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 811-5769
Van Kampen High Income Trust II
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 12/31
Date of reporting period: 12/31/07
Item 1. Report to Shareholders.
The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen High
Income Trust II performed during the annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the trust's
financial statements and a list of trust investments as of December 31,
2007.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
Performance Summary as of 12/31/2007
HIGH INCOME TRUST II
SYMBOL: VLT
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (4/28/89) 5.54% 4.88%
10-year 3.12 0.40
5-year 11.11 7.00
1-year 3.52 -1.71
------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities and preferred shares, by
the total number of common shares outstanding. The common share market price is
the price the market is willing to pay for shares of the trust at a given time.
Common share market price is influenced by a range of factors, including supply
and demand and market conditions. Total return assumes an investment at the
beginning of the period, reinvestment of all distributions for the period in
accordance with the trust's dividend reinvestment plan, and sale of all shares
at the end of the period. The trust's adviser has waived or reimbursed fees and
expenses from time to time; absent such waivers/ reimbursements the trust's
returns would have been lower.
The Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index is an
unmanaged, broad-based index that reflects the general performance of the U.S.
dollar denominated, fixed-rate, non-investment grade, taxable corporate bond
market. Issuers are capped at 2% of the index. It is not possible to invest
directly in an index.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2007
MARKET CONDITIONS
Various fundamental factors were supportive of the high-yield market throughout
the reporting year, including low default rates, moderate economic growth, and
relatively low Treasury yields. In the latter months of the year, however, the
growing probability of recession, concerns of higher default rates in 2008, the
liquidity crunch, and the inability to finance many of the leveraged buyouts
(LBOs) that occurred early in the year weighed heavily on the high-yield market.
As we entered 2007, valuations in the high-yield market were extended and as the
months progressed, spreads tightened further, reaching the tightest levels in
over twenty years by the end of May. In short, the market went from overpriced
to extremely overpriced, despite the continued extensive use of high-yield debt
to finance a glut of leveraged buyouts (LBOs) in the first half of the year. The
heightened amount of LBOs and private activity led to a near record amount of
new high-yield issues, an unprecedented percentage of which were CCC rated
bonds.
The market environment changed dramatically around mid-year, however, as the
spillover effect of the subprime mortgage crisis led to a contraction in
liquidity and credit, and significant market volatility. Investors grew
increasingly concerned about the potential impact on the broader markets and the
economy, and a flight to quality ensued that drove credit spreads considerably
wider.
In an effort to inject liquidity, the Federal Reserve cut both the discount rate
and the target federal funds rates in October and December, bringing those rates
to 4.75 percent and 4.25 percent, respectively, as of year end. While these
moves did help to bring some temporary stability to the markets, conditions
still remained quite difficult and the risk-averse tone of the market prevailed.
As a result, Treasuries outperformed all other sectors of the fixed-income
market.
Recently, the auction rate preferred share (APS) market has experienced a number
of failed auctions across the industry, which included the Trust. These failed
auctions are not defaults or credit events. There is no loss of capital and
holders of APS continue to receive interest on their investment, currently at a
pre-determined maximum rate. We will continue to monitor developments in the
auction market on a daily basis and are working with other market participants
to find ways to restore liquidity to the APS market.
2
PERFORMANCE ANALYSIS
The Trust's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the Trust's portfolio securities, cash and other assets, less all
liabilities and preferred shares, by the total number of common shares
outstanding, while market price reflects the supply and demand for the shares.
As a result, the two returns can differ, as they did during the reporting
period. On an NAV basis, the Trust outperformed its benchmark index, the Lehman
Brothers U.S. Corporate High Yield 2% Issuer Cap Index. On a market price basis,
the Trust underperformed its benchmark.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2007
-------------------------------------------------------------------
LEHMAN BROTHERS
BASED ON U.S. CORPORATE HIGH YIELD
BASED ON NAV MARKET PRICE 2% ISSUER CAP INDEX
3.52% -1.71% 2.26%
-------------------------------------------------------------------
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. Investment return, net asset value and common share market price will
fluctuate and Trust shares, when sold, may be worth more or less than their
original cost. See Performance Summary for additional performance information
and index definition.
We positioned the Trust defensively in terms of both its credit quality profile
and its interest-rate sensitivity throughout the reporting year. We maintained
an average credit quality for the portfolio of BB throughout the year, which is
above that of the overall high-yield market, and underweighted the lowest-rated,
riskiest segments of the market. This positioning was beneficial to performance
as the lower-rated segments of the market turned in the lowest returns for the
one-year period.
With regard to interest rate positioning, we maintained a slightly shorter
duration (a measure of interest-rate sensitivity) for the Trust than that of the
benchmark Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index. The
Trust's yield curve positioning was adjusted in April to benefit from a
steepening curve. We implemented this by underweighting longer-dated issues and
overweighting intermediate-dated issues. This positioning was additive to
performance as the spread between intermediate- and long-dated yields widened
and the curve steepened during the summer.
Throughout the year, we continued to seek to maintain a balanced and well-
diversified portfolio while allowing for strategic overweights in securities and
sectors that we believed possessed the most attractive risk profiles. In terms
of issuer size, we focused on larger companies because of their financial
flexibility, their ability to withstand less favorable financial conditions, and
their superior access to capital markets. Over the course of the year, this led
us to increase the Trust's exposure to the gaming/leisure, health care, and food
and drug sectors
3
while decreasing exposure to transportation, aerospace and defense, and consumer
products. At year end, the Trust's major sector overweights included health
care, food and tobacco, and gaming/leisure. Key sector underweights included
financials, media, technology, and housing.
Given the rising risk of recession, we believe it is prudent to maintain the
Trust's overall defensive positioning as we enter 2008. We will continue to look
for opportunities in the market that represent good value and depending upon
market conditions, may consider moving the Trust toward a less defensive overall
positioning.
The Trust uses leverage to enhance its dividend to common shareholders. The
Trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. During the course of the
period, the Trust's borrowing activity became more expensive, thereby tempering
its benefits. The Trustees have approved a procedure whereby the trust may, when
appropriate, repurchase its shares in the open market or in privately negotiated
transactions at a price not above market value or NAV, whichever is lower at the
time of purchase. This may help support the market value of the trust's shares.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Trust in
the Future.
4
RATINGS ALLOCATION AS OF 12/31/07
AAA/Aaa 3.7%
AA/Aa 1.0
A/a 0.1
BBB/Baa 11.2
BB/Ba 35.4
B/B 46.8
CCC/Ccc 1.8
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 12/31/07
Health Care 11.1%
Utility 8.2
Gaming & Leisure 8.2
Energy 8.2
Transportation 7.7
Food & Tobacco 5.9
Telecommunications 5.0
Cable 4.6
Forest Products 3.9
Retail 3.4
Wireless Communications 3.2
Chemicals 3.2
Diversified Media 3.1
Manufacturing 2.8
United States Treasury Obligation 2.4
Collateralized Mortgage Obligations 2.1
Information Technology 1.9
Metals 1.8
Services 1.7
Food & Drug 1.5
Consumer Products 1.5
Broadcasting 1.2
Housing 1.1
Aerospace 0.7
Financial 0.5
Integrated Telecommunication Services 0.0*
Apparel, Accessories & Luxury Goods 0.0*
Highways & Railtracks 0.0*
IT Consulting & Other Services 0.0*
-----
Total Long-Term Investments 94.9
Total Short-Term Investments 5.1
-----
Total Investments 100.0%
* Amount is less than 0.1%
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Ratings allocation percentages are as a
percentage of long-term debt investments. Summary of investments by industry
classification percentages are as a percentage of total investments. Securities
are classified by sectors that represent broad groupings of related industries.
Rating allocations based upon ratings as issued by Standard and Poor's and
Moody's, respective. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
5
CHANGES IN INVESTMENT POLICIES/PORTFOLIO MANAGER CHANGE
The Trust approved changes/clarifications in its investment policies to
allow the Trust to enter into the following transactions.
FOREIGN AND NON-U.S. DOLLAR DENOMINATED SECURITIES. The Trust may invest
a portion or all of its total assets in securities issued by foreign
governments or foreign corporations; provided, however, that the Trust
may not invest more than 30% of its total assets in non-U.S. dollar
denominated securities.
OPTIONS ON SWAPS. The Trust may write (sell) and purchase put and call
swap options. A swap option is a contract that gives a counterparty the
right (but not the obligation) to enter into a new swap agreement or to
shorten, extend, cancel or otherwise modify an existing swap agreement,
at some designated future time on specified terms. The Trust may use swap
options for hedging purposes or to manage and mitigate the credit and
interest rate risk of the Trust.
A swap option is a contract that gives a counterparty the right (but not
the obligation) to enter into a new swap agreement or to shorten, extend,
cancel or otherwise modify an existing swap agreement, at some designated
future time on specified terms. The Trust may write (sell) and purchase
put and call swap options. The use of swap options involves risks,
including, among others, changes in the market value of securities held
by the Trust, and of swap options relating to those securities may not be
proportionate, (ii) there may not be a liquid market for the Trust to
sell a swap option, which could result in difficulty closing a position,
(iii) swap options can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate and
(iv) counterparty risk.
PORTFOLIO MANAGER CHANGE
As of the date of this report, the Trust is managed by members of the
Adviser's Taxable Fixed Income team. The Taxable Fixed Income team
consists of portfolio managers and analysts. Current members of the team
jointly and primarily responsible for the day-to-day management of the
Trust's portfolio are Henry Choi and Steven K. Kreider, each a Managing
Director of the Adviser.
Mr. Choi has been associated with the Adviser in an investment management
capacity and began managing the Trust since December 2007. Prior to
December 2007, Mr. Choi was a portfolio manager at Citibank (May
2006--October 2007), prior to that he was a portfolio manager at Standard
Pacific Capital (April 2003--April 2005) and prior to that, he was an
analyst at Amaranth Advisors (April 2002--April 2003). Mr. Kreider has
been associated with the Adviser in an investment management capacity
since 1988 and began managing the Trust in June 2007.
Mr. Choi is the lead manager of the Trust. All team members are
responsible for the execution of the overall strategy of the Trust.
"The composition of the team may change from time to time."
6
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
fund's second and fourth fiscal quarters. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Van Kampen
also delivers the semiannual and annual reports to fund shareholders, and
makes these reports available on its public Web site, www.vankampen.com.
In addition to the semiannual and annual reports that Van Kampen delivers
to shareholders and makes available through the Van Kampen public Web
site, each fund files a complete schedule of portfolio holdings with the
SEC for the fund's first and third fiscal quarters on Form N-Q. Van
Kampen does not deliver the reports for the first and third fiscal
quarters to shareholders, nor are the reports posted to the Van Kampen
public Web site. You may, however, obtain the Form N-Q filings (as well
as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site,
http://www.sec.gov. You may also review and copy them at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the
SEC's Public Reference Room may be obtained by calling the SEC at (800)
SEC-0330. You can also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of the Trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 341-2929.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 341-2929 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the Trust voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge by visiting our Web site at www.vankampen.com.
This information is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, the Trust makes portfolio holdings information
available by periodically providing the information on its public web
site, www.vankampen.com. The Trust provides a complete schedule of
portfolio holdings on the public web site on a calendar-quarter basis
approximately 31 calendar days after the close of the calendar quarter.
The Trust also provides Top 10 holdings information on the public web
site approximately 15 business days following the end of each month. For
more information, call (800) 341-2929.
7
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
CORPORATE BONDS 164.9%
AEROSPACE 1.3%
$1,005 Hexcel Corp. ................................... 6.750% 02/01/15 $ 989,925
------------
BROADCASTING 2.2%
420 LIN Television Corp. ........................... 6.500 05/15/13 397,425
335 LIN Television Corp., Ser B..................... 6.500 05/15/13 316,993
515 Salem Communications Corp. ..................... 7.750 12/15/10 515,644
495 Univision Communications, Inc. (a) (b).......... 9.750 03/15/15 453,544
------------
1,683,606
------------
CABLE 8.4%
1,175 Cablevision Systems Corp., Ser B (c)............ 9.644 04/01/09 1,194,094
495 CCH I LLC....................................... 11.000 10/01/15 405,900
350 CCH II LLC...................................... 10.250 09/15/10 344,750
495 Echostar DBS Corp. ............................. 5.750 10/01/08 495,619
1,740 Echostar DBS Corp. ............................. 6.375 10/01/11 1,723,470
340 Echostar DBS Corp. ............................. 6.625 10/01/14 339,150
80 Intelsat Subsidiary Holding Co., Ltd.
(Bermuda)....................................... 8.250 01/15/13 80,800
950 Intelsat Subsidiary Holding Co., Ltd.
(Bermuda)....................................... 8.625 01/15/15 959,500
145 NTL Cable PLC (United Kingdom).................. 8.750 04/15/14 144,637
100 NTL Cable PLC (United Kingdom).................. 9.125 08/15/16 99,500
693 PanAmSat Corp. ................................. 9.000 08/15/14 699,930
------------
6,487,350
------------
CHEMICALS 5.8%
740 Innophos, Inc. ................................. 8.875 08/15/14 740,000
705 Koppers, Inc. .................................. 9.875 10/15/13 745,538
1,450 Nalco Co. ...................................... 7.750 11/15/11 1,475,375
750 Terra Capital, Inc. ............................ 7.000 02/01/17 736,875
834 Westlake Chemical Corp. ........................ 6.625 01/15/16 792,300
------------
4,490,088
------------
CONSUMER PRODUCTS 2.7%
990 Jarden Corp. ................................... 7.500 05/01/17 856,350
565 Oxford Industrials, Inc. ....................... 8.875 06/01/11 565,000
740 Steinway Musical Instruments, Inc. (b).......... 7.000 03/01/14 680,800
------------
2,102,150
------------
DIVERSIFIED MEDIA 5.7%
1,425 CanWest Media, Inc. (Canada).................... 8.000 09/15/12 1,351,969
685 Dex Media West, LLC, Ser B...................... 9.875 08/15/13 714,112
1,095 Idearc, Inc. ................................... 8.000 11/15/16 1,010,138
515 Interpublic Group of Cos., Inc. ................ 6.250 11/15/14 440,325
985 Valassis Communications, Inc. .................. 8.250 03/01/15 882,806
------------
4,399,350
------------
ENERGY 14.9%
1,440 CHC Helicopter Corp. (Canada)................... 7.375 05/01/14 1,368,000
1,825 Chesapeake Energy Corp. ........................ 6.625 01/15/16 1,793,062
230 Cimarex Energy Co. ............................. 7.125 05/01/17 227,125
8 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
$ 565 Compagnie Generale de Geophysique, SA (France).. 7.500% 05/15/15 $ 574,888
1,500 Frontier Oil Corp. ............................. 6.625 10/01/11 1,500,000
760 Helix Energy Solutions Group, Inc. (b).......... 9.500 01/15/16 777,100
1,610 Hilcorp Energy/Finance Corp. (b)................ 7.750 11/01/15 1,589,875
1,100 Kinder Morgan, Inc. ............................ 6.500 09/01/12 1,098,899
1,310 Massey Energy Co. .............................. 6.875 12/15/13 1,241,225
620 OPTI Canada, Inc. (Canada) (b).................. 8.250 12/15/14 616,900
650 Pacific Energy Partners, LP..................... 7.125 06/15/14 677,052
------------
11,464,126
------------
FINANCIAL 0.9%
205 Capmark Financial Group, Inc. (b)............... 5.875 05/10/12 162,417
85 Capmark Financial Group, Inc. (b)............... 6.300 05/10/17 63,467
476 UCAR Finance, Inc. ............................. 10.250 02/15/12 493,255
------------
719,139
------------
FOOD & DRUG 2.8%
1,230 Rite Aid Corp. ................................. 8.125 05/01/10 1,211,550
560 SUPERVALU, Inc. ................................ 7.500 05/15/12 581,811
365 SUPERVALU, Inc. ................................ 7.500 11/15/14 375,950
------------
2,169,311
------------
FOOD & TOBACCO 10.8%
465 Constellation Brands, Inc. (b).................. 7.250 05/15/17 432,450
1,300 Constellation Brands, Inc. ..................... 8.000 02/15/08 1,304,875
635 Michael Foods, Inc. ............................ 8.000 11/15/13 631,825
1,430 Pilgrim's Pride Corp. .......................... 7.625 05/01/15 1,412,125
725 Reynolds American, Inc. ........................ 6.500 07/15/10 745,895
380 Smithfield Foods, Inc. ......................... 7.625 02/15/08 380,950
1,810 Smithfield Foods, Inc., Ser B................... 8.000 10/15/09 1,837,150
1,500 Tyson Foods, Inc. .............................. 6.850 04/01/16 1,546,733
------------
8,292,003
------------
FOREST PRODUCTS 7.2%
1,270 Crown Americas LLC.............................. 7.625 11/15/13 1,304,925
850 Georgia-Pacific Corp. (b)....................... 7.125 01/15/17 830,875
1,000 Graphic Packaging International, Inc. .......... 9.500 08/15/13 992,500
2,083 Owens-Brockway Glass Containers, Inc. .......... 8.875 02/15/09 2,093,415
320 P.H. Glatfelter Co. ............................ 7.125 05/01/16 316,800
------------
5,538,515
------------
GAMING & LEISURE 14.9%
750 Caesars Entertainment, Inc. .................... 8.875 09/15/08 779,311
965 Host Marriott LP................................ 6.375 03/15/15 945,700
1,135 Host Marriott LP, Ser J......................... 7.125 11/01/13 1,149,187
1,630 Isle of Capri Casinos, Inc. .................... 7.000 03/01/14 1,344,750
1,370 Las Vegas Sands Corp. .......................... 6.375 02/15/15 1,294,650
2,900 MGM Mirage, Inc. ............................... 6.000 10/01/09 2,900,000
1,510 Mohegan Tribal Gaming Authority................. 7.125 08/15/14 1,468,475
See Notes to Financial Statements 9
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
GAMING & LEISURE (CONTINUED)
$1,160 Station Casinos, Inc. .......................... 6.000% 04/01/12 $ 1,038,200
175 Station Casinos, Inc. .......................... 6.875 03/01/16 128,625
490 Station Casinos, Inc. .......................... 7.750 08/15/16 444,675
------------
11,493,573
------------
HEALTH CARE 20.3%
725 Community Health Systems, Inc. ................. 8.875 07/15/15 742,219
1,845 DaVita, Inc. ................................... 6.625 03/15/13 1,845,000
1,485 Fisher Scientific International, Inc. .......... 6.125 07/01/15 1,477,287
1,000 FMC Finance III, SA (Luxembourg) (b)............ 6.875 07/15/17 1,005,000
97 Fresenius Medical Care Capital Trust II......... 7.875 02/01/08 972,425
1,290 Fresenius Medical Care Capital Trust IV......... 7.875 06/15/11 1,341,600
595 HCA, Inc. ...................................... 5.750 03/15/14 496,825
170 HCA, Inc. ...................................... 6.250 02/15/13 149,600
895 HCA, Inc. ...................................... 6.375 01/15/15 760,750
882 HCA, Inc. ...................................... 8.750 09/01/10 894,127
465 HCA, Inc. ...................................... 9.125 11/15/14 484,763
165 Invacare Corp. ................................. 9.750 02/15/15 167,888
735 Omnicare, Inc. ................................. 6.750 12/15/13 694,575
710 Omnicare, Inc. ................................. 6.875 12/15/15 663,850
750 Res-Care, Inc. ................................. 7.750 10/15/13 746,250
600 Tenet Healthcare Corp. ......................... 7.375 02/01/13 528,000
575 Tenet Healthcare Corp. ......................... 9.875 07/01/14 550,562
1,405 Ventas Realty, LP (REIT)........................ 6.750 06/01/10 1,422,562
650 Warner Chilcott Corp. .......................... 8.750 02/01/15 672,750
------------
15,616,033
------------
HOUSING 1.9%
1,090 Interface, Inc., Ser B.......................... 9.500 02/01/14 1,144,500
80 Pulte Homes, Inc. .............................. 6.375 05/15/33 61,006
370 Realogy Corp. (b)............................... 10.500 04/15/14 277,500
------------
1,483,006
------------
INFORMATION TECHNOLOGY 3.5%
395 First Data Corp. (b)............................ 9.875 09/24/15 367,844
1,095 Freescale Semiconductor, Inc. .................. 8.875 12/15/14 982,762
1,340 Iron Mountain, Inc. ............................ 8.625 04/01/13 1,363,450
------------
2,714,056
------------
MANUFACTURING 5.0%
330 Baldor Electric Co. ............................ 8.625 02/15/17 341,550
1,200 Case New Holland, Inc. ......................... 7.125 03/01/14 1,203,000
925 JohnsonDiversey, Inc., Ser B.................... 9.625 05/15/12 950,438
540 Propex Fabrics, Inc. ........................... 10.000 12/01/12 245,700
1,140 RBS Global, Inc. & Rexnord Corp. ............... 9.500 08/01/14 1,134,300
------------
3,874,988
------------
10 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
METALS 3.2%
$ 245 Foundation, PA Coal Co. ........................ 7.250% 08/01/14 $ 243,163
735 Freeport-McMoRan Copper & Gold, Inc. ........... 8.375 04/01/17 790,125
1,505 Novelis, Inc. (Canada).......................... 7.250 02/15/15 1,422,225
------------
2,455,513
------------
RETAIL 6.1%
1,045 Brown Shoe Co., Inc. ........................... 8.750 05/01/12 1,071,125
1,400 JC Penney Corp., Inc. .......................... 8.000 03/01/10 1,458,356
2,150 Phillips-Van Heusen Corp. ...................... 7.250 02/15/11 2,174,188
------------
4,703,669
------------
SERVICES 3.2%
1,760 Allied Waste North America, Inc. ............... 6.375 04/15/11 1,751,200
45 Allied Waste North America, Inc. ............... 7.875 04/15/13 46,237
416 Aramark Services Inc. .......................... 5.000 06/01/12 359,840
60 Aramark Services, Inc. (c)...................... 8.411 02/01/15 58,800
215 Aramark Services, Inc. ......................... 8.500 02/01/15 218,763
------------
2,434,840
------------
TELECOMMUNICATIONS 9.1%
861 Axtel, SA (Mexico).............................. 11.000 12/15/13 938,490
375 Citizens Communications Co. .................... 6.250 01/15/13 365,156
500 Exodus Communications, Inc. (d) (e) (f)......... 11.250 07/01/08 0
290 Nordic Tel Co. Holdings (Denmark) (b)........... 8.875 05/01/16 298,700
1,000 Qwest Corp. .................................... 7.875 09/01/11 1,045,000
3,000 Qwest Corp. (c)................................. 8.241 06/15/13 3,075,000
815 Wind Acquisition Finance, SA (Luxembourg) (b)... 10.750 12/01/15 892,425
345 Windstream Corp. ............................... 8.125 08/01/13 358,800
------------
6,973,571
------------
TRANSPORTATION 14.1%
1,115 Arvin Meritor, Inc. ............................ 8.750 03/01/12 1,045,312
390 Asbury Automotive Group, Inc. .................. 7.625 03/15/17 347,100
1,720 Ford Motor Credit Co. .......................... 5.800 01/12/09 1,633,004
615 Ford Motor Credit Co. .......................... 7.000 10/01/13 514,340
990 Ford Motor Credit Co. .......................... 7.250 10/25/11 858,179
2,140 General Motors Acceptance Corp. ................ 6.875 09/15/11 1,832,182
1,180 General Motors Corp. ........................... 7.125 07/15/13 1,026,600
1,225 Petro Stopping Centers, LP...................... 9.000 02/15/12 1,283,188
1,645 Sonic Automotive, Inc., Ser B................... 8.625 08/15/13 1,607,988
700 United Auto Group, Inc. ........................ 7.750 12/15/16 658,000
------------
10,805,893
------------
UTILITY 15.0%
1,275 AES Corp. ...................................... 7.750 03/01/14 1,290,937
41 AES Corp. ...................................... 8.875 02/15/11 42,947
127 AES Corp. ...................................... 9.375 09/15/10 133,985
615 CMS Energy Corp. ............................... 6.300 02/01/12 623,540
700 CMS Energy Corp. ............................... 8.500 04/15/11 757,547
1,950 Colorado Interstate Gas Co. .................... 6.800 11/15/15 2,039,624
See Notes to Financial Statements 11
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------
UTILITY (CONTINUED)
$ 795 Dynegy Holdings, Inc. .......................... 7.750% 06/01/19 $ 737,363
800 Intergen NV (Netherlands) (b)................... 9.000 06/30/17 846,000
465 IPALCO Enterprises, Inc. ....................... 8.375 11/14/08 475,462
405 IPALCO Enterprises, Inc. ....................... 8.625 11/14/11 425,250
510 Nevada Power Co., Ser A......................... 8.250 06/01/11 556,500
765 NRG Energy, Inc. ............................... 7.375 01/15/17 747,787
484 PSEG Energy Holdings............................ 8.625 02/15/08 487,322
735 Reliant Energy, Inc. ........................... 7.875 06/15/17 731,325
315 Sierra Pacific Power Co., Ser H................. 6.250 04/15/12 324,854
690 Texas Competitive Electric Holdings Co. LLC, Ser
A (b)........................................... 10.250 11/01/15 686,550
620 Texas Competitive Electric Holdings Co. LLC, Ser
B (b)........................................... 10.250 11/01/15 616,900
------------
11,523,893
------------
WIRELESS COMMUNICATIONS 5.9%
240 American Tower Corp. ........................... 7.125 10/15/12 247,800
1,425 American Tower Corp. ........................... 7.500 05/01/12 1,474,875
1,775 Nextel Communications, Inc., Ser E.............. 6.875 10/31/13 1,750,036
1,000 Rural Cellular Corp. ........................... 8.250 03/15/12 1,042,500
------------
4,515,211
------------
TOTAL CORPORATE BONDS 164.9%........................................ 126,929,809
------------
UNITED STATES TREASURY OBLIGATION 4.4%
3,400 United States Treasury Bond..................... 4.500 02/15/36 3,418,329
------------
COLLATERALIZED MORTGAGE OBLIGATIONS 3.9%
432 American Home Mortgage Assets (c)............... 5.165 06/25/47 348,595
408 American Home Mortgage Assets (c)............... 5.093 10/25/46 334,105
462 Countrywide Alternative Loan Trust (c).......... 5.228 03/20/47 379,155
450 Countrywide Alternative Loan Trust (c).......... 5.385 10/25/46 211,500
375 Countrywide Alternative Loan Trust (c).......... 5.685 01/25/36 187,500
275 Greenpoint Mortgage Funding Trust (c)........... 5.275 09/25/46 218,119
375 Harborview Mortgage Loan Trust (c).............. 5.481 08/21/36 187,500
700 Lehman XS Trust (c)............................. 5.865 03/25/47 476,280
548 Luminent Mortgage Trust (c)..................... 5.225 07/25/36 421,781
325 Structured Asset Mortgage Investments, Inc.
(c)............................................. 5.235 08/25/36 249,134
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS............................ 3,013,669
------------
EQUITIES 0.0%
DecisionOne Corp. (5,483 Common Shares) (f) (g).............................. 0
Hosiery Corp. of America, Inc., Class A (1,000 Common Shares) (f) (g)........ 0
VS Holdings, Inc. (20,207 Common Shares) (f) (g)............................. 0
XO Holdings, Inc. (681 Common Shares) (g).................................... 1,410
12 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
DESCRIPTION VALUE
--------------------------------------------------------------------------------------------
EQUITIES (CONTINUED)
XO Holdings, Inc., Ser A (1,364 Common Stock Warrants, expiring 01/16/10)
(g)........................................................................ $ 286
XO Holdings, Inc., Ser B (1,022 Common Stock Warrants, expiring 01/16/10)
(g)........................................................................ 133
XO Holdings, Inc., Ser C (1,022 Common Stock Warrants, expiring 01/16/10)
(g)........................................................................ 51
------------
TOTAL EQUITIES 0.0%......................................................... 1,880
------------
TOTAL LONG-TERM INVESTMENTS 173.2%
(Cost $139,221,472)........................................................ 133,363,687
------------
SHORT-TERM INVESTMENTS 9.3%
REPURCHASE AGREEMENTS 8.5%
Banc of America Securities ($1,830,184 par collateralized by U.S. Government
obligations in a pooled cash account, interest rate of 4.50%, dated
12/31/07, to be sold on 01/02/08 at $1,830,641)............................ 1,830,184
Citigroup Global Markets, Inc. ($1,626,830 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 4.10%,
dated 12/31/07, to be sold on 01/02/08 at $1,627,201)...................... 1,626,830
State Street Bank & Trust Co. ($3,040,986 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 3.90%,
dated 12/31/07, to be sold on 01/02/08 at $3,041,645)...................... 3,040,986
------------
TOTAL REPURCHASE AGREEMENTS.................................................. 6,498,000
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 0.8%
United States Treasury Bill ($645,000 par, yielding 4.855%, 01/10/08
maturity) (h).............................................................. 644,247
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $7,142,247).......................................................... 7,142,247
------------
TOTAL INVESTMENTS 182.5%
(Cost $146,363,719)........................................................ 140,505,934
OTHER ASSETS IN EXCESS OF LIABILITIES 2.6%.................................. 2,033,277
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (85.1%).................. (65,541,163)
------------
NET ASSETS 100.0%........................................................... $ 76,998,048
============
Percentages are calculated as a percentage of net assets applicable to common
shares.
(a) Payment-in-kind security.
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
(b) 144A-Private Placement security which is exempt from registration under Rule
144A of the Securities Act of 1933, as amended. This security may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(c) Floating Rate Coupon.
(d) Non-income producing as security is in default.
(e) This borrower has filed for protection in federal bankruptcy court.
(f) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(g) Non-income producing security as this stock currently does not declare
income dividends.
(h) All or a portion of this security has been physically segregated in
connection with open futures contracts.
REIT--Real Estate Investment Trust
FUTURES CONTRACTS OUTSTANDING AS OF DECEMBER 31, 2007:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
LONG CONTRACTS:
U.S. Treasury Notes 5-Year Futures, March 2008 (Current
Notional Value of $110,281 per contract).................. 34 $ 10,722
U.S. Treasury Notes 2-Year Futures, March 2008 (Current
Notional Value of $210,250 per contract).................. 34 (3,019)
--- --------
68 $ 7,703
=== ========
SHORT CONTRACTS:
U.S. Treasury Bond Futures, March 2008 (Current Notional
Value of $116,375 per contract)........................... 159 $ (7,831)
U.S. Treasury Notes 10-Year Futures, March 2008 (Current
Notional Value of $113,391 per contract).................. 63 (26,285)
--- --------
222 $(34,116)
--- --------
TOTAL FUTURES CONTRACTS..................................... 290 $(26,413)
=== ========
SWAP AGREEMENTS OUTSTANDING AS OF DECEMBER 31, 2007:
CREDIT DEFAULT SWAPS
PAY/
RECEIVE NOTIONAL
REFERENCE BUY/SELL FIXED EXPIRATION AMOUNT UPFRONT
COUNTERPARTY ENTITY PROTECTION RATE DATE (000) PAYMENTS VALUE
Lehman Brothers Special
Financing Inc. ....... CDX.NA.HY.9 Sell 3.750% 12/20/12 $4,600 $(296,125) $(197,613)
--------- ---------
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2007 continued
INTEREST RATE SWAPS
PAY/ FIXED
FLOATING RECEIVE RATE NOTIONAL
RATE FIXED FLOATING EXPIRATION AMOUNT
COUNTERPARTY INDEX RATE RATE DATE (000) VALUE
Deutsche Bank AG New York.... USD-LIBOR BBA Pay 5.031% 10/25/17 $20,700 $ 600,328
JP Morgan Chase Bank, N.A.... USD-LIBOR BBA Pay 5.428 08/20/17 9,700 725,354
JP Morgan Chase Bank, N.A.... USD-LIBOR BBA Pay 5.361 08/24/17 8,200 568,104
----------
$1,893,786
----------
TOTAL SWAP AGREEMENTS.................................................................... $1,696,173
==========
See Notes to Financial Statements 15
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2007
ASSETS:
Total Investments (Cost $146,363,719)....................... $140,505,934
Cash........................................................ 502
Swap Contracts.............................................. 1,893,786
Receivables:
Interest.................................................. 2,614,627
Other....................................................... 1,215
------------
Total Assets............................................ 145,016,064
------------
LIABILITIES:
Payables:
Swap Collateral........................................... 1,299,544
Variation Margin on Futures............................... 118,047
Investment Advisory Fee................................... 78,661
Income Distributions--Common Shares....................... 45,202
Other Affiliates.......................................... 12,795
Trustees' Deferred Compensation and Retirement Plans........ 596,915
Swap Contracts.............................................. 197,613
Accrued Expenses............................................ 128,076
------------
Total Liabilities....................................... 2,476,853
Preferred Shares (including accrued distributions).......... 65,541,163
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 76,998,048
============
NET ASSET VALUE PER COMMON SHARE ($76,998,048 divided by
18,851,327 shares outstanding)............................ $ 4.08
============
NET ASSETS CONSIST OF:
Common Shares ($0.01 par value with an unlimited number of
shares authorized, 18,851,327 shares issued and
outstanding).............................................. $ 188,513
Paid in Surplus............................................. 139,578,548
Accumulated Undistributed Net Investment Income............. (1,243,964)
Net Unrealized Depreciation................................. (3,891,900)
Accumulated Net Realized Loss............................... (57,633,149)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 76,998,048
============
PREFERRED SHARES ($0.01 par value, authorized 100,000,000
shares, 2,616 issued with liquidation preference of
$25,000 per share)........................................ $ 65,400,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $142,398,048
============
16 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended December 31, 2007
INVESTMENT INCOME:
Interest.................................................... $10,724,374
Other....................................................... 323,085
-----------
Total Income............................................ 11,047,459
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,014,299
Preferred Share Maintenance................................. 178,135
Professional Fees........................................... 100,427
Accounting and Administrative Expenses...................... 50,699
Reports to Shareholders..................................... 47,378
Transfer Agent Fees......................................... 40,650
Trustees' Fees and Related Expenses......................... 30,984
Registration Fees........................................... 30,269
Custody..................................................... 21,018
Other....................................................... 21,690
-----------
Total Expenses.......................................... 1,535,549
Investment Advisory Fee Reduction....................... 72,450
-----------
Net Expenses............................................ 1,463,099
-----------
NET INVESTMENT INCOME....................................... $ 9,584,360
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (117,576)
Futures................................................... (311,152)
Swap Contracts............................................ 21,857
-----------
Net Realized Loss........................................... (406,871)
-----------
UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (560,349)
-----------
End of the Period:
Investments............................................. (5,857,785)
Futures................................................. (26,413)
Swap Contracts.......................................... 1,992,298
-----------
(3,891,900)
-----------
Net Unrealized Depreciation During the Period............... (3,331,551)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(3,738,422)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(3,530,876)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 2,315,062
===========
See Notes to Financial Statements 17
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 9,584,360 $ 9,303,612
Net Realized Loss..................................... (406,871) (4,351,903)
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (3,331,551) 5,254,604
Distributions to Preferred Shareholders:
Net Investment Income............................... (3,530,876) (3,173,370)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations.......................................... 2,315,062 7,032,943
Distributions to Common Shareholders:
Net Investment Income............................... (6,224,682) (6,782,767)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES.......................... (3,909,620) 250,176
FROM CAPITAL TRANSACTIONS:
Repurchase of Shares.................................. (173,301) -0-
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS APPLICABLE TO
COMMON SHARES....................................... (4,082,921) 250,176
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................... 81,080,969 80,830,793
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $(1,243,964) and
$(1,381,772), respectively)......................... $76,998,048 $81,080,969
=========== ===========
18 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2007 2006 2005 2004 2003
---------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.......... $ 4.29 $ 4.28 $ 4.76 $ 4.57 $ 3.79
------- ------- ------- ------- -------
Net Investment Income............................ 0.51(a) 0.49(a) 0.52 0.52 0.52
Net Realized and Unrealized Gain/Loss............ (0.20) 0.05 (0.45) 0.16 0.75
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income.......................... (0.19) (0.17) (0.11) (0.05) (0.04)
Return of Capital Distributions................ -0- -0- -0- -0- -0-(f)
------- ------- ------- ------- -------
Total from Investment Operations.................. 0.12 0.37 (0.04) 0.63 1.23
Distributions Paid to Common Shareholders:
Net Investment Income.......................... (0.33) (0.36) (0.44) (0.44) (0.44)
Return of Capital Distributions................ -0- -0- -0- -0- (0.01)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD................ $ 4.08 $ 4.29 $ 4.28 $ 4.76 $ 4.57
======= ======= ======= ======= =======
Common Share Market Price at End of the Period.... $ 3.63 $ 4.02 $ 4.14 $ 5.14 $ 5.08
Total Return* (b)................................. -1.71% 6.02% -11.46% 10.83% 37.20%
Net Assets Applicable to Common Shares at End of
the Period (In millions)......................... $ 77.0 $ 81.1 $ 80.8 $ 38.6 $ 37.1
Ratio of Expenses to Average Net Assets Applicable
to Common Shares* (c)............................ 1.84% 2.00% 2.43% 2.12% 2.25%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares* (c).......... 12.06% 11.69% 11.89% 11.51% 12.29%
Portfolio Turnover................................ 37% 48% 62% 86% 74%
* If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (c)............... 1.93% 2.05% N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (c)........ 11.97% 11.64% N/A N/A N/A
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c)............................. 1.01% 1.10% 1.37% 1.21% 1.24%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)........... 7.61% 7.70% 9.24% 10.40% 11.34%
SENIOR SECURITIES:
Total Preferred Shares Outstanding................ 2,616 2,616 2,616 1,112 1,112
Asset Coverage Per Preferred Share (e)............ $54,487 $56,040 $55,933 $59,715 $58,320
Involuntary Liquidating Preference Per Preferred
Share............................................ $25,000 $25,000 $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.......... $25,000 $25,000 $25,000 $25,000 $25,000
(a)Based on average shares outstanding.
(b)Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale of
all shares at the closing common share market price at the end of the period
indicated.
(c)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d)Ratios reflect the effect of dividend payments to preferred shareholders.
(e)Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(f)Amount is less than $0.01 per share.
N/A=Not Applicable
See Notes to Financial Statements 19
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Trust II (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940 (the "1940 Act"), as amended. The Trust's investment objective is to
provide high current income, while seeking to preserve shareholders' capital
through investment in a professionally managed diversified portfolio of income
producing, fixed income securities. The Trust commenced investment operations on
April 28, 1989.
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 Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not readily available, valuations are
obtained from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Futures contracts are valued at the settlement price
established each day on the exchange on which they are traded. Swaps are valued
using market quotations obtained from brokers. Short-term securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
segregate assets with the custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
after payment is made. At December 31, 2007, the Trust had no when-issued or
delayed delivery purchase commitments.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Trust may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
discount is accreted and premium is amortized over the expected life of each
applicable security. Other
20
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
income is comprised primarily of consent fees. Consent fees are earned as
compensation for agreeing to changes in the terms of debt instruments.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required. The
Trust adopted the provisions of the Financial Accounting Standards Board
("FASB") Interpretation No. 48 ("FIN 48") Accounting for Uncertainty in Income
Taxes on June 29, 2007. FIN 48 sets forth a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return. The implementation of FIN 48 did not result in any
unrecognized tax benefits in the accompanying financial statements. If
applicable, the Trust recognizes interest accrued related to unrecognized tax
benefits in "Interest Expense" and penalties in "Other" expenses on the
Statement of Operations. The Trust files tax returns with the U.S. Internal
Revenue Service and New York. Generally, each of the tax years in the four year
period ended December 31, 2007, remains subject to examination by taxing
authorities.
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 these losses against any future realized capital
gains. At December 31, 2007, the Trust had an accumulated capital loss carry
forward for tax purposes of $56,962,475 which will expire according to the
following schedule.
AMOUNT EXPIRATION
$ 9,851,557 ........................................................... December 31, 2008
17,412,110 ........................................................... December 31, 2009
17,027,138 ........................................................... December 31, 2010
6,782,916 ........................................................... December 31, 2011
875,105 ........................................................... December 31, 2012
565,263 ........................................................... December 31, 2013
4,400,827 ........................................................... December 31, 2014
47,559 ........................................................... December 31, 2015
Due to a merger with another regulated investment company, a portion of the
capital loss carry forward referred to above may be limited under Internal
Revenue Code Section 382.
At December 31, 2007, the cost and related gross unrealized appreciation and
depreciation were as follows:
Cost of investments for tax purposes........................ $146,998,449
============
Gross tax unrealized appreciation........................... $ 1,300,954
Gross tax unrealized depreciation........................... (7,793,469)
------------
Net tax unrealized depreciation on investments.............. $ (6,492,515)
============
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 at least annually on a pro rata basis to common and
preferred shareholders. Distributions from
21
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
net realized gains for book purposes may include short-term capital gains and a
portion of futures gains, which are included in ordinary income for tax
purposes.
The tax character of distributions paid during the years ended December 31,
2007 and 2006 was as follows:
2007 2006
Distributions paid from:
Ordinary income........................................... $9,733,991 $9,909,458
Return of Capital......................................... -0- 38,192
---------- ----------
$9,733,991 $9,947,650
========== ==========
Permanent differences, primarily due to a portion of capital loss carry
forward expiring in the current year and consent fee income received from tender
offers, resulted in the following reclassifications among the Trust's components
of net assets at December 31, 2007:
ACCUMULATED UNDISTRIBUTED ACCUMULATED
NET INVESTMENT INCOME NET REALIZED LOSS PAID IN SURPLUS
$309,006 $5,699,545 $(6,008,551)
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $15,356
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of gains or losses recognized on securities for
tax purposes but not for book purposes, post-October losses of $151,277 which
are not recognized for tax purposes until the first of the following fiscal
year, and 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, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average daily net assets including preferred shares of
the Trust. For the year ended December 31, 2007, the Adviser voluntarily waived
$72,450 of its investment advisory fees. This represents .05% of the average
daily net assets including preferred shares of the Trust. This waiver is
voluntary and can be discontinued at any time.
For the year ended December 31, 2007, the Trust recognized expenses of
approximately $14,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each trust. For the year ended December 31,
2007, the Trust recognized expenses of approximately $48,400 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, as well as the
22
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
salary, benefits and related costs of the CCO and related support staff paid by
Van Kampen. Services provided pursuant to the Legal Services agreement are
reported as part of "Professional Fees" on the Statement of Operations. Services
provided pursuant to the Accounting Services and CCO Employment agreement are
reported as part of "Accounting and Administrative Expenses" on the Statement of
Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
For the years ended December 31, 2007 and 2006, transactions in common shares
were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2007 DECEMBER 31, 2006
Beginning Shares..................................... 18,893,621 18,893,621
Shares Repurchased*.................................. (42,294) -0-
---------- ----------
Ending Shares........................................ 18,851,327 18,893,621
========== ==========
* For the period ended December 31, 2007, the Trust repurchased 42,294 of its
shares at an average discount of 6.269% from net asset value per share.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and U.S. Government securities, were
$47,366,262 and $50,242,608 respectively. The cost of purchases and proceeds
from sales of long-term U.S. Government securities, including paydowns on
mortgage-backed securities, for the period were $3,317,656 and $47,141,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust may use derivative instruments for a variety of reasons, such as
to attempt to protect the Trust against possible changes in the market value of
its portfolio or to generate potential gain. All of the Trust's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In these instances,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract. Risks may arise as a result of the potential
inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
23
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds or Notes. Upon
entering into futures contracts, the Trust maintains an amount of cash or liquid
securities with a value equal to a percentage of the contract amount with either
a futures commission merchant pursuant to rules and regulations promulgated
under the 1940 Act, as amended, or with its custodian in an account in the
broker's name. This amount is known as initial margin. During the period the
futures contract is open, payments are received from or made to the broker based
upon changes in the value of the contract (the variation margin). The risk of
loss associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 2007 were
as follows:
CONTRACTS
Outstanding at December 31, 2006............................ 0
Futures Opened.............................................. 2,389
Futures Closed.............................................. (2,099)
------
Outstanding at December 31, 2007............................ 290
======
B. SWAP CONTRACTS The Trust may enter into credit default swap contracts for
hedging purposes or to gain exposure to a credit in which the Trust may
otherwise invest. A credit default swap is an agreement between two parties to
exchange the credit risk of an issuer. A buyer of a credit default swap is said
to buy protection by paying periodic fees in return for a contingent payment
from the seller if the issuer has a credit event such as bankruptcy, a failure
to pay outstanding obligations or deteriorating credit while the swap is
outstanding. A seller of a credit default swap is said to sell protection and
thus collects the periodic fees and profits if the credit of the issuer remains
stable or improves while the swap is outstanding but the seller in a credit
default swap contract would be required to pay an agreed-upon amount, which
approximates the notional amount of the swap as disclosed in the table following
the Portfolio of Investments, to the buyer in the event of an adverse credit
event of the issuer. The Trust accrues for the periodic fees on credit default
swaps on a daily basis with the net amount accrued recorded within unrealized
appreciation/depreciation of swap contracts. Upon cash settlement of the
periodic fees, the net amount is recorded as realized gain/loss on swap
contracts on the Statement of Operations. Net unrealized gains are recorded as
an asset or net unrealized losses are reported as a liability on the Statement
of Assets and Liabilities. The change in value of the swap contracts is reported
as unrealized gains or losses on the Statement of Operations. Payments received
or made upon entering into a credit default swap contract, if any, are recorded
as realized gain or loss on the Statement of Operations upon termination or
maturity of the swap. Credit default swaps may involve greater risks than if a
Trust had invested in the issuer directly. Credit default swaps are subject to
general market risk, counterparty risk and credit risk.
The Trust may also enter into interest rate swaps primarily to preserve a
return or spread on a particular investment or portion of its portfolio, as a
duration management technique or to protect against any increase in the price of
securities the Trust anticipates purchasing at a later date. Interest rate swaps
are contractual agreements to exchange periodic interest payment streams
calculated on a predetermined notional principal amount. Interest
24
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
rate swaps generally involve one party paying a fixed interest rate and the
other party paying a variable rate. The Trust will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out in a
cash settlement on the payment date or dates specified in the instrument, with
the Trust receiving or paying, as the case may be, only the net amount of the
two payments. The Trust accrues the net amount with respect to each interest
rate swap on a daily basis. This net amount is recorded within unrealized
appreciation/depreciation on swap contracts. Upon cash settlement of the
periodic payments, the net amount is recorded as realized gain/loss on swap
contracts on the Statement of Operations. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
If there is a default by the counterparty to a swap agreement, the Trust
will have contractual remedies pursuant to the agreements related to the
transaction. Counterparties are required to pledge collateral daily (based on
the valuation of each swap) on behalf of the Trust with a value approximately
equal to the amount of any unrealized gain. Cash collateral, when received by
the Trust, is recorded with an offsetting liability shown on the Statement of
Assets and Liabilities. Reciprocally, when the Trust has an unrealized loss on a
swap contract, the Trust has instructed the custodian to pledge cash or liquid
securities as collateral with a value approximately equal to the amount of the
unrealized loss. Collateral pledges are monitored and subsequently adjusted if
and when the swap valuations fluctuate. Restricted cash, if any, for segregating
purposes is shown on the Statement of Assets and Liabilities.
6. PREFERRED SHARES
The Trust has outstanding 2,616 Auction Preferred Shares (APS). Series A
contains 1,112 shares and Series B contains 1,504 shares. Dividends are
cumulative and the dividend rate on each series is currently reset every 28 days
through an auction process. If the preferred shares are unable to be remarketed
on a remarketing date, the Trust would be required to pay the maximum applicable
rate on APS to holders of such shares for successive dividend periods until such
time when the shares are successfully remarketed. The maximum rate on APS is
equal to 150% of the applicable commercial paper rate on the date. The average
rate in effect on December 31, 2007 was 6.011%. During the year ended December
31, 2007, the rates ranged from 5.000% to 6.600%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of "Preferred Share
Maintenance" expense on the Statement of Operations.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
7. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
8. ACCOUNTING PRONOUNCEMENT
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after
25
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 continued
November 15, 2007. SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. As
of December 31, 2007, the Adviser does not believe the adoption of SFAS 157 will
impact the amounts reported in the financial statements, however, additional
disclosures will be required about the inputs used to develop the measurements
of fair value and the effect of certain measurements reported on the Statement
of Operations for a fiscal period.
9. SUBSEQUENT EVENT
AUCTION PREFERRED SHARES (APS)
On February 20, 2008, Series A of the preferred shares of the Trust was not
successfully remarketed. As a result, the dividend rate of these preferred
shares was reset to the maximum rate on APS of 6.99%.
26
VAN KAMPEN HIGH INCOME TRUST II
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen High Income Trust II:
We have audited the accompanying statement of assets and liabilities of Van
Kampen High Income Trust II (the "Trust"), including the portfolio of
investments, as of December 31, 2007, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2007, by correspondence with the Trust's
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen High Income Trust II as of December 31, 2007, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 22, 2008
27
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan (the "Plan") offers you a prompt and simple
way to reinvest your dividends and capital gains distributions into additional
shares of Van Kampen High Income Trust II (the "Trust"). Under the Plan, the
money you earn from dividends and capital gains 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 the Trust easily and automatically with the
Plan.
- LOW TRANSACTION COSTS
Transaction costs are low because the new shares are bought in blocks and the
brokerage commission is shared among all participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust Company,
N.A., which administers the Plan, whenever shares are reinvested for you. 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 via the Internet. To do this, please
go to vankampen.com.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for you
in safekeeping.
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly 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.
If you choose to participate in the Plan, whenever the Trust declares a
dividend or capital gains distribution, it will be invested in additional shares
of your Trust that are purchased on the open market.
HOW TO ENROLL
To enroll in the Plan, please read the Terms and Conditions in the Plan
brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by
visiting vankampen.com, calling toll-free (800) 341-2929 or notifying us in
28
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN continued
writing at Van Kampen Closed End Funds, Computershare Trust Company, N.A., P.O.
Box 43078, Providence, RI 02940-3011. 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 dividend
or capital gains distribution payable after Computershare Trust Company, N.A.
receives your authorization, as long as they receive it before the "record
date," which is generally ten business days before the dividend is paid. If your
authorization arrives after such record date, your participation in the Plan
will begin with the following dividend or distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the Plan's fees are paid by the Fund. However, when
applicable, you will pay your portion of any brokerage commissions incurred when
the new shares are purchased on the open market. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions,
because shares are purchased for all participants in blocks, resulting in lower
commissions for each individual participant. Any brokerage commissions or
service fees are averaged into the purchase price.
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does
not relieve you of any income tax that may be due on dividends or distributions.
You will receive tax information annually to help you prepare your federal and
state income tax returns.
Van Kampen does not offer tax advice. The tax information contained herein
is general and is not exhaustive by nature. It was not intended or written to be
used, and it cannot be used by any taxpayer, for avoiding penalties that may be
imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws
are complex and constantly changing. Shareholders should always consult a legal
or tax advisor for information concerning their individual situation.
29
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN continued
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Plan please visit vankampen.com or call (800) 341-2929 or
notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3011
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have three options with regard to the shares
held in your account:
1. If you opt to continue to hold your non-certificated shares, they will be
held by Computershare Trust Company N.A.
2. If you opt to sell your shares through Van Kampen, we will sell all full and
fractional shares and send the proceeds via check to your address of record
after deducting brokerage commissions and a $2.50 service fee.
3. You may sell your shares through your financial advisor through the Direct
Registration Systems ("DRS"). DRS is a service within the securities industry
that allows Trust shares to be held in your name in electronic format. You
retain full ownership of your shares, without having to hold a stock
certificate.
The Trust and Computershare Trust Company, N.A. may amend or terminate the Plan.
Participants will receive written notice at least 30 days before the effective
date of any amendment. In the case of termination, Participants will receive
written notice at least 30 days before the record date for the payment of any
dividend or capital gains distribution by the Trust. In the case of amendment or
termination necessary or appropriate to comply with applicable law or the rules
and policies of the Securities and Exchange Commission or any other regulatory
authority, such written notice will not be required.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
30
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
DENNIS SHEA
Vice President
J. DAVID GERMANY
Vice President
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
STUART N. SCHULDT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
522 Fifth Avenue
New York, New York 10036
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
c/o Computershare Investor Services
P.O. Box 43078
Providence, Rhode Island 02940-3078
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606-4301
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
December 31, 2007. As provided by the American Jobs Creation Act of 2004,
certain interest-related dividends paid by the Trust may not be subjected to
U.S. withholding tax. The Trust intends to designate up to a maximum of
$9,639,857 as qualifying as interest-related dividends. In January, the Trust
provides tax information to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
31
VAN KAMPEN HIGH INCOME TRUST II
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 22, 2007,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by common shareholders of
the Trust:
# OF SHARES
------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
R. Craig Kennedy.......................................... 13,744,445 332,329
Jack E. Nelson............................................ 13,764,136 312,639
With regard to the election of the following trustees by preferred shareholders
of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Hugo F. Sonnenschein........................................ 1,504 2
The other trustees of the Trust whose terms did not expire in 2007 are David C.
Arch, Jerry D. Choate, Rod Dammeyer, Linda Hutton Heagy, Howard J Kerr, Wayne W.
Whalen and Suzanne H. Woolsey.
32
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Trust generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (62) Trustee Trustee Chairman and Chief 74 Trustee/Director/Managing
Blistex Inc. since 1989 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products Director of the Heartland
manufacturer. Alliance, a nonprofit
organization serving
human needs based in
Chicago. Board member of
the Illinois
Manufacturers'
Association.
Jerry D. Choate (69) Trustee Trustee Prior to January 1999, 74 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Valero Energy
to January 1995, Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
33
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (67) Trustee Trustee President of CAC, L.L.C., 74 Trustee/Director/Managing
CAC, L.L.C. since 1989 a private company General Partner of funds
4350 La Jolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Quidel
San Diego, CA 92122-6223 advisory services. Corporation, Stericycle,
Inc., Ventana Medical
Systems, Inc. and Trustee
of The Scripps Research
Institute. Prior to April
2007, Director of GATX
Corporation. Prior to
April 2004, Director of
TheraSense, Inc. Prior to
January 2004, Director of
TeleTech Holdings Inc.
and Arris Group, Inc.
Linda Hutton Heagy+ (59) Trustee Trustee Managing Partner of 74 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive international executive in the Fund Complex.
Suite 7000 search firm. Prior to Trustee on the University
Chicago, IL 60606 1997, Partner of Ray & of Chicago Hospitals
Berndtson, Inc., an Board, Vice Chair of the
executive recruiting Board of the YMCA of
firm. Prior to 1995, Metropolitan Chicago and
Executive Vice President a member of the Women's
of ABN AMRO, N.A., a bank Board of the University
holding company. Prior to of Chicago.
1990, Executive Vice
President of The Exchange
National Bank.
34
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (56) Trustee Trustee Director and President of 74 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S. Director of First Solar,
foundation created to Inc.
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (72) Trustee Trustee Prior to 1998, President 74 Trustee/Director/Managing
14 Huron Trace since 1992 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the Marrow
Foundation.
Jack E. Nelson (72) Trustee Trustee President of Nelson 74 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the Financial
Industry Regulatory
Authority ("FINRA"),
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
35
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (67) Trustee Trustee President Emeritus and 74 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Trustee of the University
Distinguished Service of Rochester and a member
Professor in the of its investment
Department of Economics committee. Member of the
at the University of National Academy of
Chicago. Prior to July Sciences, the American
2000, President of the Philosophical Society and
University of Chicago. a fellow of the American
Academy of Arts and
Sciences.
36
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (66) Trustee Trustee Chief Communications 74 Trustee/Director/Managing
815 Cumberstone Road since 2003 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004. Director of
Operating Officer from Intelligent Medical
1993 to 2001. Prior to Devices, Inc., a symptom
1993, Executive Director based diagnostic tool for
of the Commission on physicians and clinical
Behavioral and Social labs. Director of the
Sciences and Education at Institute for Defense
the National Academy of Analyses, a federally
Sciences/National funded research and
Research Council. From development center,
1980 through 1989, Director of the German
Partner of Coopers & Marshall Fund of the
Lybrand. United States, Director
of the Rocky Mountain
Institute and Trustee of
California Institute of
Technology and the
Colorado College.
37
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (68) Trustee Trustee Partner in the law firm 74 Trustee/Director/Managing
333 West Wacker Drive since 1989 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
+ As indicated above, Ms. Heagy is an employee of Heidrick and Struggles, an
international executive search firm ("Heidrick"). Heidrick has been (and may
continue to be) engaged by Morgan Stanley from time to time to perform
executive searches. Such searches have been unrelated to Van Kampen's or
Morgan Stanley's asset management businesses and have been done by
professionals at Heidrick without any involvement by Ms. Heagy. Ethical wall
procedures exist to ensure that Ms. Heagy will not have any involvement with
any searches performed by Heidrick for Morgan Stanley. Ms. Heagy does not
receive any compensation, directly or indirectly, for searches performed by
Heidrick for Morgan Stanley. Ms. Heagy does own common shares of Heidrick
(representing less than 1% of Heidrick's outstanding common shares).
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
38
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Ronald E. Robison (69) President and Officer President of funds in the Fund Complex since September 2005
522 Fifth Avenue Principal since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10036 Executive since May 2003. Managing Director of Van Kampen Advisors
Officer Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution Inc. Chief
Executive Officer and Director of Morgan Stanley Trust.
Executive Vice President and Principal Executive Officer of
the Institutional and Retail Morgan Stanley Funds. Director
of Morgan Stanley SICAV. Previously, Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Dennis Shea (54) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
522 Fifth Avenue since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10036 and Van Kampen Advisors Inc. Chief Investment
Officer--Global Equity of the same entities since February
2006. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006. Previously, Managing
Director and Director of Global Equity Research at Morgan
Stanley from April 2000 to February 2006.
J. David Germany (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
20 Bank Street, since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment
London, GBR E14 4AD Officer--Global Fixed Income of the same entities since
December 2005. Managing Director and Director of Morgan
Stanley Investment Management Ltd. Director of Morgan
Stanley Investment Management (ACD) Limited since December
2003. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006.
39
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Amy R. Doberman (45) Vice President Officer Managing Director and General Counsel--U.S. Investment
522 Fifth Avenue since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10036 Management Inc., Morgan Stanley Investment Advisors Inc. and
the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang Yu (41) Vice President Officer Managing Director of Morgan Stanley Investment Management
522 Fifth Avenue and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10036 Complex.
John L. Sullivan (52) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza - Suite 100 Officer since 1998 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Stuart N. Schuldt (46) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza - Suite 100 Officer and since 2007 Inc. since June 2007. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex since June 2007. Prior to June
2007, Senior Vice President of Northern Trust Company,
Treasurer and Principal Financial Officer for Northern Trust
U.S. mutual fund complex.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Chief Executive Officer has certified to the New
York Stock Exchange that, as of June 27, 2007, he was not aware of any violation
by the Trust of NYSE corporate governance listing standards.
The certifications by the Trust's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Trust's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
40
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors
Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van
Kampen Exchange Corp., as well as current and former individual investors in
Van Kampen mutual funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised
by us. This Policy is, however, applicable to individuals who select us to
be a custodian of securities or assets in individual retirement accounts,
401(k) accounts, 529 Educational Savings Accounts, accounts subject to the
Uniform Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we
help you achieve your financial objectives. This Policy describes what
non-public personal information we collect about you, why we collect it, and
when we may share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies
you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information
from applications and other forms you submit to us, from your dealings with
us, from consumer reporting agencies, from our Web sites and from third
parties and other sources.
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Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you
better and to manage our business, we may disclose personal information we
collect about you to our affiliated companies and to non-affiliated third
parties as required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise
required or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except
to enable them to provide services on our behalf, to perform joint marketing
agreements with
(continued on back)
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza - Suite 100
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2008 Van Kampen Funds Inc.
All rights reserved. Member FINRA/SIPC.
902, 911, 104
VLTANN 2/08
(VAN KAMPEN INVESTMENTS LOGO) IU08-00660P-Y12/07
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Trust or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Due to personnel changes at the Adviser, the list of covered officers set
forth in Exhibit B was amended in June 2007 and the general counsel's
designee set forth in Exhibit C was amended in October and December 2006.
Both editions of Exhibit B and all three editions of Exhibit C are
attached.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 12(1).
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : Rod Dammeyer, Jerry Choate and R. Craig Kennedy. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2007
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
AUDIT FEES.............. $48,525 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES... $ 800(4) $180,000(2)
TAX FEES............. $ 1,600(3) $ 0
ALL OTHER FEES....... $ 0 $ 0
TOTAL NON-AUDIT FEES.... $ 2,400 $180,000
TOTAL................... $50,925 $180,000
2006
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
AUDIT FEES.............. $45,500 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES... $ 800(4) $244,200(2)
TAX FEES............. $ 1,600(3) $ 0
ALL OTHER FEES....... $ 0 $ 0
TOTAL NON-AUDIT FEES.... $ 2,400 $244,200
TOTAL................... $47,900 $244,200
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any
entity controlling, controlled by or under common control with the Adviser
that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically attestation services provided in connection with a
SAS 70 Report.
(3) Tax Fees represent tax advice and compliance services provided in
connection with the review of the Registrant's tax.
(4) Audit-Related Fees represent agreed upon procedures provided that are
reasonably related to the performance of the audit of the financial
statements of the Registrant.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
JOINT AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
VAN KAMPEN FUNDS
AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether
such services are consistent with the SEC's rules on auditor independence. The
Audit Committee will also consider whether the Independent Auditors are best
positioned to provide the most effective and efficient services, for reasons
such as its familiarity with the Fund's business, people, culture, accounting
systems, risk profile and other factors, and whether the service might enhance
the Fund's ability to manage or control risk or improve audit quality. All such
factors will be considered as a whole, and no one factor should necessarily be
determinative.
The Audit Committee is also mindful of the relationship between fees for
audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval
----------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy
and Procedures (the "Policy"), amended as of the date above, supercedes and
replaces all prior versions that may have been amended from time to time.
(2) Terms used in this Policy and not otherwise defined herein shall have the
meanings as defined in the Joint Audit Committee Charter.
from the Audit Committee. The Audit Committee will add to or subtract from the
list of general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix
B.2. All other Audit-related services not listed in Appendix B.2 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services. Hence, the Audit Committee believes it may grant
general pre-approval to those Tax services that have historically been provided
by the Independent Auditors, that the Audit Committee has reviewed and believes
would not impair the independence of the Independent Auditors, and that are
consistent with the SEC's rules on auditor independence. The Audit Committee
will not permit the retention of the Independent Auditors in connection with a
transaction initially recommended by the Independent Auditors, the sole business
purpose of which may be tax avoidance and the tax treatment of which may not be
supported in the Internal Revenue Code and related regulations. The Audit
Committee will consult with Director of Tax or outside counsel to determine that
the tax planning and reporting positions are consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services involving large and complex
transactions not listed in Appendix B.3 must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated), including tax services proposed to be provided by the
Independent Auditors to any executive officer or trustee/director/managing
general partner of the Fund, in his or her individual capacity, where such
services are paid for by the Fund (generally applicable only to internally
managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided
by the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be rendered. The Fund's Chief Financial Officer
will determine whether such services are included within the list of services
that have received the general pre-approval of the Audit Committee. The Audit
Committee will be informed on a timely basis of any such services rendered by
the Independent Auditors. Requests or applications to provide services that
require specific approval by the Audit Committee will be submitted to the Audit
Committee by both the Independent Auditors and the Fund's Chief Financial
Officer, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's rules on auditor
independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services
are determined to have a direct impact on the operations or financial reporting
of the Registrant. 100% of such services were pre-approved by the audit
committee pursuant to the Audit Committee's pre-approval policies and procedures
(included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Craig Kennedy, Jerry Choate and Rod Dammeyer.
(b) Not applicable.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust's and its investment advisor's Proxy Voting Policies and Procedures
are as follows:
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policy and
procedures for voting proxies ("Policy") with respect to securities held in the
accounts of clients applies to those MSIM entities that provide discretionary
investment management services and for which a MSIM entity has authority to vote
proxies. This Policy is reviewed and updated as necessary to address new and
evolving proxy voting issues and standards.
The MSIM entities covered by this Policy currently include the following: Morgan
Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley
Investment Management Inc., Morgan Stanley Investment Management Limited, Morgan
Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each an "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates" or as "we"
below).
Each MSIM Affiliate will use its best efforts to vote proxies as part of its
authority to manage, acquire and dispose of account assets. With respect to the
MSIM registered management investment companies (Van Kampen, Institutional and
Advisor Funds--collectively referred to herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies under this Policy pursuant to authority granted
under its applicable investment advisory agreement or, in the absence of such
authority, as authorized by the Board of Directors/Trustees of the MSIM Funds.
An MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA
account has reserved the authority for itself, or in the case of an account not
governed by ERISA, the investment management or investment advisory agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will vote
proxies in a prudent and diligent manner and in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which the MSIM Affiliates manage assets, consistent with
the objective of maximizing long-term investment returns ("Client Proxy
Standard"). In certain situations, a client or its fiduciary may provide an MSIM
Affiliate with a proxy voting policy. In these situations, the MSIM Affiliate
will comply with the client's policy.
Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as we may retain from time
to time, the "Research Providers") are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided include in-depth research, global
issuer analysis, and voting recommendations. While we may review and utilize the
recommendations of the Research Providers in making proxy voting decisions, we
are in no way obligated to follow such recommendations. In addition to research,
ISS provides vote execution, reporting, and recordkeeping.
Voting Proxies for Certain Non-U.S. Companies - Voting proxies of companies
located in some jurisdictions, particularly emerging markets, may involve
several problems that can restrict or prevent the ability to vote such proxies
or entail significant costs. These problems include, but are not limited to: (i)
proxy statements and ballots being written in a language other than English;
(ii) untimely and/or inadequate notice of shareholder meetings; (iii)
restrictions on the ability of holders outside the issuer's jurisdiction of
organization to exercise votes; (iv) requirements to vote proxies in person; (v)
the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate our voting instructions. As a
result, we vote clients' non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent with the
Client Proxy Standard. ISS has been retained to provide assistance in connection
with voting non-U.S. proxies.
II. GENERAL PROXY VOTING GUIDELINES
To promote consistency in voting proxies on behalf of its clients, we follow
this Policy (subject to any exception set forth herein), including the
guidelines set forth below. These guidelines address a broad range of issues,
and provide general voting parameters on proposals that arise most frequently.
However, details of specific proposals vary, and those details affect particular
voting decisions, as do factors specific to a given company. Pursuant to the
procedures set forth herein, we may vote in a manner that is not in accordance
with the following general guidelines, provided the vote is approved by the
Proxy Review Committee and is consistent with the Client Proxy Standard. Morgan
Stanley AIP GP LP will follow the procedures as described in Appendix A.
We endeavor to integrate governance and proxy voting policy with investment
goals and to follow the Client Proxy Standard for each client. At times, this
may result in split votes, for example when different clients have varying
economic interests in the outcome of a particular voting matter (such as a case
in which varied ownership interests in two companies involved in a merger result
in different stakes in the outcome). We also may split votes at times based on
differing views of portfolio managers, but such a split vote must be approved by
the Proxy Review Committee.
A. ROUTINE MATTERS. We generally support routine management proposals. The
following are examples of routine management proposals:
- Approval of financial statements and auditor reports.
- General updating/corrective amendments to the charter.
- Most proposals related to the conduct of the annual meeting, with the
following exceptions. We may oppose proposals that relate to "the
transaction of such other business which may come before the meeting,"
and open-ended requests for adjournment. However, where management
specifically states the reason for requesting an adjournment and the
requested adjournment is necessary to permit a proposal that would
otherwise be supported under this Policy to be carried out (i.e. an
uncontested corporate transaction), the adjournment request will be
supported. Finally, we generally support shareholder proposals
advocating confidential voting procedures and independent tabulation
of voting results.
B. BOARD OF DIRECTORS
1. Election of directors: In the absence of a proxy contest, we generally
support the board's nominees for director except as follows:
a. We withhold or vote against interested directors if the company's
board does not meet market standards for director independence,
or if otherwise we believe board independence is insufficient. We
refer to prevalent market standards, generally as promulgated by
a stock exchange or other authority within a given market (e.g.,
New York Stock Exchange or Nasdaq rules for most U.S. companies,
and The Combined Code on Corporate Governance in the United
Kingdom). Thus, for a NYSE company with dispersed ownership, we
would expect that at a minimum a majority of directors should be
independent as defined by NYSE. Non-independent directors under
NYSE standards include an employee or an individual with an
immediate family member who is an executive (or in either case
was in such position within the previous three years). A
director's consulting arrangements with the company, or material
business relationships between the director's employer and the
company, also impair independence. Market standards
notwithstanding, we generally do not view long board tenure alone
as a basis to classify a director as non-independent. Where we
view market standards as inadequate, we may withhold votes based
on stronger independence standards.
b. Depending on market standards, we consider withholding support
from or voting against a nominee who is interested and who is
standing for election as a member of the company's compensation,
nominating or audit committees.
c. We consider withholding support or voting against a nominee if we
believe a direct conflict exists between the interests of the
nominee and the public shareholders. This includes consideration
for withholding support or voting against individual board
members or an entire slate if we believe the board is entrenched
and dealing inadequately with performance problems, and/or with
insufficient independence between the board and management.
d. We consider withholding support from or voting against a nominee
standing for election if the board has not taken action to
implement generally accepted governance practices for which there
is a "bright line" test. In the context of the U.S. market, these
would include elimination of dead hand or slow hand poison pills,
requiring audit, compensation or nominating committees to be
composed of independent directors and requiring a majority
independent board.
e. We generally withhold support from or vote against a nominee who
has failed to attend at least 75% of board meetings within a
given year without a reasonable excuse.
f. We consider withholding support from or voting against a nominee
who serves on the board of directors of more than six companies
(excluding investment companies). We also consider voting against
a director who otherwise appears to have too many commitments to
serve adequately on the board of the company.
2. Board independence: We generally support proposals requiring that a
certain percentage (up to 66 2/3%) of the company's board members be
independent directors, and promoting all-independent audit,
compensation and nominating/governance committees.
3. Board diversity: We consider on a case-by-case basis proposals urging
diversity of board membership with respect to social, religious or
ethnic group.
4. Majority voting: We generally support proposals requesting or
requiring majority voting policies in election of directors, so long
as there is a carve-out for plurality voting in the case of contested
elections.
5. Proposals to elect all directors annually: We generally support
proposals to elect all directors annually at public companies (to
"declassify" the Board of Directors) where such action is supported by
the board, and otherwise consider the issue on a case-by-case basis.
6. Cumulative voting: We generally support proposals to eliminate
cumulative voting (which provides that shareholders may concentrate
their votes for one or a handful of candidates, a system that can
enable a minority bloc to place representation on a board). Proposals
to establish cumulative voting in the election of directors generally
will not be supported.
7. Separation of Chairman and CEO positions: We vote on shareholder
proposals to separate the Chairman and CEO positions and/or to appoint
a non-executive Chairman based in part on prevailing practice in
particular markets, since the context for such a practice varies. In
many non-U.S. markets, we view separation of the roles as a market
standard practice, and support division of the roles in that context.
8. Director retirement age: Proposals recommending set director
retirement ages are voted on a case-by-case basis.
9. Proposals to limit directors' liability and/or broaden indemnification
of directors. Generally, we will support such proposals provided that
the officers and directors are eligible for indemnification and
liability protection if they have acted in good faith on company
business and were found innocent of any civil or criminal charges for
duties performed on behalf of the company.
C. CORPORATE TRANSACTIONS AND PROXY FIGHTS. We examine proposals relating to
mergers, acquisitions and other special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations, restructurings and
recapitalizations) on a case-by-case basis. However, proposals for mergers or
other significant transactions that are friendly and approved by the Research
Providers generally will be supported and in those instances will not need to be
reviewed by the Proxy Review Committee, where there is no portfolio manager
objection and where there is no material conflict of interest. We also analyze
proxy contests on a case-by-case basis.
D. CHANGES IN LEGAL AND CAPITAL STRUCTURE. We generally vote in favor of
management proposals for technical and administrative changes to a company's
charter, articles of association or bylaws. We review non-routine proposals,
including reincorporation to a different jurisdiction, on a case-by-case basis.
1. We generally support the following:
- Proposals that eliminate other classes of stock and/or eliminate
unequal voting rights.
- Proposals to increase the authorization of existing classes of
common stock (or securities convertible into common stock) if:
(i) a clear and legitimate business purpose is stated; (ii) the
number of shares requested is reasonable in relation to the
purpose for which authorization is requested; and (iii) the
authorization does not exceed 100% of shares currently authorized
and at least 30% of the new authorization will be outstanding.
- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals to authorize share repurchase plans.
- Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth in
the corporate charter. Reverse stock splits that do not adjust
proportionately to the authorized share amount generally will be
approved if the resulting increase in authorized shares coincides
with the proxy guidelines set forth above for common stock
increases.
- Proposals for higher dividend payouts.
2. We generally oppose the following (notwithstanding management
support):
- Proposals that add classes of stock that would substantially
dilute the voting interests of existing shareholders.
- Proposals to increase the authorized number of shares of existing
classes of stock that carry preemptive rights or supervoting
rights.
- Proposals to create "blank check" preferred stock.
- Proposals relating to changes in capitalization by 100% or more.
E. TAKEOVER DEFENSES AND SHAREHOLDER RIGHTS
1. Shareholder rights plans: We support proposals to require shareholder
approval or ratification of shareholder rights plans (poison pills).
2. Supermajority voting requirements: We generally oppose requirements
for supermajority votes to amend the charter or bylaws, unless the
provisions protect minority shareholders where there is a large
shareholder. In line with this view, in the absence of a large
shareholder we support reasonable shareholder proposals to limit such
supermajority voting requirements.
3. Shareholder rights to call meetings: We consider proposals to enhance
shareholder rights to call meetings on a case-by-case basis.
4. Anti-greenmail provisions: Proposals relating to the adoption of
anti-greenmail provisions will be supported, provided that the
proposal: (i) defines greenmail; (ii) prohibits buyback offers to
large block holders (holders of at least 1% of the outstanding shares
and in certain cases, a greater amount, as determined by the Proxy
Review Committee) not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights of shareholders.
F. AUDITORS. We generally support management proposals for selection or
ratification of independent auditors. However, we may consider opposing such
proposals with reference to incumbent audit firms if the company has suffered
from serious accounting irregularities, or if fees paid to the auditor for
non-audit-related services are excessive. Generally, to determine if non-audit
fees are excessive, a 50% test will be applied (i.e., non-audit-related fees
should be less than 50% of the total fees paid to the auditor). Proposals
requiring auditors to attend the annual meeting of shareholders will be
supported. We generally vote against proposals to indemnify auditors.
G. EXECUTIVE AND DIRECTOR REMUNERATION.
1. We generally support the following proposals:
- Proposals relating to director fees, provided the amounts are not
excessive relative to other companies in the country or industry.
- Proposals for employee stock purchase plans that permit discounts
up to 15%, but only for grants that are part of a broad-based
employee plan, including all non-executive employees.
- Proposals for employee equity compensation plans and other
employee ownership plans, provided that our research does not
indicate that approval of the plan would be against shareholder
interest. Such approval may be against shareholder interest if it
authorizes excessive dilution and shareholder cost, particularly
in the context of high usage ("run rate") of equity compensation
in the recent past; or if there are objectionable plan design and
provisions.
- Proposals for the establishment of employee retirement and
severance plans, provided that our research does not indicate
that approval of the plan would be against shareholder interest.
2. Blanket proposals requiring shareholder approval of all severance
agreements will not be supported, but proposals that require
shareholder approval for agreements in excess of three times the
annual compensation (salary and bonus) generally will be supported.
3. Proposals advocating stronger and/or particular pay-for-performance
models will be evaluated on a case-by-case basis, with consideration
of the merits of the individual proposal within the context of the
particular company and its current and past practices.
4. Proposals to U.S. companies that request disclosure of executive
compensation in addition to the disclosure required by the Securities
and Exchange Commission ("SEC") regulations generally will not be
supported.
5. We generally support proposals advocating reasonable senior executive
and director stock ownership guidelines and holding requirements for
shares gained in option exercises.
6. Management proposals effectively to re-price stock options are
considered on a case-by-case basis. Considerations include the
company's reasons and justifications for a re-pricing, the company's
competitive position, whether senior executives and outside directors
are excluded, potential cost to shareholders, whether the re-pricing
or share exchange is on a value-for-value basis, and whether vesting
requirements are extended.
H. SOCIAL, POLITICAL AND ENVIRONMENTAL ISSUES. We consider proposals relating to
social, political and environmental issues on a case-by-case basis to determine
whether they will have a financial impact on shareholder value. However, we
generally vote against proposals requesting reports that are duplicative,
related to matters not material to the business, or that would impose
unnecessary or excessive costs. We may abstain from voting on proposals that do
not have a readily determinable financial impact on shareholder value. We
generally oppose proposals requiring adherence to workplace standards that are
not required or customary in market(s) to which the proposals relate.
I. FUND OF FUNDS. Certain Funds advised by an MSIM Affiliate invest only in
other MSIM Funds. If an underlying fund has a shareholder meeting, in order to
avoid any potential conflict of interest, such proposals will be voted in the
same proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.
III. ADMINISTRATION OF POLICY
The MSIM Proxy Review Committee (the "Committee") has overall responsibility for
creating and implementing the Policy, working with an MSIM staff group (the
"Corporate Governance Team"). The Committee, which is appointed by MSIM's Chief
Investment Officer of Global Equities ("CIO"), consists of senior investment
professionals who represent the different investment disciplines and geographic
locations of the firm. Because proxy voting is an investment responsibility and
impacts shareholder value, and because of their knowledge of companies and
markets, portfolio managers and other members of investment staff play a key
role in proxy voting, although the Committee has final authority over proxy
votes.
The Committee Chairperson is the head of the Corporate Governance Team, and is
responsible for identifying issues that require Committee deliberation or
ratification. The Corporate Governance Team, working with advice of investment
teams and the Committee, is responsible for voting on routine items and on
matters that can be addressed in line with these Policy guidelines. The
Corporate Governance Team has responsibility for voting case-by-case where
guidelines and precedent provide adequate guidance, and to refer other
case-by-case decisions to the Proxy Review Committee.
The Committee will periodically review and have the authority to amend, as
necessary, the Policy and establish and direct voting positions consistent with
the Client Proxy Standard.
A. COMMITTEE PROCEDURES
The Committee will meet at least monthly to (among other matters) address any
outstanding issues relating to the Policy or its implementation. The Corporate
Governance Team will timely communicate to ISS MSIM's Policy (and any amendments
and/or any additional guidelines or procedures the Committee may adopt).
The Committee will meet on an ad hoc basis to (among other matters): (1)
authorize "split voting" (i.e., allowing certain shares of the same issuer that
are the subject of the same proxy solicitation and held by one or more MSIM
portfolios to be voted differently than other shares) and/or "override voting"
(i.e., voting all MSIM portfolio shares in a manner contrary to the Policy); (2)
review and approve upcoming votes, as appropriate, for matters for which
specific direction has been provided in this Policy; and (3) determine how to
vote matters for which specific direction has not been provided in this Policy.
Members of the Committee may take into account Research Providers'
recommendations and research as well as any other relevant information they may
request or receive, including portfolio manager and/or analyst research, as
applicable. Generally, proxies related to securities held in accounts that are
managed pursuant to quantitative, index or index-like strategies ("Index
Strategies") will be voted in the same manner as those held in actively managed
accounts, unless economic interests of the accounts differ. Because accounts
managed using Index Strategies are passively managed accounts, research from
portfolio managers and/or analysts related to securities held in these accounts
may not be available. If the affected securities are held only in accounts that
are managed pursuant to Index Strategies, and the proxy relates to a matter that
is not described in this Policy, the Committee will consider all available
information from the Research Providers, and to the extent that the holdings are
significant, from the portfolio managers and/or analysts.
B. MATERIAL CONFLICTS OF INTEREST
In addition to the procedures discussed above, if the Committee determines that
an issue raises a material conflict of interest, the Committee will request a
special committee to review, and recommend a course of action with respect to,
the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairperson of the Proxy Review
Committee, the Chief Compliance Officer or his/her designee, a senior portfolio
manager (if practicable, one who is a member of the Proxy Review Committee)
designated by the Proxy Review Committee, and MSIM's relevant Chief Investment
Officer or his/her designee, and any other persons deemed necessary by the
Chairperson. The Special Committee may request the assistance of MSIM's General
Counsel or his/her designee who will have sole discretion to cast a vote. In
addition to the research provided by Research Providers, the Special Committee
may request analysis from MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
C. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
A potential material conflict of interest could exist in the following
situations, among others:
1. The issuer soliciting the vote is a client of MSIM or an affiliate of
MSIM and the vote is on a material matter affecting the issuer.
2. The proxy relates to Morgan Stanley common stock or any other security
issued by Morgan Stanley or its affiliates except if echo voting is
used, as with MSIM Funds, as described herein.
3. Morgan Stanley has a material pecuniary interest in the matter
submitted for a vote (e.g., acting as a financial advisor to a party
to a merger or acquisition for which Morgan Stanley will be paid a
success fee if completed).
If the Chairperson of the Committee determines that an issue raises a potential
material conflict of interest, depending on the facts and circumstances, the
Chairperson will address the issue as follows:
1. If the matter relates to a topic that is discussed in this Policy, the
proposal will be voted as per the Policy.
2. If the matter is not discussed in this Policy or the Policy indicates
that the issue is to be decided case-by-case, the proposal will be
voted in a manner consistent with the Research Providers, provided
that all the Research Providers have the same recommendation, no
portfolio manager objects to that vote, and the vote is consistent
with MSIM's Client Proxy Standard.
3. If the Research Providers' recommendations differ, the Chairperson
will refer the matter to the Committee to vote on the proposal. If the
Committee determines that an issue raises a material conflict of
interest, the Committee will request a Special Committee to review and
recommend a course of action, as described above. Notwithstanding the
above, the Chairperson of the Committee may request a Special
Committee to review a matter at any time as he/she deems necessary to
resolve a conflict.
D. PROXY VOTING REPORTING
The Committee and the Special Committee, or their designee(s), will document in
writing all of their decisions and actions, which documentation will be
maintained by the Committee and the Special Committee, or their designee(s), for
a period of at least 6 years. To the extent these decisions relate to a security
held by a MSIM Fund, the Committee and Special Committee, or their designee(s),
will report their decisions to each applicable Board of Trustees/Directors of
those Funds at each Board's next regularly scheduled Board meeting. The report
will contain information concerning decisions made by the Committee and Special
Committee during the most recently ended calendar quarter immediately preceding
the Board meeting.
The Corporate Governance Team will timely communicate to applicable portfolio
managers and to ISS, decisions of the Committee and Special Committee so that,
among other things, ISS will vote proxies consistent with their decisions.
MSIM will promptly provide a copy of this Policy to any client requesting it.
MSIM will also, upon client request, promptly provide a report indicating how
each proxy was voted with respect to securities held in that client's account.
MSIM's Legal Department is responsible for filing an annual Form N-PX on behalf
of each MSIM Fund for which such filing is required, indicating how all proxies
were voted with respect to such Fund's holdings.
APPENDIX A
The following procedures apply to accounts managed by Morgan Stanley AIP GP LP
("AIP").
Generally, AIP will follow the guidelines set forth in Section II of MSIM's
Proxy Voting Policy and Procedures. To the extent that such guidelines do not
provide specific direction, or AIP determines that consistent with the Client
Proxy Standard, the guidelines should not be followed, the Proxy Review
Committee has delegated the voting authority to vote securities held by accounts
managed by AIP to the Liquid Markets investment team and the Private Markets
investment team of AIP. A summary of decisions made by the investment teams will
be made available to the Proxy Review Committee for its information at the next
scheduled meeting of the Proxy Review Committee.
In certain cases, AIP may determine to abstain from determining (or
recommending) how a proxy should be voted (and therefore abstain from voting
such proxy or recommending how such proxy should be voted), such as where the
expected cost of giving due consideration to the proxy does not justify the
potential benefits to the affected account(s) that might result from adopting or
rejecting (as the case may be) the measure in question.
Waiver of Voting Rights
For regulatory reasons, AIP may either 1) invest in a class of securities of an
underlying fund (the "Fund") that does not provide for voting rights; or 2)
waive 100% of its voting rights with respect to the following:
1. Any rights with respect to the removal or replacement of a director,
general partner, managing member or other person acting in a similar
capacity for or on behalf of the Fund (each individually a "Designated
Person," and collectively, the "Designated Persons"), which may
include, but are not limited to, voting on the election or removal of
a Designated Person in the event of such Designated Person's death,
disability, insolvency, bankruptcy, incapacity, or other event
requiring a vote of interest holders of the Fund to remove or replace
a Designated Person; and
2. Any rights in connection with a determination to renew, dissolve,
liquidate, or otherwise terminate or continue the Fund, which may
include, but are not limited to, voting on the renewal, dissolution,
liquidation, termination or continuance of the Fund upon the
occurrence of an event described in the Fund's organizational
documents; provided, however, that, if the Fund's organizational
documents require the consent of the Fund's general partner or
manager, as the case may be, for any such termination or continuation
of the Fund to be effective, then AIP may exercise its voting rights
with respect to such matter.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
FUND MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by
members of the Adviser's Taxable Fixed Income team. The team consists of
portfolio managers and analysts. Current members of the team jointly and
primarily responsible for the day-to-day management of the Fund's portfolio and
the overall execution of the strategy of the Fund are Henry Choi and Steven K.
Kreider, Managing Directors of the Adviser.
Mr. Choi has been associated with the Adviser in an investment management
capacity since December 2007 and began managing the Fund in December 2007. Prior
to December 2007, Mr. Choi was a portfolio manager at Citibank (May 2006-October
2007), prior to that he was a portfolio manager at Standard Pacific Capital
(April 2003-April 2005) and prior to that, he was an analyst at Amaranth
Advisors (April 2002-April 2003). Mr. Kreider has been associated with the
Adviser since February 1988 and began managing the Fund in June 2007.
The composition of the team may change from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of December 31, 2007:
Mr. Choi managed seven registered investment companies with a total of
approximately $825.2 million in assets; no pooled investment vehicles other than
registered investment companies; and no other accounts.
Mr. Kreider managed 42 registered investment companies with a total of
approximately $36.8 billion in assets; no pooled investment vehicles other than
registered investment companies; and 63 other accounts (including accounts
managed under "wrap fee programs") with a total of approximately $13 billion in
assets. Of these other accounts, three accounts with a total of approximately
$1.3 billion in assets, had performance based fees.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one client over another resulting in conflicts of interest.
For instance, the Adviser may receive fees from certain accounts that are higher
than the fee it receives from the Fund, or it may receive a performance-based
fee on certain accounts. In those instances, the portfolio managers may have an
incentive to favor the higher and/or performance-based fee accounts over the
Fund. In addition, a conflict of interest could exist to the extent the Adviser
has proprietary investments in certain accounts, where portfolio managers have
personal investments in certain accounts or when certain accounts are investment
options in the Adviser's employee benefits and/or deferred compensation plans.
The portfolio manager may have an incentive to favor these accounts over others.
If the Adviser manages accounts that engage in short sales of securities of the
type in which the Fund invests, the Adviser could be seen as harming the
performance of the Fund for the benefit of the accounts engaged in short sales
if the short sales cause the market value of the securities to fall. The Adviser
has adopted trade allocation and other policies and procedures that it believes
are reasonably designed to address these and other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all accounts managed by the portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Long-Term Incentive Compensation Program awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards or other
investments based on Morgan Stanley common stock that are subject to
vesting and other conditions;
- Investment Management Alignment Plan (IMAP) awards -- a mandatory program
that defers a portion of discretionary year-end compensation and notionally
invests it in designated funds advised by the Adviser or its affiliates.
The award is subject to vesting and other conditions. Portfolio managers
must notionally invest a minimum of 25% to a maximum of 100% of the IMAP
deferral into a combination of the designated open-end funds they manage
that are included in the IMAP Fund menu;
- Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment funds, including funds
advised by the Adviser or its affiliates; and/or (2) in Morgan Stanley
stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative
importance, these factors include:
- Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured against an appropriate securities market
index (or indices) for the funds/accounts managed by the portfolio manager.
The assets managed by the portfolio managers in funds, pooled investment
vehicles and other accounts are described in "Other Accounts Managed by the
Portfolio Managers" above. Generally, the greatest weight is placed on the
three- and five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles
and other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management
Inc., and the overall performance of the investment team(s) of which the
portfolio is a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of December 31, 2007, the portfolio managers did not own any shares of the
Fund.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(1) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant)
Van Kampen High Income Trust II
By: /s/ Ronald E. Robison
-------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: February 15, 2008
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: February 15, 2008
By: /s/ Stuart N. Schuldt
-------------------------------
Name: Stuart N. Schuldt
Title: Principal Financial Officer
Date: February 15, 2008