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
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(Exact name of registrant as specified in charter)
1221 Avenue of the Americas New York, New York 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas New York, New York 10020
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(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: 12/31/06
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,
2006.
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.
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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Performance Summary as of 12/31/06
HIGH INCOME TRUST II
SYMBOL: VLT
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AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (4/28/89) 5.65% 5.27%
10-year 3.93 2.02
5-year 8.03 2.72
1-year 9.44 6.02
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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 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.
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Trust Report
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2006
MARKET CONDITIONS
Strong market fundamentals, including moderate economic growth, low default
rates, favorable earnings trends and relatively low Treasury yields created a
positive environment for the high yield market in 2006. The Federal Open Market
Committee (the "Fed") continued to pursue its monetary tightening policy in the
first six months of the year, raising the target federal funds rate at each of
its meetings to 5.25 percent as of the end of June. In response to Fed
tightening, Treasury yields rose--particularly on the short end of the yield
curve--causing the yield curve to flatten and at times, become inverted. In the
second half of the year, however, as economic growth slowed and inflation
concerns eased, the Fed took a widely anticipated respite from its record
two-year run of 17 consecutive rate increases, electing to keep the target rate
unchanged for the remainder of the year. The change in the Fed's stance led to
falling yields and a bond market rally.
Overall, the high yield market performed well during the reporting period.
Because interest rates remained at relatively low levels throughout the year,
investors turned to the riskier segments of the market in an attempt to capture
higher yields. The increased appetite for risk helped provide support to the
high yield market, causing yield spreads to compress to near record low levels.
In this environment, the lowest credit tiers of the high-yield market--namely
CCC rated securities--turned in the best performance.
High demand for high-yield bonds was met by an equally high supply, which was
fueled in part by an unprecedented amount of leveraged buyout and private equity
activity during the year. In fact, more than $150 billion in new high-yield
issues came to market in 2006, breaking the previous issuance record set in
2004.
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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 the Lehman Brothers U.S.
Corporate High Yield 2% Issuer Cap Index. On a market price basis, the trust
underperformed the Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap
Index.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2006
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LEHMAN BROTHERS
BASED ON BASED ON U.S. CORPORATE HIGH YIELD
NAV MARKET PRICE 2% ISSUER CAP INDEX
9.44% 6.02% 8.15%
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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.
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. Over the course of the period, we increased the portfolio's average
credit quality to be higher than that of its benchmark. The trust adopted this
conservative posture because in our view, yield spreads, which were at
historically tight levels, reflected the persistence of a near-perfect credit
environment for an unrealistically extended period of time. This defensive
positioning dampened performance as the lowest-rated segments of the market
outperformed.
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, we increased exposure to the transportation, health care, retail and
energy sectors and decreased exposure to building products, manufacturing,
chemicals, and metals. Strong security selection in several sectors, especially
autos and retail, helped boost performance, as did a lower-than-benchmark
duration (a measure of interest-rate risk), which served the portfolio well when
interest rates rose.
The trust uses leverage to enhance its dividends to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates throughout the period made the trust's borrowing activity
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more expensive. However, the Trust still benefited from its use of leverage
during the year due to its ability to borrow at a fairly consistent rate and the
overall strong performance of the high yield market.
At year end, the trust's major sector overweights included autos and vehicle
parts, energy, food and tobacco, gaming/lodging, and healthcare. Key sector
underweights included technology, utilities, housing and building products, and
financials.
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.
CHANGES IN INVESTMENT POLICIES
The Trust approved changes in its investment policies to allow the Trust to
enter into the following transactions.
NON-DOLLAR DENOMINATED SECURITIES
The Trust is permitted to invest up to 20% of its net assets in securities of
foreign issuers that are denominated in non-U.S. dollars. The same quality
levels currently permitted by this Trust for all investments (between BB and C
by Standard & Poor's or between Ba and C by Moody's Investor Services, Inc. or
unrated securities of comparable quality), will apply to foreign investments.
Investments in securities of foreign issuers present certain risks not
ordinarily associated with investments in securities of U.S. issuers. These
risks include fluctuations in foreign currency exchange rates, political,
economic or legal developments (including war or other instability,
expropriation of assets, nationalization and confiscatory taxation), the
imposition of foreign exchange limitations (including currency blockage),
withholding taxes on income or capital transactions or other restrictions,
higher transaction costs (including higher brokerage, custodial and settlement
costs and currency conversion costs) and possible difficulty in enforcing
contractual obligations or taking judicial action. Securities of foreign issuers
may not be as liquid and may be more volatile than comparable securities of
domestic issuers.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting and financial reporting
disclosure requirements than domestic issuers. There is generally less
government regulation of exchanges, brokers and listed companies abroad than in
the United
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States and, with respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, or diplomatic developments which could
affect investment in those countries. Because there is usually less supervision
and governmental regulation of foreign exchanges, brokers and dealers than there
is in the United States, the Trust may experience settlement difficulties or
delays not usually encountered in the United States.
Delays in making trades in securities of foreign issuers relating to volume
constraints, limitations or restrictions, clearance or settlement procedures, or
otherwise could impact yields and result in temporary periods when assets of the
Trust are not fully invested or attractive investment opportunities are
foregone.
The Trust may invest in securities of issuers determined by the investment
adviser to be in developing or emerging market countries. Investments in
securities of issuers in developing or emerging market countries are subject to
greater risks than investments in securities of developed countries since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in securities of foreign
issuers, there are often increased transaction costs associated with investing
in securities of foreign issuers, including the costs incurred in connection
with converting currencies, higher foreign brokerage or dealer costs and higher
settlement costs or custodial costs.
The Trust may invest in securities of foreign issuers in the form of depositary
receipts. Depositary receipts involve substantially identical risks to those
associated with direct investment in securities of foreign issuers. In addition,
the underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Since the Trust invests in securities denominated or quoted in currencies other
than the U.S. dollar, the Trust will be affected by changes in foreign currency
exchange rates (and exchange control regulations) which affect the value of
investments in the Trust and the accrued income and appreciation or depreciation
of the investments. Changes in foreign currency exchange rates relative to the
U.S. dollar will affect the U.S. dollar value of the Trust's assets denominated
in that currency and the Trust's return on such assets as well as any temporary
uninvested reserves in bank deposits in foreign currencies. In addition, the
Trust will incur costs in connection with conversions between various
currencies.
The Trust may purchase and sell foreign currency on a spot (i.e., cash) basis in
connection with the settlement of transactions in securities traded in such
foreign currency. The Trust also may enter into contracts with banks, brokers or
5
dealers to purchase or sell securities or foreign currencies at a future date
("forward contracts"). A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified amount of
currency at a specified future time at a specified rate. The rate can be higher
or lower than the spot rate between the currencies that are the subject of the
contract.
The Trust may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Trust
purchases a foreign security traded in the currency which the Trust anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Seeking to protect against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such transactions reduce
or preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Trust than if it had not
entered into such contracts. The Trust may also cross-hedge currencies by
entering into a transaction to purchase or sell one or more currencies that are
expected to decline in value relative to other currencies to which it has or
expects to have exposure. The use of currency transactions can result in the
Trust incurring losses because of the imposition of exchange controls,
suspension of settlements or the inability of the Trust to deliver or receive a
specified currency. In addition, amounts paid as premiums and cash or other
assets held in margin accounts with respect to these transactions are not
otherwise available to the Trust for investment purposes.
CERTAIN DERIVATIVE 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.
STRUCTURED PRODUCTS. The Trust may invest in structured notes and other types of
structured investments (referred to collectively as "structured products"). A
structured note is a derivative security for which the amount of principal
repayment and/or interest payments is based on the movement of one or more
"factors." These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate or LIBOR), referenced
bonds and stock indices. Some of these factors may or may not correlate to the
total rate of return on one or more underlying instruments referenced in such
notes. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators.
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Generally, investments in structured products are interests in entities
organized and operated for the purpose of restructuring the investment
characteristics of underlying investment interests or securities. These
investment entities may be structured as trusts or other types of pooled
investment vehicles. This type of restructuring generally involves the deposit
with or purchase by an entity of the underlying investments and the issuance by
that entity of one or more classes of securities backed by, or representing
interests in, the underlying investments or referencing an indicator related to
such investments. The cash flow or rate of return on the underlying investments
may be apportioned among the newly issued securities to create different
investment characteristics, such as varying maturities, credit quality, payment
priorities and interest rate provisions. The cash flow or rate of return on a
structured product may be determined by applying a multiplier to the rate of
total return on the underlying investments or referenced indicator. Application
of a multiplier is comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk of loss. As a
result, a relatively small decline in the value of the underlying investments or
referenced indicator could result in a relatively large loss in the value of a
structured product. Holders of structured products bear risks of the underlying
index or reference obligation and are subject to counterparty risk.
The Trust may have the right to receive payments to which it is entitled only
from the structured product, and generally does not have direct rights against
the issuer. While certain structured investment vehicles enable the investor to
acquire interests in a pool of securities without the brokerage and other
expenses associated with directly holding the same securities, investors in
structured vehicles generally pay their share of the investment vehicle's
administrative and other expenses. Certain structured products may be thinly
traded or have a limited trading market and may have the effect of increasing
the Trust's illiquidity to the extent that the Trust, at a particular point in
time, may be unable to find qualified buyers for these securities.
Investments in structured notes involve risks including interest rate risk,
credit risk and market risk. Where the Trust's investments in structured notes
are based upon the movement of one or more factors, including currency exchange
rates, interest rates, referenced bonds and stock indices, depending on the
factor used and the use of multipliers or deflators, changes in interest rates
and movement of the factor may cause significant price fluctuations.
Additionally, changes in the reference instrument or security may cause the
interest rate on the structured note to be reduced to zero and any further
changes in the reference instrument may then reduce the principal amount payable
on maturity. Structured notes may be less liquid than other types of securities
and more volatile than the reference instrument or security underlying the note.
SWAPS. The Trust approved a change in its investment policies to allow the Trust
to enter into interest rate, index, total rate of return and credit default
swaps and the purchase or sale of related caps, floors and collars. The Trust
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expects to enter into these transactions 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. The Trust intends
to use these transactions as hedges and not as speculative investments and will
not sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Trust may be obligated to pay.
Interest rate swaps involve the exchange by the Trust with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor. An interest rate collar combines the elements of purchasing a cap and
selling a floor. The collar protects against an interest rate rise above the
maximum amount but foregoes the benefit of an interest rate decline below the
minimum amount. An index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. For example, the
Trust may agree to swap the return generated by a fixed-income index for the
return generated by a second fixed-income index. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
A total rate of return swap is an agreement in which one party (total return
payer) transfers the total economic performance of a reference obligation to the
other party (total return receiver). Total economic performance includes income
from interest and fees, gains or losses from market movements, and credit
losses. The total return receiver assumes the entire economic exposure--that is,
both market and credit exposure--to the reference asset. The total return
payer--often the owner of the reference obligation--gives up economic exposure
to the performance of the reference asset and in return takes on counterparty
credit exposure to the total return receiver in the event of a default or fall
in value of the reference asset.
The Trust may enter into credit default swap contracts or credit-linked notes
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
8
exchange the credit risk of an issuer (reference entity). 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 reference entity has a credit event
such as a 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 reference entity 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 to the buyer in the event of an adverse credit event of the
reference entity. A credit-linked note is a synthetic security, typically issued
by a special purpose vehicle, that trades like a bond issued by the reference
entity but with the economics of the credit default swap. For this security, the
buyer of protection sells the note. The buyer of protection (note seller) will
pay periodic payments and profit if the reference entity defaults. Unlike the
swap, the buyer of protection in a credit-linked note will receive money at the
time of transaction from the sale of the note, and will return this money at the
contract's maturity if no credit event occurs. Conversely, the seller of
protection purchases the notes. As with a credit default swap, the note
purchaser (protection seller) receives periodic payments. Unlike the swap
transaction, the protection seller must pay for the note at the time of the
transaction and will collect this money at the contract's maturity if no credit
event occurs.
The Trust will enter into swap, cap or floor transactions only with
counterparties approved by the Adviser in accordance with guidelines established
by the Trust's Board of Trustees. The Adviser will monitor the creditworthiness
of counterparties to the Trust's swap, cap, floor and collar transactions on an
ongoing basis. If there is a default by the other party to such a transaction,
the Trust will have contractual remedies pursuant to the agreements related to
the transaction. The Trust may enter into swaps, caps, collars and floors on
either an asset-based or liability-based basis, and will usually enter into
swaps on a net basis, i.e., the two payment streams are netted out, with the
Trust receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Trust's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
the Trust segregates an amount of cash and/or liquid securities having an
aggregate net asset value at least equal to the accrued excess. If the Trust
enters into a swap transaction on other than a net basis, the Trust would
segregate the full amount accrued on a daily basis of the Trust's obligations
with respect to the swap. To the extent the Trust sells (i.e. writes) caps,
floors and collars, it will segregate cash and/or liquid securities having an
aggregate net asset value at least equal to the full amount, accrued on a daily
basis, of the Trust's net obligations with respect to the caps, floors or
collars.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of the
market values, interest rates and other applicable factors, the investment
performance of
9
the Trust would diminish compared with what it would have been if these
investment techniques were not used. The use of swaps may also have the effect
of shifting the recognition of income between current and future periods.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES. The
Trust may invest in collateralized mortgage obligations ("CMOs"). CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private pass-
through securities (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs deemed to be U.S.
government securities are those issued or guaranteed as to principal and
interest by a person controlled or supervised by and acting as an agency or
instrumentality of the U.S. government. The issuer of a series of CMOs may elect
to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
The Trust may invest in, among others, parallel pay CMOs and Planned
Authorization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes. Substantially
all of the CMOs in which the Trust invests are PAC Bonds.
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RATINGS ALLOCATION AS OF 12/31/06
BBB/Baa 14.8%
BB/Ba 47.0
B/B 38.2
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 12/31/06
Health Care 9.5%
Energy 9.2
Transportation 9.2
Gaming & Leisure 7.9
Food & Tobacco 7.8
Chemicals 5.7
Utility 5.5
Cable 5.5
Telecommunications 4.6
Diversified Media 4.0
Forest Products 3.9
Retail 3.8
Manufacturing 3.4
Services 2.7
Wireless Communications 2.0
Metals 1.9
Financial 1.8
Information Technology 1.7
Aerospace 1.5
Broadcasting 1.2
Food & Drug 0.9
Housing 0.8
Consumer Products 0.8
Apparel, Accessories & Luxury Goods 0.5
Integrated Telecommunication Services 0.0*
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Total Long-Term Investments 95.8
Repurchase Agreements 4.2
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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.
Ratings allocations based upon ratings as issued by Standard and Poor's and
Moody's, respectively. 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.
11
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
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 trust shareholders,
and makes these reports available on its public Web site,
www.vankampen.com. In addition to the semiannual and annual reports that
Van Kampen delivers to shareholders and makes available through the Van
Kampen public Web site, each trust files a complete schedule of portfolio
holdings with the SEC for the trust's first and third fiscal quarters on
Form N-Q. Van Kampen does not deliver the reports for the first and third
fiscal quarters to shareholders, nor are the reports posted to the Van
Kampen public Web site. You may, however, obtain the Form N-Q filings (as
well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web
site, http://www.sec.gov. You may also review and copy them at the SEC's
Public Reference Room in Washington, DC. Information on the operation of
the SEC's Public Reference Room may be obtained by calling the SEC at
(800) SEC-0330. You can also request copies of these materials, upon
payment of a duplicating fee, by electronic request at the SEC's e-mail
address (publicinfo@sec.gov) or by writing the Public Reference section
of the SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (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.
12
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
CORPORATE BONDS 169.9%
AEROSPACE 2.7%
$1,005 Hexcel Corp. ................................... 6.750% 02/01/15 $ 994,950
1,175 K & F Acquisition, Inc. ........................ 7.750 11/15/14 1,216,125
------------
2,211,075
------------
BROADCASTING 2.0%
835 LIN Television Corp. ........................... 6.500 05/15/13 799,512
335 LIN Television Corp., Ser B..................... 6.500 05/15/13 320,763
515 Salem Communications Corp. ..................... 7.750 12/15/10 525,300
------------
1,645,575
------------
CABLE 9.8%
1,175 Cablevision Systems Corp. (a)................... 9.870 04/01/09 1,245,500
410 CCH I LLC....................................... 11.000 10/01/15 422,813
495 Echostar DBS Corp. ............................. 5.750 10/01/08 494,381
1,740 Echostar DBS Corp. ............................. 6.375 10/01/11 1,733,475
785 Echostar DBS Corp. ............................. 6.625 10/01/14 767,338
80 Intelsat Subsidiary Holding Co., Ltd.
(Bermuda)....................................... 8.250 01/15/13 81,600
2,195 Intelsat Subsidiary Holding Co., Ltd. (Bermuda)
(a)............................................. 10.484 01/15/12 2,225,181
145 NTL Cable PLC (United Kingdom).................. 8.750 04/15/14 152,431
100 NTL Cable PLC (United Kingdom).................. 9.125 08/15/16 106,125
693 PanAmSat Corp. ................................. 9.000 08/15/14 735,446
------------
7,964,290
------------
CHEMICALS 10.2%
1,070 Equistar Chemicals LP........................... 10.125 09/01/08 1,142,225
600 Equistar Chemicals LP........................... 10.625 05/01/11 642,000
740 Innophos, Inc. ................................. 8.875 08/15/14 754,800
380 Koppers, Inc. .................................. 9.875 10/15/13 415,150
1,350 Lyondell Chemical Co. .......................... 10.500 06/01/13 1,491,750
905 Millennium America, Inc. ....................... 9.250 06/15/08 938,937
1,450 Nalco Co. ...................................... 7.750 11/15/11 1,489,875
762 Rockwood Specialties Group, Inc. ............... 10.625 05/15/11 815,340
610 Westlake Chemical Corp. ........................ 6.625 01/15/16 593,225
------------
8,283,302
------------
CONSUMER PRODUCTS 1.4%
365 Oxford Industrials, Inc. ....................... 8.875 06/01/11 378,688
740 Steinway Musical Instruments, Inc. (b).......... 7.000 03/01/14 727,050
------------
1,105,738
------------
DIVERSIFIED MEDIA 7.1%
740 AMC Entertainment, Inc. (a)..................... 9.624 08/15/10 768,675
1,425 CanWest Media, Inc. (Canada).................... 8.000 09/15/12 1,494,469
685 Dex Media West LLC, Ser B....................... 9.875 08/15/13 750,075
1,095 Idearc, Inc. (b)................................ 8.000 11/15/16 1,116,900
205 Interpublic Group of Cos., Inc. ................ 5.400 11/15/09 201,925
515 Interpublic Group of Cos., Inc. ................ 6.250 11/15/14 481,525
940 Quebecor World Capital Corp. (Canada) (b)....... 8.750 03/15/16 904,750
------------
5,718,319
------------
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
ENERGY 16.5%
$1,440 CHC Helicopter Corp. (Canada)................... 7.375% 05/01/14 $ 1,395,000
1,825 Chesapeake Energy Corp. ........................ 6.625 01/15/16 1,822,719
350 Chesapeake Energy Corp. ........................ 7.500 09/15/13 366,187
330 Compagnie Generale de Geophysique, SA
(France)........................................ 7.500 05/15/15 333,300
1,500 Frontier Oil Corp. ............................. 6.625 10/01/11 1,503,750
160 Hanover Compressor Co. ......................... 8.625 12/15/10 168,000
670 Hanover Compressor Co. ......................... 9.000 06/01/14 726,950
288 Hanover Equipment Trust, Ser A.................. 8.500 09/01/08 293,040
280 Hanover Equipment Trust, Ser B.................. 8.750 09/01/11 293,300
1,250 Hilcorp Energy Finance Corp. (b)................ 7.750 11/01/15 1,234,375
467 Hilcorp Energy Finance Corp. (b)................ 10.500 09/01/10 502,025
1,100 Kinder Morgan, Inc. ............................ 6.500 09/01/12 1,106,507
328 Magnum Hunter Resources, Inc. .................. 9.600 03/15/12 345,630
1,310 Massey Energy Co. .............................. 6.875 12/15/13 1,237,950
620 OPTI Canada, Inc. (Canada) (b).................. 8.250 12/15/14 640,150
650 Pacific Energy Partners......................... 7.125 06/15/14 667,784
750 Pogo Producing Co. ............................. 6.875 10/01/17 720,000
------------
13,356,667
------------
FINANCIAL 3.2%
1,455 Residential Capital Corp. ...................... 6.375 06/30/10 1,473,073
1,035 UCAR Finance, Inc. ............................. 10.250 02/15/12 1,095,806
------------
2,568,879
------------
FOOD & DRUG 1.6%
1,200 Delhaize America, Inc. ......................... 8.125 04/15/11 1,300,507
------------
FOOD & TOBACCO 13.9%
1,300 Constellation Brands, Inc. ..................... 8.000 02/15/08 1,335,750
595 Michael Foods, Inc. ............................ 8.000 11/15/13 620,287
930 Pilgrim's Pride Corp. .......................... 9.250 11/15/13 974,175
2,205 Pilgrim's Pride Corp. .......................... 9.625 09/15/11 2,315,250
1,445 Reynolds American, Inc. ........................ 6.500 07/15/10 1,472,981
685 Smithfield Foods, Inc. ......................... 7.000 08/01/11 695,275
380 Smithfield Foods, Inc. ......................... 7.625 02/15/08 387,600
1,810 Smithfield Foods, Inc., Ser B................... 8.000 10/15/09 1,900,500
1,500 Tyson Foods, Inc. .............................. 6.850 04/01/16 1,547,735
------------
11,249,553
------------
FOREST PRODUCTS 7.0%
1,270 Crown Americas LLC.............................. 7.625 11/15/13 1,314,450
850 Georgia-Pacific Corp. (b)....................... 7.125 01/15/17 852,125
1,000 Graphic Packaging International, Inc. .......... 9.500 08/15/13 1,060,000
2,083 Owens-Brockway Glass Containers, Inc. .......... 8.875 02/15/09 2,140,282
320 P.H. Glatfelter Co. ............................ 7.125 05/01/16 323,200
------------
5,690,057
------------
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
GAMING & LEISURE 14.1%
$ 750 Caesars Entertainment, Inc. .................... 8.875% 09/15/08 $ 783,750
965 Host Marriott LP................................ 6.375 03/15/15 956,556
1,135 Host Marriott LP................................ 7.125 11/01/13 1,166,212
1,475 Isle of Capri Casinos, Inc. .................... 7.000 03/01/14 1,475,000
1,370 Las Vegas Sands Corp. .......................... 6.375 02/15/15 1,334,037
2,420 MGM Mirage, Inc. ............................... 6.000 10/01/09 2,426,050
1,510 Mohegan Tribal Gaming Authority................. 7.125 08/15/14 1,538,313
1,160 Station Casinos, Inc. .......................... 6.000 04/01/12 1,106,350
175 Station Casinos, Inc. .......................... 6.875 03/01/16 157,938
490 Station Casinos, Inc. .......................... 7.750 08/15/16 496,125
------------
11,440,331
------------
HEALTH CARE 16.9%
1,115 AmerisourceBergen Corp. ........................ 5.625 09/15/12 1,101,703
1,510 Community Health Systems, Inc. ................. 6.500 12/15/12 1,494,900
1,525 DaVita, Inc. ................................... 6.625 03/15/13 1,536,437
1,485 Fisher Scientific International, Inc. .......... 6.125 07/01/15 1,470,481
97 Fresenius Medical Care Capital Trust II......... 7.875 02/01/08 989,400
965 Fresenius Medical Care Capital Trust IV......... 7.875 06/15/11 1,015,662
595 HCA, Inc. ...................................... 5.750 03/15/14 495,337
105 HCA, Inc. ...................................... 6.300 10/01/12 96,337
895 HCA, Inc. ...................................... 6.375 01/15/15 760,750
882 HCA, Inc. ...................................... 8.750 09/01/10 921,690
275 HCA, Inc. (b)................................... 9.125 11/15/14 294,594
735 Omnicare, Inc. ................................. 6.750 12/15/13 729,488
750 Res-Care, Inc. ................................. 7.750 10/15/13 772,500
575 Tenet Healthcare Corp. ......................... 9.875 07/01/14 587,938
1,405 Ventas Realty LP (REIT)......................... 6.750 06/01/10 1,454,175
------------
13,721,392
------------
HOUSING 1.4%
1,090 Interface, Inc. ................................ 9.500 02/01/14 1,149,950
------------
INFORMATION TECHNOLOGY 3.1%
1,095 Freescale Semiconductor, Inc. (b)............... 8.875 12/15/14 1,096,369
1,340 Iron Mountain, Inc. ............................ 8.625 04/01/13 1,390,250
------------
2,486,619
------------
MANUFACTURING 6.1%
1,200 Case New Holland, Inc. ......................... 7.125 03/01/14 1,224,000
365 General Cable Corp. ............................ 9.500 11/15/10 388,725
925 JohnsonDiversey, Inc., Ser B.................... 9.625 05/15/12 973,562
764 Manitowoc Co., Inc. ............................ 10.500 08/01/12 824,165
540 Propex Fabrics, Inc. ........................... 10.000 12/01/12 480,600
1,005 RBS Global & Rexnord Corp. (b).................. 9.500 08/01/14 1,050,225
------------
4,941,277
------------
See Notes to Financial Statements 15
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
METALS 3.4%
$ 245 Foundation, PA Coal Co. ........................ 7.250% 08/01/14 $ 250,513
1,950 Novelis, Inc. (Canada) (b) (c).................. 8.250 02/15/15 1,896,375
585 United States Steel Corp. ...................... 9.750 05/15/10 625,219
------------
2,772,107
------------
RETAIL 6.8%
830 Brown Shoe Co., Inc. ........................... 8.750 05/01/12 879,800
1,400 JC Penney Corp., Inc. .......................... 8.000 03/01/10 1,491,652
935 Linens 'n Things, Inc. (a)...................... 10.999 01/15/14 911,625
2,150 Phillips-Van Heusen Corp. ...................... 7.250 02/15/11 2,203,750
------------
5,486,827
------------
SERVICES 4.7%
1,530 Allied Waste North America, Inc. ............... 6.375 04/15/11 1,518,525
45 Allied Waste North America, Inc. ............... 7.875 04/15/13 46,631
950 Allied Waste North America, Inc. ............... 8.500 12/01/08 1,003,438
165 Buhrmann US, Inc. .............................. 7.875 03/01/15 161,700
240 Buhrmann US, Inc. .............................. 8.250 07/01/14 239,400
700 MSW Energy Holdings II LLC, Ser B............... 7.375 09/01/10 717,500
150 MSW Energy Holdings LLC......................... 8.500 09/01/10 156,750
------------
3,843,944
------------
TELECOMMUNICATIONS 8.2%
861 Axtel, SA (Mexico).............................. 11.000 12/15/13 962,598
500 Exodus Communications, Inc. (d) (e) (g)......... 11.250 07/01/08 0
290 Nordic Tel Co. Holdings (Denmark) (b)........... 8.875 05/01/16 311,750
1,000 Qwest Corp. .................................... 7.875 09/01/11 1,070,000
3,000 Qwest Corp. (a)................................. 8.610 06/15/13 3,262,500
940 Wind Acquisition Finance, SA (Luxembourg) (b)... 10.750 12/01/15 1,073,950
------------
6,680,798
------------
TRANSPORTATION 16.4%
1,335 Arvin Meritor, Inc. ............................ 8.750 03/01/12 1,378,387
1,720 Ford Motor Credit Co. .......................... 5.800 01/12/09 1,689,561
990 Ford Motor Credit Co. .......................... 7.250 10/25/11 970,446
1,175 General Motors Acceptance Corp. ................ 4.375 12/10/07 1,158,907
2,140 General Motors Acceptance Corp. ................ 6.875 09/15/11 2,197,179
710 General Motors Corp. ........................... 7.125 07/15/13 670,950
1,025 Petro Stopping Centers LP....................... 9.000 02/15/12 1,066,000
2,250 Sonic Automotive, Inc., Ser B................... 8.625 08/15/13 2,328,750
1,055 TRW Automotive, Inc. ........................... 9.375 02/15/13 1,136,763
690 United Auto Group, Inc. (b)..................... 7.750 12/15/16 696,900
------------
13,293,843
------------
UTILITY 9.9%
850 AES Corp. ...................................... 7.750 03/01/14 901,000
41 AES Corp. ...................................... 8.875 02/15/11 44,177
127 AES Corp. ...................................... 9.375 09/15/10 138,589
615 CMS Energy Corp. ............................... 6.300 02/01/12 621,150
465 CMS Energy Corp. ............................... 7.500 01/15/09 481,856
16 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------
UTILITY (CONTINUED)
$ 700 CMS Energy Corp. ............................... 8.500% 04/15/11 $ 764,750
1,100 Colorado Interstate Gas Co. .................... 6.800 11/15/15 1,149,260
465 IPALCO Enterprises, Inc. ....................... 8.375 11/14/08 484,763
405 IPALCO Enterprises, Inc. ....................... 8.625 11/14/11 442,463
552 Nevada Power Co. ............................... 9.000 08/15/13 598,885
510 Nevada Power Co., Ser A......................... 8.250 06/01/11 559,667
765 NRG Energy, Inc. ............................... 7.375 01/15/17 768,825
484 PSEG Energy Holdings............................ 8.625 02/15/08 498,520
340 Southern Natural Gas Co. ....................... 8.875 03/15/10 358,391
175 TXU Energy Co. ................................. 7.000 03/15/13 183,342
------------
7,995,638
------------
WIRELESS COMMUNICATIONS 3.5%
1,775 Nextel Communications, Inc., Ser E.............. 6.875 10/31/13 1,795,155
1,000 Rural Cellular Corp. ........................... 8.250 03/15/12 1,046,250
------------
2,841,405
------------
TOTAL CORPORATE BONDS 169.9%...................................... 137,748,093
------------
EQUITIES 0.9%
DecisionOne Corp. (5,483 Common Shares) (f) (g).............................. 0
Doe Run Resources Corp. (1 Common Stock Warrant, expiring 10/29/12) (f)
(g)........................................................................ 5,465
HCI Direct, Inc. (60,714 Common Shares) (f) (g).............................. 728,568
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) (f).................................... 2,928
XO Holdings, Inc., Ser A (1,364 Common Stock Warrants, expiring 01/16/10)
(f)........................................................................ 982
XO Holdings, Inc., Ser B (1,022 Common Stock Warrants, expiring 01/16/10)
(f)........................................................................ 460
XO Holdings, Inc., Ser C (1,022 Common Stock Warrants, expiring 01/16/10)
(f)........................................................................ 230
------------
TOTAL EQUITIES............................................................... 738,633
------------
TOTAL LONG-TERM INVESTMENTS 170.8%
(Cost $139,047,075)........................................................ 138,486,726
------------
See Notes to Financial Statements 17
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2006 continued
DESCRIPTION VALUE
--------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 7.6%
Citigroup Global Markets, Inc. ($1,252,255 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 5.23%,
dated 12/29/06, to be sold on 01/02/07 at $1,252,982)...................... 1,252,255
State Street Bank & Trust Co. ($4,876,745 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 5.08%,
dated 12/29/06, to be sold on 01/02/07 at $4,879,498)...................... 4,876,745
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $6,129,000).......................................................... 6,129,000
------------
TOTAL INVESTMENTS 178.4%
(Cost $145,176,075)........................................................ 144,615,726
OTHER ASSETS IN EXCESS OF LIABILITIES 2.4%.................................. 1,984,877
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (80.8%).................. (65,519,634)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 81,080,969
============
Percentages are calculated as a percentage of net assets applicable to common
shares.
(a) Floating Rate Coupon
(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) Variable Rate Coupon
(d) Non-income producing as security is in default.
(e) This borrower has filed for protection in federal bankruptcy court.
(f) Non-income producing security.
(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
REIT--Real Estate Investment Trust
18 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2006
ASSETS:
Total Investments (Cost $145,176,075)....................... $144,615,726
Cash........................................................ 962
Receivables:
Interest.................................................. 2,761,112
Investments Sold.......................................... 42,514
Other....................................................... 3,827
------------
Total Assets............................................ 147,424,141
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 80,863
Income Distributions--Common Shares....................... 45,164
Other Affiliates.......................................... 9,211
Trustees' Deferred Compensation and Retirement Plans........ 577,780
Accrued Expenses............................................ 110,520
------------
Total Liabilities....................................... 823,538
Preferred Shares (including accrued distributions).......... 65,519,634
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 81,080,969
============
NET ASSET VALUE PER COMMON SHARE ($81,080,969 divided by
18,893,621 shares outstanding)............................ $ 4.29
============
NET ASSETS CONSIST OF:
Common Shares ($0.01 par value with an unlimited number of
shares authorized, 18,893,621 shares issued and
outstanding).............................................. $ 188,936
Paid in Surplus............................................. 145,759,977
Net Unrealized Depreciation................................. (560,349)
Accumulated Undistributed Net Investment Income............. (1,381,772)
Accumulated Net Realized Loss............................... (62,925,823)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 81,080,969
============
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....................... $146,480,969
============
See Notes to Financial Statements 19
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended December 31, 2006
INVESTMENT INCOME:
Interest.................................................... $10,767,315
Other....................................................... 131,564
-----------
Total Income............................................ 10,898,879
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,014,770
Preferred Share Maintenance................................. 179,825
Trustees' Fees and Related Expenses......................... 101,760
Professional Fees........................................... 92,403
Reports to Shareholders..................................... 51,817
Accounting and Administrative Expenses...................... 51,002
Transfer Agent Fees......................................... 44,914
Registration Fees........................................... 20,928
Custody..................................................... 18,451
Other....................................................... 55,839
-----------
Total Expenses.......................................... 1,631,709
Investment Advisory Fee Reduction....................... 36,442
-----------
Net Expenses............................................ 1,595,267
-----------
NET INVESTMENT INCOME....................................... $ 9,303,612
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(4,351,903)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (5,814,953)
End of the Period......................................... (560,349)
-----------
Net Unrealized Appreciation During the Period............... 5,254,604
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 902,701
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(3,173,370)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 7,032,943
===========
20 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
--------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 9,303,612 $ 6,676,951
Net Realized Loss.................................... (4,351,903) (465,425)
Net Unrealized Appreciation/Depreciation During the
Period............................................. 5,254,604 (5,972,386)
Distributions to Preferred Shareholders:
Net Investment Income.............................. (3,173,370) (1,484,853)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations......................................... 7,032,943 (1,245,713)
Distributions to Common Shareholders:
Net Investment Income.............................. (6,782,767) (5,595,543)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES......................... 250,176 (6,841,256)
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Acquired Through
Merger............................................. -0- 49,072,045
----------- -----------
TOTAL INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES............................................. 250,176 42,230,789
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.............................. 80,830,793 38,600,004
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $(1,381,772)
and $(825,498), respectively)...................... $81,080,969 $80,830,793
=========== ===========
See Notes to Financial Statements 21
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,
-----------------------------------------------
2006 2005 2004 2003 2002
-----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $ 4.28 $ 4.76 $ 4.57 $ 3.79 $ 4.77
------- ------- ------- ------- -------
Net Investment Income................... 0.49(a) 0.52 0.52 0.52 0.60
Net Realized and Unrealized Gain/Loss... 0.05 (0.45) 0.16 0.75 (0.89)
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income................. (0.17) (0.11) (0.05) (0.04) (0.07)
Return of Capital Distributions....... -0- -0- -0- -0-(f) -0-(f)
------- ------- ------- ------- -------
Total from Investment Operations.......... 0.37 (0.04) 0.63 1.23 (0.36)
Distributions Paid to Common Shareholders:
Net Investment Income................. (0.36) (0.44) (0.44) (0.44) (0.58)
Return of Capital Distributions....... -0- -0- -0- (0.01) (0.04)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD........ $ 4.29 $ 4.28 $ 4.76 $ 4.57 $ 3.79
======= ======= ======= ======= =======
Common Share Market Price at End of the
Period.................................. $ 4.02 $ 4.14 $ 5.14 $ 5.08 $ 4.07
Total Return* (b)......................... 6.02% -11.46% 10.83% 37.20% -19.86%
Net Assets Applicable to Common Shares at
End of the Period (In millions)......... $ 81.1 $ 80.8 $ 38.6 $ 37.1 $ 30.7
Ratio of Expenses to Average Net Assets
Applicable to Common Shares* (c)........ 2.00% 2.43% 2.12% 2.25% 2.28%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares*
(c)..................................... 11.69% 11.89% 11.51% 12.29% 14.50%
Portfolio Turnover........................ 48% 62% 86% 74% 81%
* 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)....... 2.05% N/A N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (c)..................... 11.64% N/A N/A N/A N/A
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (c).......... 1.10% 1.37% 1.21% 1.24% 1.18%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(d)..................................... 7.70% 9.24% 10.40% 11.34% 12.93%
SENIOR SECURITIES:
Total Preferred Shares Outstanding........ 2,616 2,616 1,112 1,112 1,112
Asset Coverage Per Preferred Share (e).... $56,040 $55,933 $59,715 $58,320 $52,652
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
22 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006
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 high
yield, 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 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. 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, 2006, 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 income is comprised primarily of consent fees.
Consent fees are earned as compensation for agreeing to changes in the terms of
debt instruments.
23
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006 continued
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 2006, the Trust had an accumulated capital loss
carryforward for tax purposes of $62,923,467 which will expire according to the
following schedule.
AMOUNT EXPIRATION
$ 6,008,551................................................. December 31, 2007
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
A portion of the capital loss carryforward above was acquired due to a
merger with another regulated investment company, please see Footnote 3 for
details. Furthermore, the utilization of the capital loss carryforward amount
above may be limited due to the merger.
At December 31, 2006, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $145,789,504
============
Gross tax unrealized appreciation........................... 3,323,537
Gross tax unrealized depreciation........................... (4,497,315)
------------
Net tax unrealized depreciation on investments.............. $ (1,173,778)
============
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included in ordinary income for tax
purposes.
The tax character of distributions paid during the years ended December 31,
2006 and 2005 was as follows:
2006 2005
Distributions paid from:
Ordinary income........................................... $9,909,458 $6,971,990
Long-term capital gain.................................... -0- -0-
---------- ----------
$9,909,458 $6,971,990
========== ==========
24
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006 continued
Permanent differences, primarily due to a portion of capital loss
carryforward 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, 2006:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT INCOME REALIZED LOSS PAID IN SURPLUS
$96,251 $1,937,476 $(2,033,727)
As of December 31, 2006, there were no components of distributable earnings
on a tax basis.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, 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. Effective July 1, 2006, the Adviser has agreed to waive investment
advisory fees equal to .05% of the average daily net assets including preferred
shares of the Trust. For the period July 1, 2006 through December 31, 2006, the
Adviser voluntarily waived $36,442 of its investment advisory fees. This waiver
is voluntary and can be discontinued at any time.
For the year ended December 31, 2006, the Trust recognized expenses of
approximately $17,800 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,
2006, the Trust recognized expenses of approximately $46,600 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 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.
25
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006 continued
3. CAPITAL TRANSACTIONS
For the years ended December 31, 2006 and 2005, transactions in common shares
were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
Beginning Shares..................................... 18,893,621 8,109,000
Shares Acquired Through Merger....................... -0- 10,784,621
---------- ----------
Ending Shares........................................ 18,893,621 18,893,621
========== ==========
On July 29, 2005 the Trust acquired all of the assets and liabilities of Van
Kampen High Income Trust (ticker symbol VIT) through a tax free reorganization
approved by VIT shareholders on July 22, 2005. The Trust issued 10,784,621
common shares with a net asset value of $49,072,045 and 1,504 Auction Preferred
Shares (APS) with a liquidation value of $37,600,000 in exchange for VIT's net
assets. The shares of VIT were converted into Trust shares at a ratio of
0.786581 to 1 and 1 to 4, for common shares and APS, respectively. Net
unrealized depreciation of VIT as of July 29, 2005 was $1,265,478. The Trust
assumed VIT book to tax accretion differences, which resulted in a $263,880
increase to accumulated undistributed net investment income and a corresponding
decrease to net unrealized appreciation. Combined net assets applicable to
common shares on the day of reorganization were $85,969,581 and combined net
assets including preferred shares were $151,369,581. Included in these net
assets was a capital loss carryforward of $33,329,662, of which all can be
utilized by the acquiring Trust, deferred compensation and retirement plan
balance of $229,390 and non-accrual interest income of $16,968, all carried
forward from VIT. The Trust incurred merger expenses of $213,360, which
represent costs related to the preparation, printing, and distribution of the
Proxy Statement/Prospectus, Reorganization Agreement and registration statements
as well as legal, audit, and filing fees.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $65,439,151 and $65,520,013,
respectively.
5. PREFERRED SHARES
The Trust has outstanding 2,616 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. The average
rate in effect on December 31, 2006 was 5.266%. During the year ended December
31, 2006, the rates ranged from 2.750% to 5.360%.
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.
26
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006 continued
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
7. ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes--an interpretation
of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes
by prescribing the minimum recognition threshold a tax position must meet before
being recognized in the financial statements. FIN 48 is effective for the fiscal
years beginning after December 15, 2006 and is to be applied to all open tax
years as of the effective date. Recent SEC guidance allows implementing FIN 48
in the fund NAV calculations as late as the fund's last NAV calculation in the
first required financial statement period. As a result, the Trust will
incorporate FIN 48 in its semi annual report on June 30, 2007. The impact to the
Trust's financial statements, if any, is currently being assessed.
In addition, 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 November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Trust's financial statement disclosures.
27
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, 2006, 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, 2006, 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, 2006, 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 8, 2007
28
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan offers you a prompt and simple way to
reinvest your dividends and capital gains distributions into additional shares
of your trust. Under the plan, the money you earn from dividends and capital
gains distributions will be reinvested automatically in more shares of your
trust, allowing you to potentially increase your investment over time. All
shareholders in the Van Kampen High Income Trust II are automatically enrolled
in the plan when shares are purchased, unless otherwise instructed.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in your trust easily and automatically with the
dividend reinvestment plan.
- LOW TRANSACTION COSTS
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.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for
you in safekeeping, which provides added protection against loss, theft, or
inadvertent destruction of certificates. However, you may request that a
certificate representing your reinvested shares be issued to you.
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 your 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.
29
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN continued
HOW TO ENROLL
To enroll in the Dividend Reinvestment 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 43011
Providence, RI 02940-3011
Please include your Fund 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 your trust. However, 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.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Dividend Reinvestment 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 43011
Providence, RI 02940-3011
30
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN continued
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have two choices for receiving your shares:
- CERTIFICATE
We will issue a certificate for the full shares and send you a check for any
fractional shares without a charge.
- CHECK
We will sell all full and fractional shares and send the proceeds to your
address of record after deducting brokerage commissions and a $2.50 service fee.
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 your trust.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
31
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
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
c/o Computershare Investor Services
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
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, 2006. 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
$9,909,458 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.
32
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS
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 (61) Trustee Trustee Chairman and Chief 72 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
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
Jerry D. Choate (68) Trustee Trustee Prior to January 1999, 72 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
33
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS 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 (66) Trustee Trustee President of CAC, L.L.C., 72 Trustee/Director/Managing
CAC, L.L.C. since 1989 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Quidel
San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle,
to February 2001, Vice Inc., Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and Trustee
Inc., a global of The Scripps Research
distributor of wire, Institute. Prior to
cable and communications January 2005, Trustee of
connectivity products. the University of Chicago
Prior to July 2000, Hospitals and Health
Managing Partner of Systems. Prior to April
Equity Group Corporate 2004, Director of
Investment (EGI), a TheraSense, Inc. Prior to
company that makes January 2004, Director of
private investments in TeleTech Holdings Inc.
other companies. and Arris Group, Inc.
Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
34
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 72 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (54) Trustee Trustee Director and President of 72 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (71) Trustee Trustee Prior to 1998, President 72 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.
35
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (70) Trustee Trustee President of Nelson 72 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (66) Trustee Trustee President Emeritus and 72 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
36
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS 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. (65) Trustee Trustee Chief Communications 72 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 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of Sciences/
National Research
Council. From 1980
through 1989, Partner of
Coopers & Lybrand.
37
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS 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* (67) Trustee Trustee Partner in the law firm 72 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.
* 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
TRUSTEES AND OFFICERS 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 (68) President and Officer President of funds in the Fund Complex since September 2005,
1221 Avenue of the Americas Principal since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 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 (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10020 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 (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
25 Cabot Square, since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer -
London, GBR E14 4QA 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
TRUSTEES AND OFFICERS 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 (44) Vice President Officer Managing Director and General Counsel - U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management Inc., Morgan Stanley Investment 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 (40) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
John L. Sullivan (51) Chief Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Compliance since 1998 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Officer 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.
James W. Garrett (38) Chief Officer Managing Director of Morgan Stanley Investment Management
1221 Avenue of the Americas Financial since 2006 Inc. since December 2006; Chief Financial Officer and
New York, NY 10020 Officer and Treasurer of Morgan Stanley Institutional Funds since 2002
Treasurer and of funds in the Fund Complex from January 2005 to August
2005 and since September 2006. Previously, Executive
Director of Morgan Stanley Investment Management Inc. from
2002 to December 2006.
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 29, 2006, 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.
(continued on next page)
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, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2007 Van Kampen Funds Inc.
All rights reserved. Member NASD/SIPC.
902, 911, 104
VLTANR 2/07
(VAN KAMPEN INVESTMENTS LOGO) RN07-00480P-Y12/06
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 November 2006. Both editions of Exhibit B
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:
2006
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES............................. $45,500 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES................ $800(2) $244,200(3)
TAX FEES.......................... $1,600(4) $0
ALL OTHER FEES.................... $0 $0
TOTAL NON-AUDIT FEES................... $2,400 $244,200
TOTAL.................................. $47,900 $244,200
2005
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES............................. $44,200 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES................ $800(2) $321,000(3)
TAX FEES.......................... $1,600(4) $0
ALL OTHER FEES.................... $0 $0
TOTAL NON-AUDIT FEES................... $2,400 $321,000
TOTAL.................................. $46,600 $321,000
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 agreed upon procedures provided that are
reasonably related to the performance of the audit of the financial
statements of the Registrant.
(3) 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.
(4) Tax Fees represent tax advice and compliance services provided in
connection with the review of the Registrant's tax.
(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. The Policy will be reviewed and, updated, as necessary, to address new
or revised proxy voting issues. The MSIM entities covered by the 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, Morgan Stanley Hedge Fund Partners GP LP,
Morgan Stanley Hedge Fund Partners LP, Van Kampen Asset Management, and Van
Kampen Advisors Inc. (each an "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will use its best efforts to vote proxies as part of its
authority to manage, acquire and dispose of account assets. With respect to the
MSIM registered management investment companies (Van Kampen, Institutional and
Advisor Funds)(collectively referred to herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies under this Policy (except for the Morgan Stanley KLD
Social Index Fund, which votes proxies pursuant to the Institutional Shareholder
Services' Social Investment Research Proxy Voting Guidelines) pursuant to
authority granted under its applicable investment advisory agreement or, in the
absence of such authority, as authorized by the Board of
Directors or Trustees of the MSIM Funds. A MSIM Affiliate will not vote proxies
if the "named fiduciary" for an ERISA account has reserved the authority for
itself, or in the case of an account not governed by ERISA, the investment
management or investment advisory agreement does not authorize the MSIM
Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent
manner, vote proxies in the best interests of clients, including beneficiaries
of and participants in a client's benefit plan(s) for which the MSIM Affiliates
manage assets, consistent with the objective of maximizing long-term investment
returns ("Client Proxy Standard"). In certain situations, a client or its
fiduciary may provide a MSIM Affiliate with a proxy voting policy. In these
situations, the MSIM Affiliate will comply with the client's policy.
Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as MSIM Affiliates 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 the MSIM
Affiliates may review and utilize the recommendations of the Research Providers
in making proxy voting decisions, they are in no way obligated to follow such
recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A.
below) will carefully monitor and supervise the services provided by the
Research Providers.
Voting Proxies for Certain Non-U.S. Companies - While the proxy voting process
is well established in the United States and other developed markets with a
number of tools and services available to assist an investment manager, voting
proxies of non-U.S. companies located in certain jurisdictions, particularly
emerging markets, may involve a number of problems that may restrict or prevent
a MSIM Affiliate's ability to vote such proxies. These problems include, but are
not limited to: (i) proxy statements and ballots being written in a language
other than English; (ii) untimely and/or inadequate notice of shareholder
meetings; (iii) restrictions on the ability of holders outside the issuer's
jurisdiction of organization to exercise votes; (iv) requirements to vote
proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies
will be voted on a best efforts basis only, after weighing the costs and
benefits to MSIM's clients of voting such proxies, consistent with the Client
Proxy Standard. ISS has been retained to provide assistance to the MSIM
Affiliates in connection with voting their clients' non-U.S. proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) this Policy,
including the guidelines set forth below. These guidelines address a broad range
of issues, including board size and composition, executive compensation,
anti-takeover proposals, capital structure proposals and social responsibility
issues and are meant to be general voting parameters on issues that arise most
frequently. The MSIM Affiliates, however, may, pursuant to the procedures set
forth in Section IV. below, vote in a manner that is not in accordance with the
following general guidelines, provided the vote is approved by the Proxy Review
Committee and is consistent with the Client Proxy Standard. Morgan Stanley AIP
GP LP will follow the procedures as described in Appendix A. A MSIM Affiliate
will not generally vote a proxy if it has sold the affected security between the
record date and the meeting date.
III. GUIDELINES
A. CORPORATE GOVERNANCE MATTERS. The following proposals will generally be
voted as indicated below, unless otherwise determined by the Proxy Review
Committee.
i. General.
1. Generally, routine management proposals will be supported. The
following are examples of routine management proposals:
- Approval of financial statements, director and auditor reports.
- General updating/corrective amendments to the charter.
- Proposals related to the conduct of the annual meeting, except
those proposals that relate to the "transaction of such other
business which may come before the meeting."
2. Proposals to eliminate cumulative voting generally will be supported;
proposals to establish cumulative voting in the election of
directors will not be supported.
3. Proposals requiring confidential voting and independent tabulation of
voting results will be supported.
4. Proposals requiring a U.S. company to have a separate Chairman and CEO
will not be supported. Proposals requiring non-U.S. companies to
have a separate Chairman and CEO will be supported.
5. Proposals by management of non-U.S. companies regarding items that are
clearly related to the regular course of business will be
supported.
6. Proposals to require the company to expense stock options will be
supported.
7. Open-ended requests for adjournment generally will not be supported.
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.
8. Proposals to declassify the Board of Directors (if management supports
a classified board) generally will not be supported.
9. Proposal requiring that the company prepare reports that are costly to
provide or that would require duplicative efforts or expenditures
that are of a non-business nature or would provide no pertinent
information from the perspective of institutional shareholders
generally will not be supported.
ii. Election of Directors. In situations where no conflict exists and
where no specific governance deficiency has been noted, unless otherwise
determined by the
Proxy Review Committee, proxies will be voted in support of nominees of
management.
1. The following proposals generally will be supported: -
- Proposals requiring that a certain percentage (up to 66 2/3%) of
the company's board members be independent directors.
- Proposals requiring that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated directors.
2. Unless otherwise determined by the Proxy Review Committee, a withhold
vote will be made in the following circumstances:
(a) If a company's board is not comprised of a majority of
disinterested directors, a withhold vote will be made for
interested directors. A director nominee may be deemed to be
interested if the nominee has, or any time during the previous
five years had, a relationship with the issuer (e.g., investment
banker, counsel or other professional service provider, or
familial relationship with a senior officer of the issuer) that
may impair his or her independence;
(b) If a nominee who is interested is standing for election as a
member of the company's compensation, nominating or audit
committees;
(c) A direct conflict exists between the interests of the nominee and
the public shareholders;
(d) Where the nominees standing for election have not taken action to
implement generally accepted governance practices for which there
is a "bright line" test. These would include elimination of dead
hand or slow hand poison pills, requiring audit, compensation or
nominating committees to be composed of independent directors and
requiring a majority independent board;
(e) A nominee has failed to attend at least 75% of board meetings
within a given year without a reasonable excuse; or
(f) A nominee serves on the board of directors for more than six
companies (excluding investment companies).
iii. Auditors
1. Generally, management proposals for selection or ratification of
auditors will be supported. However, such proposals may not be
supported if the fees paid to auditors are excessive. Generally, to
determine if such fees are excessive, a 50% test will be applied:
i.e., non-audit fees should be less than 50% of the total fees paid to
the auditor.
2. Proposals requiring auditors to attend the annual meeting of
shareholders will be supported.
3. Proposals to indemnify auditors will not be supported.
iv. Anti-Takeover Matters
1. Proposals to modify or rescind existing supermajority vote
requirements to amend the charter or bylaws will be supported;
proposals to amend by-laws to require a supermajority shareholder vote
to pass or repeal certain provisions will not be supported.
2. 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.
3. Proposals requiring shareholder approval or ratification of a
shareholder rights plan or poison pill will be supported.
B. CAPITALIZATION CHANGES. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- Proposals relating to capitalization changes 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 for 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.
2. The following proposals generally will not be supported
(notwithstanding management support).
- Proposals relating to capitalization changes that add classes of
stock which 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.
C. COMPENSATION. The following proposals generally will be voted as indicated
below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- 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 the establishment of employee stock option plans
and other employee ownership plans, provided that our research
does not indicate that approval of the plan would be against
shareholder interest.
- 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, however, proposals that require
shareholder approval for agreements in excess of three times the
annual compensation (salary and bonus) generally will be supported.
3. Blanket proposals requiring shareholder approval of executive
compensation generally will not be supported.
4. Proposals that request or require disclosure of executive compensation
in addition to the disclosure required by the Securities and Exchange
Commission ("SEC") regulations generally will not be supported.
D. OTHER RECURRING ITEMS. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. Proposals to add restrictions related to social, political,
environmental or special interest issues that do not relate directly
to the business of the company and which do not appear to be directed
specifically to the business or financial interest of the company
generally will not be supported.
2. Proposals requiring adherence to workplace standards that are not
required or customary in market(s) to which the proposals relate will
not be supported.
E. ITEMS TO BE REVIEWED BY THE PROXY REVIEW COMMITTEE
The following types of non-routine proposals, which potentially may have a
substantive financial or best interest impact on an issuer, will be voted as
determined by the Proxy Review Committee.
i. Corporate Transactions
- Proposals relating to mergers, acquisitions and other special
corporate transactions (i.e., takeovers, spin-offs, sales of
assets, reorganizations, restructurings and recapitalizations)
will be examined on a case-by-case basis. In all cases, Research
Providers' research and analysis will be used along with MSIM
Affiliates' research and analysis, including, among other things,
MSIM internal company-specific knowledge. Proposals for mergers
or other significant transactions that are friendly and approved
by the Research Providers generally will be supported where there
is no portfolio manager objection and where there is no material
conflict of interest and in those instances will not need to be
reviewed by the Proxy Review Committee.
ii. Compensation
- Proposals relating to change-in-control provisions in non-salary
compensation plans, employment contracts, and severance
agreements that benefit management and would be costly to
shareholders if triggered. With respect to proposals related to
severance and change of control situations, MSIM Affiliates will
support a maximum of three times salary and bonus.
- Proposals relating to Executive/Director stock option plans.
Generally, stock option plans should be incentive based. The
Proxy Review Committee will evaluate the the quantitative
criteria used by a Research Provider when considering such
Research Provider's recommendation. If the Proxy Review Committee
determines that the criteria used by the Research Provider is
reasonable, the proposal will be supported if it falls within a
5% band above the Research Provider's threshold.
- Compensation proposals that allow for discounted stock options
that have not been offered to employees in general.
iii. Other
- Proposals for higher dividend payouts.
- Proposals recommending set retirement ages or requiring specific
levels of stock ownership by directors.
- Proposals for election of directors, where a director nominee is
related to MSIM (i.e. on an MSIM Fund's Board of
Directors/Trustees or part of MSIM senior management) must be
considered by the Proxy Review Committee. If the proposal relates
to a director nominee who is on a Van Kampen Fund's Board of
Directors/Trustees, to the extent that the shares of the relevant
company are held by a Van Kampen Fund, the Van Kampen Board shall
vote the proxies with respect to those shares, to the extent
practicable. In the event that the Committee cannot contact the
Van Kampen Board in advance of the shareholder meeting, the
Committee will vote such shares pursuant to the Proxy Voting
Policy.
- Proposals requiring diversity of board membership relating to
broad based social, religious or ethnic groups.
- Proposals to limit directors' liability and/or broaden
indemnification of directors. Generally, the Proxy Review
Committee 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.
F. 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.
IV. ADMINISTRATION OF POLICY
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing the Policy and, in this regard, has
expressly adopted it.
(a) The Committee, which is appointed by MSIM's Chief Investment
Officer ("CIO"), consists of senior investment professionals who
represent the different investment disciplines and geographic
locations of the firm. The Committee is responsible for
establishing MSIM's Policy and determining how MSIM will vote
proxies on an ongoing basis.
(b) 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.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to the
Policy and (2) review proposals at upcoming shareholder meetings
of MSIM portfolio
companies in accordance with this Policy including, as
appropriate, the voting results of prior shareholder meetings of
the same issuer where a similar proposal was presented to
shareholders. The Committee, or its designee, will timely
communicate to ISS MSIM's Policy (and any amendments to them
and/or any additional guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing certain
shares of the same issuer that are the subject of the same proxy
solicitation and held by one or more MSIM portfolios to be voted
differently than other shares) and/or "override voting" (i.e.,
voting all MSIM portfolio shares in a manner contrary to the
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. Split
votes generally will not be approved within a single Global
Investor Group investment team. 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. 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.
(e) In addition to the procedures discussed above, if the Committee
determines that an issue raises a potential material conflict of
interest, or gives rise to the appearance of a potential material
conflict of interest, the Committee will request a special
committee to review, and recommend a course of action with
respect to, the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairperson of
the Proxy Review Committee, the Compliance Director for the area
of the firm involved or his/her designee, a senior portfolio
manager (if practicable, one who is a member of the Proxy Review
Committee) designated by the Proxy Review Committee, and MSIM's
Chief Investment Officer or his/her designee. The Special
Committee may request the assistance of MSIM's General Counsel or
his/her designee and will have sole discretion to cast a vote. In
addition to the research provided by Research Providers, the
Special Committee may request analysis from MSIM Affiliate
investment professionals and outside sources to the extent it
deems appropriate.
(f) The Committee and the Special Committee, or their designee(s),
will document in writing all of their decisions and actions,
which documentation will be maintained by the Committee and the
Special Committee, or their designee(s), for a period of at least
6 years. To the extent these decisions relate to a security held
by a MSIM U.S. registered investment company, the Committee and
Special Committee, or their designee(s), will report their
decisions to each applicable Board of Trustees/Directors of those
investment companies at each Board's next regularly scheduled
Board meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during the
most recently ended calendar quarter immediately preceding the
Board meeting.
(g) The Committee and Special Committee, or their designee(s), will
timely communicate to applicable portfolio managers, the
Compliance Departments and, as necessary, to ISS, decisions of
the Committee and Special Committee so that, among other things,
ISS will vote proxies consistent with their decisions.
B. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
1. If there is a possibility that a vote may involve a material
conflict of interest, the vote must be decided by the Special
Committee in consultation with MSIM's General Counsel or his/her
designee.
2. A material conflict of interest could exist in the following
situations, among others:
(a) The issuer soliciting the vote is a client of MSIM or an
affiliate of MSIM and the vote is on a material matter affecting
the issuer;
(b) The proxy relates to Morgan Stanley common stock or any other
security issued by Morgan Stanley or its affiliates; or
(c) Morgan Stanley has a material pecuniary interest in the matter
submitted for a vote (e.g., acting as a financial advisor to a
party to a merger or acquisition for which Morgan Stanley will be
paid a success fee if completed).
C. PROXY VOTING REPORTS
(a) MSIM will promptly provide a copy of this Policy to any client
requesting them. 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.
(b) MSIM's legal department is responsible for filing an annual Form
N-PX on behalf of each registered management investment company
for which such filing is required, indicating how all proxies
were voted with respect to such investment company's holdings.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
TRUST MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Trust 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 Trust's portfolio are
Gordon W. Loery and Joshua Givelber, Executive Directors of the Adviser.
Mr. Loery has been associated with the Adviser in an investment management
capacity since June 1990 and joined the team managing the Trust in July 2001.
Mr. Givelber has been associated with the Adviser in an investment management
capacity since June 1999 and joined the team managing the Trust in April 2003.
The composition of the team may change without notice from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following information is as of December 31, 2006
Mr. Loery managed eight mutual funds with a total of approximately $1.4 billion
in assets; three pooled investment vehicles other than mutual funds with a total
of approximately $418.6 million; and one other account with a total of
approximately $1 thousand.
Mr. Givelber managed seven mutual funds with a total of approximately $1.5
billion in assets; no pooled investment vehicles other than mutual funds; and no
other accounts.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one client over another resulting in conflicts of interest.
For instance, the Adviser may receive fees from certain accounts that are higher
than the fee it receives from the Fund, or it may receive a performance-based
fee on certain accounts. In those instances, the portfolio manager may have an
incentive to favor the higher and/or performance-based fee accounts over the
Fund. The portfolio managers of the Fund do not currently manage assets of other
investment companies, pooled investment vehicles or other accounts that charge a
performance fee. 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 Equity Incentive Compensation Program (EICP) awards -- a
mandatory program that defers a portion of discretionary year-end compensation
into restricted stock units or other awards based on Morgan Stanley common stock
that are subject to vesting and other conditions.
- Investment Management 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 mutual funds they manage that are
included in the IMAP Fund menu, which may or may not include the Fund.
- 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 a fund's/account's primary benchmark, indices and/or
peer groups where applicable. Generally, the greatest weight is placed on the
three- and five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles and
other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management, and
the overall performance of the investment team(s) of which the portfolio manager
is a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of December 31, 2006, 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 8, 2007
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 8, 2007
By: /s/ James W. Garrett
---------------------
Name: James W. Garrett
Title: Principal Financial Officer
Date: February 8, 2007