The dividend
reinvestment plan (the Plan) offers you a prompt and simple way to reinvest your dividends and capital gains distributions (Distributions) into additional shares of your Invesco closed-end Trust (the Trust).
Under the Plan, the money you earn from Distributions will be reinvested automatically in more shares of the Trust, allowing you to potentially increase your investment over time. All shareholders in the Trust are automatically enrolled in the Plan
when shares are purchased.
Plan
benefits
∎ Add to your account:
You may increase your shares in your Trust easily and automatically with the Plan.
∎ Low transaction costs:
Shareholders who participate in the Plan may be able to buy shares at below-market prices when the Trust is trading at a premium to its net asset value
(NAV). In addition, transaction costs are low because when new shares are issued by the Trust, there is no brokerage fee, and when shares are bought in blocks on the open market, the per share fee is shared among all participants.
∎ Convenience:
You will receive a detailed account statement from Computershare Trust Company, N.A. (the Agent), which administers the Plan. The statement shows your
total Distributions, date of investment, shares acquired, and price per share, as well as the total number of shares in your reinvestment account. You can also access your account at invesco.com/closed-end.
∎ Safekeeping:
The Agent will hold the shares it has acquired for you in safekeeping.
Who can participate in the Plan
If you own shares in your own name, your purchase will automatically enroll you in the Plan. If your shares are held in “street name” – in the name of your
brokerage firm, bank, or other financial institution – you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you
may enroll in the Plan.
How to enroll
If you haven’t participated in the Plan in the past or
chose to opt out, you are still eligible to participate. Enroll by visiting invesco.com/closed-end, by calling toll-free 800 341 2929 or by notifying us in writing at Invesco
Closed-End Funds, Computershare Trust Company, N.A., P.O. Box 505000, Louisville, KY 40233-5000. If you are writing to us, please include the Trust name and account number and ensure that all shareholders
listed on the account sign these written instructions. Your participation in the Plan will begin with the next Distribution payable after the Agent receives your authorization, as long as they receive it before the “record date,” which is
generally 10 business days before the Distribution is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following Distribution.
How the Plan works
If you choose to participate in the Plan, your
Distributions will be promptly reinvested for you, automatically increasing your shares. If the Trust is trading at a share price that is equal to its NAV, you’ll pay that amount for your reinvested shares. However, if the Trust is trading
above or below NAV, the price is determined by one of two ways:
|
|
1.
|
Premium: If the Trust is trading at a premium – a market price that is higher than its NAV – you’ll pay
either the NAV or 95 percent of
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
Statement of Assets and Liabilities
August 31, 2021
(Unaudited)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Investments in unaffiliated securities, at value
(Cost $823,221,482)
|
|
$
|
895,273,887
|
|
|
|
|
|
Receivable for:
|
|
|
|
|
|
Investments sold
|
|
|
155,000
|
|
|
|
|
|
Interest
|
|
|
9,032,885
|
|
|
|
|
|
Investment for trustee deferred compensation and retirement plans
|
|
|
25,527
|
|
|
|
|
|
Total assets
|
|
|
904,487,299
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Floating rate note obligations
|
|
|
129,890,000
|
|
|
|
|
|
Variable rate muni term preferred shares ($0.01 par value, 2,160 shares issued with liquidation preference of
$100,000 per share)
|
|
|
215,974,289
|
|
|
|
|
|
Payable for:
|
|
|
|
|
|
Investments purchased
|
|
|
9,208,672
|
|
|
|
|
|
Dividends
|
|
|
54,703
|
|
|
|
|
|
Amount due custodian
|
|
|
2,358,431
|
|
|
|
|
|
Accrued fees to affiliates
|
|
|
48,546
|
|
|
|
|
|
Accrued interest expense
|
|
|
179,549
|
|
|
|
|
|
Accrued trustees’ and officers’ fees and benefits
|
|
|
1,407
|
|
|
|
|
|
Accrued other operating expenses
|
|
|
147,647
|
|
|
|
|
|
Trustee deferred compensation and retirement plans
|
|
|
25,527
|
|
|
|
|
|
Total liabilities
|
|
|
357,888,771
|
|
|
|
|
|
Net assets applicable to common shares
|
|
$
|
546,598,528
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to common shares consist of:
|
|
|
|
|
|
Shares of beneficial interest – common shares
|
|
$
|
499,390,833
|
|
|
|
|
|
Distributable earnings
|
|
|
47,207,695
|
|
|
|
|
|
|
|
$
|
546,598,528
|
|
|
|
|
|
|
|
Common shares outstanding, no par value,
with an unlimited number of common
shares
authorized:
|
|
|
Common shares outstanding
|
|
|
44,391,551
|
|
|
|
|
|
Net asset value per common share
|
|
$
|
12.31
|
|
|
|
|
|
Market value per common share
|
|
$
|
12.71
|
|
|
|
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
21
Invesco Advantage Municipal Income Trust II
Statement of Operations
For
the six months ended August 31, 2021
(Unaudited)
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
Interest
|
|
$
|
16,613,654
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Advisory fees
|
|
|
2,468,019
|
|
|
|
|
|
Administrative services fees
|
|
|
39,113
|
|
|
|
|
|
Custodian fees
|
|
|
1,043
|
|
|
|
|
|
Interest, facilities and maintenance fees
|
|
|
1,808,114
|
|
|
|
|
|
Transfer agent fees
|
|
|
19,899
|
|
|
|
|
|
Trustees’ and officers’ fees and benefits
|
|
|
14,255
|
|
|
|
|
|
Registration and filing fees
|
|
|
12,482
|
|
|
|
|
|
Reports to shareholders
|
|
|
12,141
|
|
|
|
|
|
Professional services fees
|
|
|
57,782
|
|
|
|
|
|
Other
|
|
|
(113,678
|
)
|
|
|
|
|
Total expenses
|
|
|
4,319,170
|
|
|
|
|
|
Net investment income
|
|
|
12,294,484
|
|
|
|
|
|
|
|
Realized and unrealized gain from:
|
|
|
Net realized gain from unaffiliated investment securities
|
|
|
1,366,272
|
|
|
|
|
|
Change in net unrealized appreciation of unaffiliated investment securities
|
|
|
11,108,256
|
|
|
|
|
|
Net realized and unrealized gain
|
|
|
12,474,528
|
|
|
|
|
|
Net increase in net assets resulting from operations applicable to common shares
|
|
$
|
24,769,012
|
|
|
|
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
22
Invesco Advantage Municipal Income Trust II
Statement of Changes in Net Assets
For the six months ended August 31, 2021 and the year ended February 28, 2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
February 28,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
|
|
|
Operations:
|
|
|
Net investment income
|
|
$
|
12,294,484
|
|
|
$
|
25,676,935
|
|
|
|
|
|
Net realized gain (loss)
|
|
|
1,366,272
|
|
|
|
(4,323,411
|
)
|
|
|
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
11,108,256
|
|
|
|
(15,306,455
|
)
|
|
|
|
|
Net increase in net assets resulting from operations applicable to common shares
|
|
|
24,769,012
|
|
|
|
6,047,069
|
|
|
|
|
|
Distributions to common shareholders from distributable earnings
|
|
|
(12,917,941
|
)
|
|
|
(24,171,201
|
)
|
|
|
|
|
Net increase (decrease) in net assets applicable to common shares
|
|
|
11,851,071
|
|
|
|
(18,124,132
|
)
|
|
|
|
|
|
|
|
|
Net assets applicable to common shares:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
534,747,457
|
|
|
|
552,871,589
|
|
|
|
|
|
End of period
|
|
$
|
546,598,528
|
|
|
$
|
534,747,457
|
|
|
|
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
23
Invesco Advantage Municipal Income Trust II
Statement of Cash Flows
For
the six months ended August 31, 2021
(Unaudited)
|
|
|
|
|
|
|
Cash provided by operating activities:
|
|
|
|
|
|
Net increase in net assets resulting from operations applicable to common shares
|
|
$
|
24,769,012
|
|
|
|
|
|
|
|
|
Adjustments to reconcile the change in net assets applicable to common shares from operations to net cash
provided by operating activities:
|
|
|
|
|
|
Purchases of investments
|
|
|
(57,530,750
|
)
|
|
|
|
|
Proceeds from sales of investments
|
|
|
52,789,662
|
|
|
|
|
|
Proceeds from sales of short-term investments, net
|
|
|
(1,086,684
|
)
|
|
|
|
|
Amortization of premium on investment securities
|
|
|
3,990,341
|
|
|
|
|
|
Accretion of discount on investment securities
|
|
|
(1,414,931
|
)
|
|
|
|
|
Net realized gain from investment securities
|
|
|
(1,366,272
|
)
|
|
|
|
|
Net change in unrealized appreciation on investment securities
|
|
|
(11,108,256
|
)
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in receivables and other assets
|
|
|
102,334
|
|
|
|
|
|
Decrease in accrued expenses and other payables
|
|
|
(145,855
|
)
|
|
|
|
|
Net cash provided by operating activities
|
|
|
8,998,601
|
|
|
|
|
|
Cash provided by (used in) financing activities:
|
|
|
|
|
|
Dividends paid to common shareholders from distributable earnings
|
|
|
(12,916,427
|
)
|
|
|
|
|
Increase in payable for amount due custodian
|
|
|
2,358,431
|
|
|
|
|
|
Proceeds of TOB Trusts
|
|
|
9,455,000
|
|
|
|
|
|
Repayments of TOB Trusts
|
|
|
(9,585,000
|
)
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(10,687,996
|
)
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,689,395
|
)
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,689,395
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
–
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the period for taxes
|
|
$
|
(22,951
|
)
|
|
|
|
|
Cash paid during the period for interest, facilities and maintenance fees
|
|
$
|
1,807,756
|
|
|
|
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
24
Invesco Advantage Municipal Income Trust II
Financial Highlights
August 31, 2021
(Unaudited)
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Years Ended
February 28,
|
|
|
|
|
August 31,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Net asset value per common share, beginning of period
|
|
|
$ 12.05
|
|
|
|
$ 12.45
|
|
|
|
$ 11.55
|
|
|
|
$ 11.81
|
|
|
|
$ 12.03
|
|
|
|
$ 12.70
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.28
|
|
|
|
0.58
|
|
|
|
0.51
|
|
|
|
0.55
|
|
|
|
0.66
|
|
|
|
0.70
|
|
|
|
|
|
Net gains (losses) on securities (both realized and unrealized)
|
|
|
0.27
|
|
|
|
(0.44
|
)
|
|
|
0.93
|
|
|
|
(0.20
|
)
|
|
|
(0.22
|
)
|
|
|
(0.65
|
)
|
|
|
|
|
Total from investment operations
|
|
|
0.55
|
|
|
|
0.14
|
|
|
|
1.44
|
|
|
|
0.35
|
|
|
|
0.44
|
|
|
|
0.05
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to common shareholders from net investment income
|
|
|
(0.29
|
)
|
|
|
(0.54
|
)
|
|
|
(0.52
|
)
|
|
|
(0.59
|
)
|
|
|
(0.66
|
)
|
|
|
(0.72
|
)
|
|
|
|
|
Return of capital
|
|
|
–
|
|
|
|
–
|
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Total distributions
|
|
|
(0.29
|
)
|
|
|
(0.54
|
)
|
|
|
(0.54
|
)
|
|
|
(0.61
|
)
|
|
|
(0.66
|
)
|
|
|
(0.72
|
)
|
|
|
|
|
Net asset value per common share, end of period
|
|
|
$ 12.31
|
|
|
|
$ 12.05
|
|
|
|
$ 12.45
|
|
|
|
$ 11.55
|
|
|
|
$ 11.81
|
|
|
|
$ 12.03
|
|
|
|
|
|
Market value per common share, end of period
|
|
|
$ 12.71
|
|
|
|
$ 11.49
|
|
|
|
$ 11.21
|
|
|
|
$ 10.67
|
|
|
|
$ 10.86
|
|
|
|
$ 11.31
|
|
|
|
|
|
Total return at net asset value(b)
|
|
|
4.62
|
%
|
|
|
1.75
|
%
|
|
|
13.11
|
%
|
|
|
3.61
|
%
|
|
|
3.99
|
%
|
|
|
0.48
|
%
|
|
|
|
|
Total return at market value(c)
|
|
|
13.29
|
%
|
|
|
7.75
|
%
|
|
|
10.24
|
%
|
|
|
4.08
|
%
|
|
|
1.72
|
%
|
|
|
(1.01
|
)%
|
|
|
|
|
Net assets applicable to common shares, end of period (000’s omitted)
|
|
|
$546,599
|
|
|
|
$534,747
|
|
|
|
$552,872
|
|
|
|
$512,613
|
|
|
|
$524,065
|
|
|
|
$533,812
|
|
|
|
|
|
Portfolio turnover rate(d)
|
|
|
6
|
%
|
|
|
20
|
%
|
|
|
9
|
%
|
|
|
14
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/supplemental data based on average net assets applicable to common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With fee waivers and/or expense reimbursements
|
|
|
1.57
|
%(e)
|
|
|
1.84
|
%
|
|
|
2.57
|
%
|
|
|
2.58
|
%
|
|
|
2.25
|
%
|
|
|
2.04
|
%
|
|
|
|
|
With fee waivers and/or expense reimbursements excluding interest, facilities and maintenance fees
|
|
|
0.91
|
%(e)
|
|
|
0.97
|
%
|
|
|
1.01
|
%
|
|
|
1.01
|
%
|
|
|
1.05
|
%
|
|
|
1.00
|
%
|
|
|
|
|
Without fee waivers and/or expense reimbursements
|
|
|
1.57
|
%(e)
|
|
|
1.84
|
%
|
|
|
2.57
|
%
|
|
|
2.58
|
%
|
|
|
2.25
|
%
|
|
|
2.04
|
%
|
|
|
|
|
Ratio of net investment income to average net assets
|
|
|
4.47
|
%(e)
|
|
|
4.89
|
%
|
|
|
4.26
|
%
|
|
|
4.74
|
%
|
|
|
5.44
|
%
|
|
|
5.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount of preferred shares outstanding (000’s omitted)
|
|
|
$216,000
|
|
|
|
$216,000
|
|
|
|
$216,000
|
|
|
|
$216,000
|
|
|
|
$216,000
|
|
|
|
$231,000
|
|
|
|
|
|
Asset coverage per preferred share(f)
|
|
|
$353,055
|
|
|
|
$347,568
|
|
|
|
$355,959
|
|
|
|
$337,321
|
|
|
|
$342,623
|
|
|
|
$331,087
|
|
|
|
|
|
Liquidating preference per preferred share
|
|
|
$100,000
|
|
|
|
$100,000
|
|
|
|
$100,000
|
|
|
|
$100,000
|
|
|
|
$100,000
|
|
|
|
$100,000
|
|
|
|
|
|
(a)
|
Calculated using average shares outstanding.
|
|
(b)
|
Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as
such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year, if applicable.
|
|
(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. Not annualized for periods less than one year, if
applicable.
|
|
(d)
|
Portfolio turnover is not annualized for periods less than one year, if applicable.
|
|
(f)
|
Calculated by subtracting the Trust’s total liabilities (not including preferred shares, at liquidation value) from
the Trust’s total assets and dividing this by the total number of preferred shares outstanding.
|
See accompanying Notes to Financial Statements
which are an integral part of the financial statements.
25
Invesco Advantage Municipal Income Trust II
Notes to Financial Statements
August 31, 2021
(Unaudited)
NOTE 1–Significant Accounting Policies
Invesco Advantage Municipal Income
Trust II (the “Trust”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, closed-end management investment
company.
The Trust’s investment objective is 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, the Trust will invest at least 80% of its net assets in municipal securities rated investment grade at the time of investment.
The Trust is an investment company and accordingly follows the investment company accounting and reporting guidance in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies.
The following is a
summary of the significant accounting policies followed by the Trust in the preparation of its financial statements.
|
A.
|
Security Valuations – Securities, including restricted securities, are valued according to the
following policy.
|
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations),
individual trading characteristics and other market data. Pricing services generally value debt obligations assuming orderly transactions of institutional round lot size, but a trust may hold or transact in the same securities in smaller, odd lot
sizes. Odd lots often trade at lower prices than institutional round lots. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal
payments.
Securities for which market quotations either are not readily available or became unreliable are valued at fair value as
determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Some of the factors which may be considered in determining fair value are fundamental analytical data relating
to the investment; the nature and duration of any restrictions on transferability or disposition; trading in similar securities by the same issuer or comparable companies; relevant political, economic or issuer specific news; and other relevant
factors under the circumstances.
The Trust may invest in securities that are subject to interest rate risk, meaning the risk that the
prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics.
Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Trust investments.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the
issuer’s assets, general market conditions which are not specifically related to the particular issuer, such as real or perceived adverse economic conditions, changes in the general outlook for revenues or corporate earnings, changes in
interest or currency rates, regional or global instability, natural or environmental disasters, widespread disease or other public health issues, war, acts of terrorism or adverse investor sentiment generally and market liquidity. Because of the
inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
|
B.
|
Securities Transactions and Investment Income – Securities transactions are accounted for on a trade date
basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income (net of withholding tax, if any) is recorded on an accrual basis from settlement date and includes coupon interest
and amortization of premium and accretion of discount on debt securities as applicable. Pay-in-kind interest income and non-cash
dividend income received in the form of securities in-lieu of cash are recorded at the fair value of the securities received. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date.
|
The Trust may periodically participate in litigation related to
Trust investments. As such, the Trust may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for
investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the
cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of
Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Trust’s net asset value and,
accordingly, they reduce the Trust’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and the Statement of Changes in Net Assets,
or the net investment income per share and the ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Trust and the investment adviser.
|
C.
|
Country Determination – For the purposes of making investment selection decisions and presentation in the
Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where
the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that
may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country
of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted.
|
|
D.
|
Distributions – The Trust declares and pays monthly dividends from net investment income to common
shareholders. Distributions from net realized capital gain, if any, are generally declared and paid annually and are distributed on a pro rata basis to common and preferred shareholders.
|
|
E.
|
Federal Income Taxes – The Trust intends to comply with the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Trust’s taxable earnings to shareholders. As such, the Trust will not be
subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
|
The Trust recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained.
Management has analyzed the Trust’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is
reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
In addition,
the Trust intends to invest in such municipal securities to allow it to qualify to pay shareholders “exempt dividends”, as defined in the Internal Revenue Code.
The Trust files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Trust is subject to
examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
|
F.
|
Interest, Facilities and Maintenance Fees – Interest, Facilities and Maintenance Fees include interest and
related borrowing costs such as commitment fees, rating and bank agent fees and other expenses associated with lines of credit and Variable Rate Muni Term Preferred Shares (“VMTP Shares”), and interest and administrative expenses related
to establishing and maintaining floating rate note obligations, if any.
|
26
Invesco Advantage Municipal Income Trust II
|
G.
|
Accounting Estimates – The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Trust monitors for material events or
transactions that may occur or become known after the period-end date and before the date the financial statements are released to print.
|
|
H.
|
Indemnifications – Under the Trust’s organizational documents, each Trustee, officer, employee or other
agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts, including the Trust’s servicing
agreements, that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. The risk of
material loss as a result of such indemnification claims is considered remote.
|
|
I.
|
Cash and Cash Equivalents – For the purposes of the Statement of Cash Flows, the Trust defines Cash and Cash
Equivalents as cash (including foreign currency), money market funds and other investments held in lieu of cash and excludes investments made with cash collateral received.
|
|
J.
|
Floating Rate Note Obligations – The Trust invests in inverse floating rate securities, such as Tender Option
Bonds (“TOBs”), for investment purposes and to enhance the yield of the Trust. Such securities may be purchased in the secondary market without first owning an underlying bond but generally are created through the sale of fixed rate bonds
by the Trust to special purpose trusts established by a broker dealer or by the Trust (“TOB Trusts”) in exchange for cash and residual interests in the TOB Trusts’ assets and cash flows, which are in the form of inverse floating rate
securities. The TOB Trusts finance the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Trust to retain residual interests in the bonds. The floating rate notes issued by the TOB Trusts have interest
rates that reset weekly and the floating rate note holders have the option to tender their notes to the TOB Trusts for redemption at par at each reset date. The residual interests held by the Trust (inverse floating rate securities) include the
right of the Trust (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the TOB Trust to the Trust, thereby collapsing the TOB
Trust. Inverse floating rate 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.
|
The Trust generally invests in inverse floating rate securities that include embedded leverage, thus exposing the
Trust to greater risks and increased costs. The primary risks associated with inverse floating rate securities are varying degrees of liquidity and decreases in the value of such securities in response to changes in interest rates to a greater
extent than fixed rate securities having similar credit quality, redemption provisions and maturity, which may cause the Trust’s net asset value to be more volatile than if it had not invested in inverse floating rate securities. In certain
instances, the short-term floating rate notes created by the TOB Trust may not be able to be sold to third parties or, in the case of holders tendering (or putting) such notes for repayment of principal, may not be able to be remarketed to third
parties. In such cases, the TOB Trust holding the fixed rate bonds may be collapsed with the entity that contributed the fixed rate bonds to the TOB Trust. In the case where a TOB Trust is collapsed with the Trust, the Trust will be required to
repay the principal amount of the tendered securities, which may require the Trust to sell other portfolio holdings to raise cash to meet that obligation. The Trust could therefore be required to sell other portfolio holdings at a disadvantageous
time or price to raise cash to meet this obligation, which risk will be heightened during times of market volatility, illiquidity or uncertainty. The embedded leverage in the TOB Trust could cause the Trust to lose more money than the value of the
asset it has contributed to the TOB Trust and greater levels of leverage create the potential for greater losses. In addition, a Trust may enter into reimbursement agreements with the liquidity provider of certain TOB transactions in connection with
certain residuals held by the Trust. These agreements commit a Trust to reimburse the liquidity provider to the extent that the liquidity provider must provide cash to a TOB Trust, including following the termination of a TOB Trust resulting from a
mandatory tender event (“liquidity shortfall”). The reimbursement agreement will effectively make the Trust liable for the amount of the negative difference, if any, between the liquidation value of the underlying security and the purchase
price of the floating rate notes issued by the TOB Trust.
The Trust accounts for the transfer of fixed rate bonds to the TOB Trusts
as secured borrowings, with the securities transferred remaining in the Trust’s investment assets, and the related floating rate notes reflected as Trust liabilities under the caption Floating rate note obligations on the Statement of Assets
and Liabilities. The carrying amount of the Trust’s floating rate note obligations as reported on the Statement of Assets and Liabilities approximates its fair value. The Trust records the interest income from the fixed rate bonds under the
caption Interest and records the expenses related to floating rate obligations and any administrative expenses of the TOB Trusts as a component of Interest, facilities and maintenance fees on the Statement of Operations.
Final rules implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”)
prohibit banking entities from engaging in proprietary trading of certain instruments and limit such entities’ investments in, and relationships with, “covered funds”, as defined in the rules. These rules preclude banking entities and
their affiliates from sponsoring and/or providing services for existing TOB Trusts. A new TOB structure is being utilized by the Trust wherein the Trust, as holder of the residuals, will perform certain duties previously performed by banking
entities as “sponsors” of TOB Trusts. These duties may be performed by a third-party service provider. The Trust’s expanded role under the new TOB structure may increase its operational and regulatory risk. The new structure is
substantially similar to the previous structure; however, pursuant to the Volcker Rule, the remarketing agent would not be able to repurchase tendered floaters for its own account upon a failed remarketing. In the event of a failed remarketing, a
banking entity serving as liquidity provider may loan the necessary funds to the TOB Trust to purchase the tendered floaters. The TOB Trust, not the Trust, would be the borrower and the loan from the liquidity provider will be secured by the
purchased floaters now held by the TOB Trust. However, as previously described, the Trust would bear the risk of loss with respect to any liquidity shortfall to the extent it entered into a reimbursement agreement with the liquidity provider.
Further, the SEC and various banking agencies have adopted rules implementing credit risk retention requirements for asset-backed
securities (the “Risk Retention Rules”). The Risk Retention Rules require the sponsor of a TOB Trust to retain at least 5% of the credit risk of the underlying assets supporting the TOB Trust’s municipal bonds. The Trust has adopted
policies intended to comply with the Risk Retention Rules. The Risk Retention Rules may adversely affect the Trust’s ability to engage in TOB Trust transactions or increase the costs of such transactions in certain circumstances.
There can be no assurances that the new TOB structure will continue to be a viable form of leverage. Further, there can be no assurances
that alternative forms of leverage will be available to the Trust in order to maintain current levels of leverage. Any alternative forms of leverage may be less advantageous to the Trust, and may adversely affect the Trust’s net asset value,
distribution rate and ability to achieve its investment objective.
TOBs are presently classified as private placement securities.
Private placement securities are subject to restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or are otherwise not readily marketable. As a result of the absence of
a public trading market for these securities, they may be less liquid than publicly traded securities. Although atypical, these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Trust or less than what may be considered the fair value of such securities.
|
K.
|
Other Risks - The value of, payment of interest on, repayment of principal for and the ability to sell a municipal
security may be affected by constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the economics of the regions in which the issuers are located. Since many municipal securities are
issued to finance similar projects, especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal securities market and the Trust’s investments in municipal
securities. There is some risk that a portion or all of the interest received from certain tax-free municipal securities could become taxable as a result of determinations by the Internal Revenue Service.
|
The current low interest rate environment was created in part by the Federal Reserve Board (FRB) and certain
foreign central banks keeping the federal funds and equivalent foreign rates near historical lows. Increases in the federal funds and equivalent foreign rates may expose fixed income markets to heightened volatility and reduced liquidity for certain
fixed income investments, particularly those with longer maturities. In addition, decreases in fixed income dealer
27
Invesco Advantage Municipal Income Trust II
market-making capacity may also potentially lead to heightened volatility and reduced liquidity in the fixed income markets. As a result, the value of the Trust’s investments and share price
may decline. Changes in central bank policies could also result in higher than normal shareholder redemptions, which could potentially increase portfolio turnover and the Trust’s transaction costs.
|
L.
|
COVID-19 Risk - The COVID-19 strain
of coronavirus has resulted in instances of market closures and dislocations, extreme volatility, liquidity constraints and increased trading costs. Efforts to contain its spread have resulted in travel restrictions, disruptions of healthcare
systems, business operations and supply chains, layoffs, lower consumer demand, and defaults, among other significant economic impacts that have disrupted global economic activity across many industries. Such economic impacts may exacerbate other pre-existing political, social and economic risks locally or globally.
|
The
ongoing effects of COVID-19 are unpredictable and may result in significant and prolonged effects on the Trust’s performance.
NOTE 2–Advisory Fees and Other Fees Paid to Affiliates
The Trust has
entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Trust accrues daily and pays monthly an advisory fee to the
Adviser based on the annual rate of 0.55% of the Trust’s average daily managed assets. Managed assets for this purpose means the Trust’s net assets, plus assets attributable to outstanding preferred shares and the amount of any borrowings
incurred for the purpose of leverage (whether or not such borrowed amounts are reflected in the Trust’s financial statements for purposes of GAAP).
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management
Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Trust, will pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment
management services to the Trust based on the percentage of assets allocated to such Affiliated Sub-Adviser(s).
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Trust has agreed to pay Invesco for certain
administrative costs incurred in providing accounting services to the Trust. For the six months ended August 31, 2021, expenses incurred under this agreement are shown in the Statement of Operations as Administrative services fees.
Invesco has entered into a sub-administration agreement whereby State Street Bank and Trust Company (“SSB”) serves as fund accountant and provides certain administrative services to the Trust.
Pursuant to a custody agreement with the Trust, SSB also serves as the Trust’s custodian.
Certain officers and trustees of the Trust are
officers and directors of Invesco.
NOTE 3–Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets
(Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three
levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
|
|
|
|
|
Level 1 –
|
|
Prices are determined using quoted prices in an active market for identical assets.
|
|
Level 2 –
|
|
Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.
|
|
Level 3 –
|
|
Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the
period), unobservable inputs may be used. Unobservable inputs reflect the Trust’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best
available information.
|
The following is a summary of the tiered valuation input levels, as of August 31, 2021. The level assigned to the
securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from
the value received upon actual sale of those investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Obligations
|
|
|
$–
|
|
|
$
|
894,777,289
|
|
|
$
|
496,598
|
|
|
$
|
895,273,887
|
|
|
|
|
NOTE 4–Security Transactions with Affiliated Funds
The Trust is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of
Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Trust from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser
(or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, for the six months ended August 31, 2021, the Trust engaged in securities purchases of $6,760,087 and securities sales of $12,840,093, which did not result in any net realized gains (losses).
NOTE 5–Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Trust to pay remuneration to certain Trustees and Officers of the Trust.
Trustees have the option to defer compensation payable by the Trust, and “Trustees’ and Officers’ Fees and Benefits” includes amounts accrued by the Trust to fund such deferred compensation amounts.
NOTE 6–Cash Balances and Borrowings
The Trust is permitted to temporarily
carry a negative or overdrawn balance in its account with SSB, the custodian bank. Such balances, if any at period-end, are shown in the Statement of Assets and Liabilities under the payable caption Amount
due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Trust may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or
(2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Inverse floating rate obligations resulting from the transfer of bonds to TOB Trusts are accounted for as secured borrowings. The average floating rate
notes outstanding and average annual interest and fee rate related to inverse floating rate note obligations during the six months ended August 31, 2021 were $131,242,714 and 0.84%, respectively.
28
Invesco Advantage Municipal Income Trust II
NOTE 7–Tax Information
The
amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Trust’s capital accounts to reflect income and gains available
for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Trust’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and
other activity after that date may affect the amount of capital loss carryforward actually available for the Trust to utilize. The ability to utilize capital loss carryforwards in the future may be limited under the Internal Revenue Code and related
regulations based on the results of future transactions.
The Trust had a capital loss carryforward as of February 28, 2021, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Loss Carryforward*
|
|
|
|
|
|
Expiration
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
|
|
|
|
Not subject to expiration
|
|
$
|
15,354,814
|
|
|
$
|
10,046,187
|
|
|
$
|
25,401,001
|
|
|
|
|
|
*
|
Capital loss carryforward is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may
be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization.
|
NOTE 8–Investment Transactions
The aggregate amount of investment
securities (other than short-term securities, U.S. Government obligations and money market funds, if any) purchased and sold by the Trust during the six months ended August 31, 2021 was $65,579,881 and $52,944,662, respectively. Cost of
investments, including any derivatives, on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
|
|
|
|
|
|
|
Unrealized Appreciation (Depreciation) of Investments on a Tax Basis
|
|
|
|
|
|
Aggregate unrealized appreciation of investments
|
|
$
|
77,470,004
|
|
|
|
|
|
Aggregate unrealized (depreciation) of investments
|
|
|
(7,411,497
|
)
|
|
|
|
|
Net unrealized appreciation of investments
|
|
$
|
70,058,507
|
|
|
|
|
Cost of investments for tax purposes is $825,215,380.
NOTE 9–Common Shares of Beneficial Interest
Transactions in common shares
of beneficial interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
|
August 31,
|
|
|
February 28,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
|
|
|
Beginning shares
|
|
|
44,391,551
|
|
|
|
44,391,551
|
|
|
|
|
|
Shares issued through dividend reinvestment
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Ending shares
|
|
|
44,391,551
|
|
|
|
44,391,551
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|
|
|
|
The Trust may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price
not above market value or net asset value, whichever is lower at the time of purchase.
NOTE 10–Variable Rate Muni Term Preferred Shares
On May 15, 2012, the Trust issued 2,310 Series 2015/6-VKI VMTP Shares, with a liquidation preference of $100,000 per share,
pursuant to an offering exempt from registration under the 1933 Act. Proceeds from the issuance of VMTP Shares on May 15, 2012 were used to redeem all of the Trust’s outstanding Auction Rate Preferred Shares (“ARPS”). VMTP Shares
are a floating-rate form of preferred shares with a mandatory redemption date and are considered debt for financial reporting purposes. On December 31, 2014, the Trust extended the term of the VMTP Shares and was required to redeem all
outstanding VMTP Shares on December 31, 2017, unless earlier redeemed, repurchased or extended. On June 1, 2017, the Trust redeemed 150 Series 2015/6-VKI VMTP Shares, with a liquidation preference of
$100,000 per share to pay holders of record as of May 31, 2017, the redemption price, including accumulated but unpaid dividends, to the holders of VMTP Shares called for redemption on such date, in connection with the partial redemption. In
addition, on June 1, 2017, the Trust extended the term of the remaining outstanding VMTP Shares and was required to redeem all outstanding VMTP Shares on June 1, 2020, unless earlier redeemed, repurchased or extended. On November 19,
2019, the Trust extended the term of the VMTP Shares and is required to redeem all outstanding VMTP Shares on December 1, 2022, unless earlier redeemed, repurchased or extended. VMTP Shares are subject to optional and mandatory redemption in
certain circumstances. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends and a redemption premium, if any. On or prior to the redemption date, the Trust will be required
to segregate assets having a value equal to 110% of the redemption amount.
The Trust incurred costs in connection with the issuance of the VMTP
Shares. These costs were recorded as a deferred charge and were amortized over the original 3 year life of the VMTP Shares. In addition, the Trust incurred costs in connection with the extension of the VMTP Shares that are recorded as a deferred
charge and are being amortized over the extended term. Amortization of these costs is included in Interest, facilities and maintenance fees on the Statement of Operations, and the unamortized balance is included in the value of Variable
rate muni term preferred shares on the Statement of Assets and Liabilities.
Dividends paid on the VMTP Shares (which are treated as interest
expense for financial reporting purposes) are declared daily and paid monthly. The initial rate for dividends was equal to the sum of 1.10% per annum plus the Securities Industry and Financial Markets Association Municipal Swap Index (the
“SIFMA” Index). As of August 31, 2021, the dividend rate is equal to the SIFMA Index plus a spread of 1.05%, which is based on the long term preferred share ratings assigned to the VMTP Shares by a ratings agency. The average
aggregate liquidation preference outstanding and the average annualized dividend rate of the VMTP Shares during the six months ended August 31, 2021 were $216,000,000 and 1.09%, respectively.
The Trust utilizes the VMTP Shares as leverage in order to enhance the yield of its common shareholders. The primary risk associated with VMTP Shares is
exposing the net asset value of the common shares and total return to increased volatility if the value of the Trust decreases while the value of the VMTP Shares remain unchanged. Fluctuations in the dividend rates on the VMTP Shares can also impact
the Trust’s yield or its distributions to common shareholders. The Trust is subject to certain restrictions relating to the VMTP Shares, such as maintaining certain asset coverage and leverage ratio requirements. Failure to comply with these
restrictions could preclude the Trust from declaring any distributions to common shareholders or purchasing common shares and/or could trigger an increased rate which, if not cured, could cause the mandatory redemption of VMTP Shares at the
liquidation preference plus any accumulated but unpaid dividends.
29
Invesco Advantage Municipal Income Trust II
The liquidation preference of VMTP Shares, which approximates fair value, is recorded as a liability under
the caption Variable rate muni term preferred shares on the Statement of Assets and Liabilities. The fair value of VMTP Shares is expected to be approximately their liquidation preference so long as the credit rating on the VMTP Shares, and
therefore the “spread” on the VMTP Shares (determined in accordance with the VMTP Shares’ governing document) remains unchanged. At period-end, the Trust’s Adviser has determined that fair
value of VMTP Shares is approximately their liquidation preference. Fair value could vary if market conditions change materially. Unpaid dividends on VMTP Shares are recognized as Accrued interest expense on the Statement of Assets and Liabilities.
Dividends paid on VMTP Shares are recognized as a component of Interest, facilities and maintenance fees on the Statement of Operations.
NOTE
11–Dividends
The Trust declared the following dividends to common shareholders from net investment income subsequent to August 31, 2021:
|
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Declaration Date
|
|
Amount per Share
|
|
Record Date
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|
|
Payable Date
|
|
|
|
|
|
September 1, 2021
|
|
$0.0485
|
|
|
September 14, 2021
|
|
|
|
September 30, 2021
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|
|
|
|
|
October 1, 2021
|
|
$0.0485
|
|
|
October 14, 2021
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|
|
|
October 29, 2021
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|
|
|
|
30
Invesco Advantage Municipal Income Trust II
Approval of Investment Advisory and Sub-Advisory
Contracts
At meetings held on June 10, 2021, the Board of Trustees (the Board or the Trustees) of Invesco Advantage Municipal
Income Trust II (the Fund) as a whole, and the independent Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco
Advisers and the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset
Management (Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers and the
sub-advisory contracts) for another year, effective July 1, 2021. After evaluating the factors discussed below, among others, the Board approved the renewal of the Fund’s investment advisory
agreement and the sub-advisory contracts and determined that the compensation payable thereunder by the Fund to Invesco Advisers and by Invesco Advisers to the Affiliated
Sub-Advisers is fair and reasonable.
The Board’s Evaluation Process
The Board has established an Investments Committee, which in turn has established Sub-Committees that meet throughout the year
to review the performance of funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet regularly with portfolio managers for their assigned Invesco Funds and other members of management to
review detailed information about investment performance and portfolio attributes of these funds. The Board has established additional standing and ad hoc committees that meet regularly throughout the year to review matters within their purview. The
Board took into account evaluations and reports that it received from its committees and sub-committees, as well as the information provided to the Board and its committees and
sub-committees throughout the year, in considering whether to approve each Invesco Fund’s investment advisory agreement and sub-advisory contracts.
As part of the contract renewal process, the Board reviews and considers information provided in response to detailed requests for information submitted
to management by the independent Trustees with assistance from legal counsel to the independent Trustees. The Board receives comparative investment performance and fee and expense data regarding the Invesco Funds prepared by Broadridge Financial
Solutions, Inc. (Broadridge), an independent mutual fund data provider, as well as information on the composition of the peer groups provided by Broadridge and its methodology for determining peer groups. The Board also receives an independent
written evaluation from the Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco
Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel
throughout the year and as part of meetings
convened on April 27, 2021 and June 10, 2021, the independent Trustees also discussed the continuance of the investment advisory agreement and
sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The
discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement and sub-advisory contracts, as well as a discussion of
the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. The Trustees’ review and
conclusions are based on the comprehensive consideration of all information presented to them during the course of the year and in prior years and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a
particular piece of information or factor differently than another Trustee. The information received and considered by the Board was current as of various dates prior to the Board’s approval on June 10, 2021.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
|
A.
|
Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated
Sub-Advisers
|
The Board reviewed the nature, extent and quality of the advisory services provided to
the Fund by Invesco Advisers under the Fund’s investment advisory agreement, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager(s). The
Board’s review included consideration of Invesco Advisers’ investment process and oversight, credit analysis, and research capabilities. The Board considered information regarding Invesco Advisers’ programs for and resources devoted
to risk management, including management of investment, enterprise, operational, liquidity, valuation and compliance risks, and technology used to manage such risks. The Board considered the additional services provided to the Fund due to the fact
that the Fund is a closed-end fund, including, but not limited to, leverage management and monitoring, evaluating, and, where appropriate, making recommendations with respect to the Fund’s trading
discount, share repurchase program, and distribution rates, as well as shareholder relations activities. The Board received a description of Invesco Advisers’ business continuity plans and of its approach to data privacy and cybersecurity,
including related testing. The Board considered how the cybersecurity and business continuity plans of Invesco Advisers and its key service providers operated in the increased remote working environment resulting from the novel coronavirus (“COVID-19”) pandemic. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds, such as various back
office support functions, third party oversight, internal audit, valuation, portfolio trading and legal and compliance. The Board observed that Invesco Advisers has been able to effectively manage, operate, and oversee the Invesco Funds through the
challenging COVID-19 pandemic period. The Board reviewed and considered the
benefits to shareholders of investing in a Fund that is part of the family of funds under the umbrella of Invesco Ltd., Invesco Advisers’ parent company, and noted Invesco Ltd.’s depth
and experience in running an investment management business, as well as its commitment of financial and other resources to such business. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco
Advisers are appropriate and satisfactory.
The Board reviewed the services that may be provided by the Affiliated
Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated
Sub-Advisers who provide these services. The Board noted the Affiliated Sub-Advisers’ expertise with respect to certain asset classes and that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide
research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the
sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in
managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided to the Fund by the Affiliated Sub-Advisers are appropriate and satisfactory.
|
B.
|
Fund Investment Performance
|
The Board considered Fund investment performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund
investment performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages
assets of the Fund.
The Board compared the Fund’s investment performance over multiple time periods ending December 31, 2020 to the
performance of funds in the Broadridge performance universe and against the S&P Municipal Bond 5+ Year Investment Grade Index (Index). The Board noted that the Fund’s performance was in the third quintile of its performance universe for the
one year period and the fourth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the Fund’s performance was above the
performance of the Index for the one year period and reasonably comparable to the performance of the Index for the three and five year periods. The Board noted that underweight exposure to local and state general obligation bonds detracted from the
Fund’s performance. The Board recognized that the performance data reflects a snapshot in time as of a particular date and that selecting a different performance period could produce different results. The Board also reviewed more recent Fund
performance as well as other performance metrics, which did not change its conclusions. The Board also reviewed supplementally historic premium and discount levels of the Fund as provided to the Board at meetings throughout the year.
31
Invesco Advantage Municipal Income Trust II
|
C.
|
Advisory and Sub-Advisory Fees and Fund Expenses
|
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group. The
Board noted that the contractual management fee rate for shares of the Fund was the same as the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in
the expense group may include both advisory and certain non-portfolio management administrative services fees, but that Broadridge is not able to provide information on a fund by fund basis as to what is
included. The Board also reviewed the methodology used by Broadridge in calculating expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most
recent audited annual reports for each fund in the expense group. The Board also considered comparative information regarding the Fund’s total expense ratio and its various components. The Board noted that the Fund’s total expenses were in
the fourth quintile of its expense group and discussed with management reasons for such relative total expenses.
The Board noted that Invesco
Advisers and the Affiliated Sub-Advisers do not manage other similarly managed mutual funds or client accounts. The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers
pursuant to the sub-advisory contracts.
|
D.
|
Economies of Scale and Breakpoints
|
The Board noted that most closed-end funds do not have fund level breakpoints because
closed-end funds generally do not experience substantial asset growth after the initial public offering. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints,
but does share in economies of scale through Invesco Advisers’ ability to negotiate lower fee arrangements with third party service providers. The Board noted that the Fund may also benefit from economies of scale through initial fee setting,
fee waivers and expense reimbursements, as well as Invesco Advisers’ investment in its business, including investments in business infrastructure, technology and cybersecurity.
|
E.
|
Profitability and Financial Resources
|
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the
Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services in the aggregate and on an individual Fund-by-Fund
basis. The Board considered the methodology used for calculating profitability and noted that such methodology had recently been reviewed and enhanced. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco
Advisers and its affiliates provide to the Invesco Funds in the aggregate and to most Funds individually. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing such services to be excessive, given
the nature, extent and quality of the services provided. The Board noted that Invesco Advisers provided information demonstrating that Invesco Advisers is financially sound and has the
resources necessary to perform its obligations under the investment advisory agreement, and provided representations indicating that the Affiliated
Sub-Advisers are financially sound and have the resources necessary to perform their obligations under the sub-advisory contracts.
|
F.
|
Collateral Benefits to Invesco Advisers and its Affiliates
|
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund. The Board considered the organizational
structure employed to provide these services.
The Board considered that the Fund’s uninvested cash may be invested in registered money market
funds advised by Invesco Advisers. The Board considered information regarding the returns of the affiliated money market funds relative to comparable overnight investments, as well as the fees paid by the affiliated money market funds to Invesco
Advisers and its affiliates. In this regard, the Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to the Fund’s investments. The Board also noted that Invesco Advisers has
contractually agreed to waive through varying periods an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of
uninvested cash.
At meetings held on June 10, 2019, the Board of Trustees (the Board or the Trustees) of Invesco Advantage Municipal Income
Trust II (the Fund) as a whole, and the independent Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers and
the investment advisory agreement) and the Master Intergroup Sub-Advisory Contract for Mutual Funds with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management
(Japan) Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers and the
sub-advisory contracts) for another year, effective July 1, 2019. After evaluating the factors discussed below, among others, the Board approved the renewal of the Fund’s investment advisory
agreement and the sub-advisory contracts and determined that the compensation payable by the Fund to Invesco Advisers and by Invesco Advisers to the Affiliated
Sub-Advisers is fair and reasonable.
The Board’s Evaluation Process
The Board’s Investments Committee has established three Sub-Committees which meet throughout the year to review the
performance of funds advised by Invesco Advisers (the Invesco Funds). As part of a regularly scheduled basis of in-person Board meetings, the Sub-Committees meet with
portfolio managers for their assigned Invesco Funds and other members of management to review detailed information about investment performance and portfolio attributes of these funds. The Board took into account evaluations and reports that it
received from the Investments Committee and Sub-Committees, as well as the information provided to such committees and the Board throughout the year, in considering whether to approve each Invesco Fund’s investment advisory agreement and sub-advisory contracts.
As part of the contract renewal process, the Board reviews and considers information provided in response
to detailed requests for information submitted to management by the independent Trustees with assistance from legal counsel to the independent Trustees. The Board receives comparative investment performance and fee data regarding the Invesco Funds
prepared by Invesco Advisers and Broadridge Financial Solutions, Inc. (Broadridge), an independent mutual fund data provider. The Board also receives an independent written evaluation from the Senior Officer, an officer of the Invesco Funds who
reports directly to the independent Trustees. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract
renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel throughout the year, the independent Trustees also discuss the continuance of the
investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The discussion below is a summary of the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory
agreement, as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory
contracts. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them during the course of the year and in prior years and are not the result of any single determinative factor.
Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee. This information is current as of June 10, 2019.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
|
A.
|
Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated
Sub-Advisers
|
The Board reviewed the nature, extent and quality of the advisory services provided to
the Fund by Invesco Advisers under the Fund’s investment advisory agreement, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager(s). The
Board’s review included consideration of Invesco Advisers’ investment process oversight and structure, credit analysis and investment risk management. The Board also considered non-advisory services
that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, third party oversight, internal audit, valuation, portfolio trading and legal and compliance. The Board also reviewed and considered
the benefits to shareholders of investing in a fund that is part of the Invesco family of funds under the umbrella of Invesco Ltd., Invesco Advisers’ parent company, and noted Invesco Ltd.’s depth and experience in conducting an investment
management business, as well as its commitment of financial and other resources to such business. The Board reviewed and considered information about the resources that Invesco Advisers intends to continue to commit to managing the Invesco family of
funds following Invesco Ltd.’s acquisition of OppenheimerFunds, Inc. and its
32
Invesco Advantage Municipal Income Trust II
subsidiaries. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted the
Affiliated Sub-Advisers’ expertise with respect to certain asset classes and that the Affiliated Sub-Advisers have offices and personnel that are located in
financial centers around the world. As a result, the Board noted that the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the
Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts may benefit the Fund and its shareholders by permitting Invesco
Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory.
|
B.
|
Fund Investment Performance
|
The Board considered Fund investment performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund
investment performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages
assets of the Fund.
The Board compared the Fund’s investment performance over multiple time periods ending December 31, 2018 to the
performance of funds in the Broadridge performance universe and against the Lipper Closed-End General and Insured Municipal Leveraged Debt Funds Index. The Board noted that the Fund’s performance was in
the fourth quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the Fund’s performance
was below the performance of the Index for the one, three and five year periods. The Board noted that overweight exposure to and selection in certain securities and states detracted from the Fund’s performance. The Trustees also reviewed more
recent Fund performance and this review did not change their conclusions. The Board also reviewed supplementally historic premium and discount levels of the Fund as provided to the Board at meetings throughout the year.
|
C.
|
Advisory and Sub-Advisory Fees and Fund Expenses
|
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Broadridge expense group. The
Board noted that the contractual management fee rate for shares of the Fund was the same as the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” for funds in
the expense group may include both advisory and certain non-portfolio management administrative services fees, but that Broadridge does not provide information on a fund by fund basis as to what is included.
The Board also reviewed the methodology used by Broadridge in providing expense group information, which includes using each fund’s
contractual management fee schedule (including any applicable breakpoints) as reported in the most recent audited annual reports for each fund in the expense group. The Board also considered
comparative information regarding the Fund’s total expense ratio and its various components.
The Board noted that Invesco Advisers and the
Affiliated Sub-Advisers do not manage other similarly managed mutual funds or client accounts.
The Board
also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers
to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts.
|
D.
|
Economies of Scale and Breakpoints
|
The Board noted that most closed-end funds do not have fund level breakpoints because
closed-end funds generally do not experience substantial asset growth after the initial public offering. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints,
but does share in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds. The Board considered Invesco’s reinvestment in its business, including investments in business
infrastructure and cybersecurity. The Board noted that the Fund may also benefit from economies of scale through initial fee setting, fee waivers and expense reimbursements.
|
E.
|
Profitability and Financial Resources
|
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the
Fund and the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board considered the methodology used for calculating profitability and noted the periodic review of such methodology by an
independent consultant. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its affiliates provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by
Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, extent and quality of the services provided. The Board received information from Invesco Advisers demonstrating that Invesco Advisers and the
Affiliated Sub-Advisers are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory
contracts.
|
F.
|
Collateral Benefits to Invesco Advisers and its Affiliates
|
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund. The Board considered the organizational
structure employed to provide additional services to the Fund.
The Board considered that the Fund’s uninvested cash may be invested in money
market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board considered information regarding the returns of the affiliated money market funds relative to comparable overnight investments, as well as the costs to
the Fund of such investments. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods
the advisory fees payable by
the Invesco Funds with respect to investments in the affiliated money market funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated
money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash.
33
Invesco Advantage Municipal Income Trust II