethics - Not applicable for semi-annual reports.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Municipal Opportunity Trust II
-------------------------------------------------------------------
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
By: /s/ John L. Sullivan
----------------------------------------------------------------------------
Name: John Sullivan
Title: Principal Financial Officer
Date: June 23, 2003