UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5769
Van Kampen High Income Trust II
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas New York, New York 10020
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas New York, New York 10020
-------------------------------------------------------------------------------
(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: 12/31/04
Item 1. Reports 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,
2004.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
Performance Summary as of 12/31/04
HIGH INCOME TRUST II
SYMBOL: VLT
-----------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET
Since Inception (4/28/89) 5.87% 6.39%
10-year 6.70 7.26
5-year 4.76 9.19
1-year 14.09 10.83
-----------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities, by the total number of
common shares outstanding. The common share market price is the price the market
is willing to pay for shares of the trust at a given time. Common share market
price is influenced by a range of factors, including supply and demand and
market conditions. Total return assumes an investment at the beginning of the
period, reinvestment of all distributions for the period in accordance with the
trust's dividend reinvestment plan, and sale of all shares at the end of the
period.
The J.P. Morgan Global High Yield Index is generally representative of
high-yield securities. The index does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004
Van Kampen High Income Trust II is managed by the Adviser's High Yield team.(1)
Current team members include Gordon Loery, Executive Director of the Adviser;
Josh Givelber, Vice President and Chad Liu, Vice Presidents of the Adviser; and
Sheila Finnerty, Managing Director of the Adviser.
MARKET CONDITIONS
The CSFB High Yield Index, a broad index for the high yield market, returned
11.95% for the 12-month period ended December 31, 2004. In discussing the high
yield market during 2004, it is worth noting that 2003 was one of the best years
ever for this asset class, with the CSFB Index returning almost 28%. That banner
year was driven by strong economic news and significantly improved corporate
earnings, combined with declining defaults and record inflows into the asset
class. The strong returns of 2003 continued through the end of January 2004.
Beginning in February 2004, however, the market's technical (i.e.,
supply/demand) situation changed. Though fundamental factors such as earnings
and default rate remained as strong as they had been during the prior 15-month
rally, demand receded as market participants grew concerned over the lack of job
creation in the U.S. economy. Many investors took profits and became more
risk-averse. Then, in early April, significant interest rate increases caused a
pronounced sell-off in high yield and throughout the fixed income markets. In
addition, because of the sustained rally in high yield that had previously taken
place, many of these bonds were priced at a premium. In a sense, we believe the
high yield market had run out of room to rally. At the same time, the high yield
market's new issue calendar continued to be robust, which had a negative impact
on the market's technical situation. This difficult environment persisted
through May 2004.
In June, the high yield sector rebounded, experiencing a solid seven-month run
through the end of 2004. The strong fundamental factors detailed above continued
during this time and the supply/demand situation improved as buyers returned to
the market. For each of the last seven months of 2004, high yield posted gains
of 1% or more, and was the best performing fixed-income asset class for the
year. As a measure of the high yield market's improvement over the 12-month
period, the spread of the CSFB High Yield Index declined compared with
Treasuries of similar maturity, from 486 basis points to 346 basis points. In a
similar vein, the average yield to maturity of high yield bonds declined from
8.34% at the end of 2003 to 7.56% at the close of 2004.
(1)Team members may change without notice at any time.
2
PERFORMANCE ANALYSIS
A closed-end fund's return can be calculated based upon either the market price
or the net asset value (NAV) of its shares. NAV per share is determined by
dividing the value of the trust's portfolio securities, cash and other assets,
less all liabilities, by the total number of common shares outstanding, while
market price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On an NAV basis, the trust outperformed its
benchmark, the J.P. Morgan Global High Yield Index, though it underperformed the
index on a market-value basis. (See table below.)
During the period, three strategic decisions helped the trust's performance
most. First, the trust enjoyed favorable security selection within the housing
industry. Going back to late 2003, the trust had held several homebuilding
issues that performed well, while the performance of building products companies
had lagged. Early in 2004, we felt that homebuilding bonds had become
overpriced, and based on our analysis we sold most of the trust's allocation,
replacing these bonds with building products issues that performed extremely
well over the remainder of the period. Second, the trust benefited from its lack
of participation in airline bonds. Airlines were the worst performing sector
within the high yield market during the 12-month period. Third, our security
selection in the wireless communications and telecom sectors added to
performance as we avoided several credits that had poor business results while
our selections within this sector generally posted solid earnings.
The main detractor from performance during the period was security selection
within the utility, service and gaming/leisure sectors. In addition, the trust's
underweight in the metals/mining sector hurt performance as higher metal prices
led this sector to strong gains during 2004.
On an ongoing basis, we seek to maintain a balanced and well-diversified
portfolio. The trust's portfolio consists of approximately 150 issuers. This
level of diversification can reduce overall credit risk, yet also allow
sufficient average security size for strategic overweights. We continue to
maintain an average credit quality of single B, similar to the benchmark.
Beginning in late in 2003 and early 2004, we reduced the trust's allocation in
BBB and higher BB credits
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004
------------------------------------------------------------
BASED ON J.P. MORGAN GLOBAL
BASED ON NAV MARKET PRICE HIGH YIELD INDEX
14.09% 10.83% 11.70%
------------------------------------------------------------
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. 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.
3
as many of these issues had performed well when interest rates declined and
Treasuries and other fixed-income securities rallied. The performance of these
higher rated bonds generally correlates with that of Treasuries, and the trust
sold several BBB and BB credits before interest rates spiked in the spring and
Treasuries were negatively impacted. In their place, we purchased lower quality
credits, which historically have performed better than BBB and BB bonds in a
rising interest rate environment. In terms of issuer size, we generally focus on
larger companies because of their financial flexibility, ability to withstand
less-favorable financial markets and superior access to capital markets.
As we have stated, we believe the fundamentals of the high yield market remain
positive, with favorable earnings, lower default rates and modestly tightening
high yield credit spreads. Many of these positive factors have already been
"priced into" the market during the past two years, however, and high yield
seems to us to be fairly valued. We believe that in 2005, high yield returns
should be driven primarily by coupon income rather than price appreciation. We
look for the trust's holdings to earn their coupon in the coming months and are
hopeful that market fundamentals will remain favorable through the end of 2005.
There is no guarantee that any securities will continue to perform well or be
held by the trust in the future.
4
RATINGS ALLOCATION AS OF 12/31/04
BBB/Baa 1.4%
BB/Ba 39.7
B/B 53.2
CCC/Caa 5.5
Non-Rated 0.2
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 12/31/04
Energy 8.8%
Gaming & Leisure 7.8
Chemicals 7.7
Forest Products 7.7
Utility 7.0
Diversified Media 5.9
Healthcare 5.7
Housing 5.5
Cable 5.3
Food & Tobacco 4.6
Services 4.3
Transportation 4.1
Wireless Communications 3.8
Telecommunications 3.8
Manufacturing 2.7
Consumer Products 2.5
Information Technology 2.4
Food & Drug 2.4
Metals 1.6
Retail 1.0
Financial 0.9
Aerospace 0.6
Broadcasting 0.4
-----
Total Long-Term Investments 96.5%
Short-Term Investments 3.5
-----
Total Investments 100.0%
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Ratings allocation percentages are as a
percentage of long-term 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.
5
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
6
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
7
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
CORPORATE BONDS 162.8%
AEROSPACE 1.0%
$ 355 K & F Acquisition, Inc., 144A--Private Placement
(a).............................................. 7.750% 11/15/14 $ 368,312
-----------
BROADCASTING 0.6%
220 Salem Communications Corp. ...................... 7.750 12/15/10 238,975
-----------
CABLE 9.0%
425 Cablevision Systems Corp., 144A--Private
Placement (a) (b)................................ 6.669 04/01/09 452,625
755 Charter Communications Holdings LLC.............. 9.625 11/15/09 666,287
115 DirecTV Holdings LLC............................. 8.375 03/15/13 129,519
635 Echostar DBS Corp. .............................. 6.375 10/01/11 652,462
740 Kabel Deutschland GmbH, 144A--Private Placement
(Germany) (a).................................... 10.625 07/01/14 854,700
635 PanAmSat Corp., 144A--Private Placement (a)...... 9.000 08/15/14 711,994
-----------
3,467,587
-----------
CHEMICALS 13.1%
460 Equistar Chemicals LP............................ 10.125 09/01/08 532,450
250 Equistar Chemicals LP............................ 10.625 05/01/11 291,250
180 FMC Corp. ....................................... 10.250 11/01/09 207,450
145 Huntsman Advanced Materials LLC, 144A--Private
Placement (a).................................... 11.000 07/15/10 173,275
200 Innophos, Inc.,144A--Private Placement (a)....... 8.875 08/15/14 217,000
145 ISP Chemco, Inc. ................................ 10.250 07/01/11 164,575
675 ISP Holdings, Inc. .............................. 10.625 12/15/09 750,937
105 Koppers, Inc. ................................... 9.875 10/15/13 120,225
570 Lyondell Chemical Co. ........................... 10.500 06/01/13 681,150
40 Millennium America, Inc. ........................ 7.000 11/15/06 41,800
385 Millennium America, Inc. ........................ 9.250 06/15/08 439,862
395 Nalco Co. ....................................... 7.750 11/15/11 428,575
365 Rhodia SA (France)............................... 8.875 06/01/11 369,562
445 Rockwood Specialties Group, Inc. ................ 10.625 05/15/11 513,975
101 Westlake Chemical Corp. ......................... 8.750 07/15/11 114,635
-----------
5,046,721
-----------
CONSUMER PRODUCTS 3.7%
200 Amscan Holdings, Inc. ........................... 8.750 05/01/14 201,000
155 Oxford Industrials, Inc. ........................ 8.875 06/01/11 167,206
620 Phillips Van-Heusen Corp. ....................... 7.250 02/15/11 654,100
235 Rayovac Corp. ................................... 8.500 10/01/13 262,025
116 Tempur Pedic, Inc. .............................. 10.250 08/15/10 133,980
-----------
1,418,311
-----------
DIVERSIFIED MEDIA 10.1%
602 Advanstar Communications, Inc. (b)............... 9.790 08/15/08 632,494
550 CanWest Media, Inc. (Canada)..................... 10.625 05/15/11 620,125
485 Houghton Mifflin Co. ............................ 9.875 02/01/13 533,500
8 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA (CONTINUED)
$ 475 Interpublic Group of Cos., Inc. ................. 6.250% 11/15/14 $ 483,008
465 Marquee, Inc., 144A--Private Placement (a) (b)... 6.540 08/15/10 491,737
111 PEI Holdings, Inc. .............................. 11.000 03/15/10 129,870
640 Primedia, Inc. .................................. 8.875 05/15/11 680,000
295 Vertis, Inc. .................................... 9.750 04/01/09 321,550
-----------
3,892,284
-----------
ENERGY 14.9%
245 BRL Universal Equipment.......................... 8.875 02/15/08 258,781
340 CHC Helicopter Corp. (Canada).................... 7.375 05/01/14 360,400
105 CITGO Petroleum Corp., 144A--
Private Placement (a)............................ 6.000 10/15/11 105,000
670 El Paso Production Holding Co. .................. 7.750 06/01/13 705,175
640 Frontier Oil Corp., 144A--Private Placement
(a).............................................. 6.625 10/01/11 656,000
70 Hanover Compressor Co. .......................... 8.625 12/15/10 76,825
285 Hanover Compressor Co. .......................... 9.000 06/01/14 318,487
275 Hanover Equipment Trust.......................... 8.500 09/01/08 297,000
120 Hanover Equipment Trust.......................... 8.750 09/01/11 130,800
410 Hilcorp Energy Finance Corp., 144A--Private
Placement (a).................................... 10.500 09/01/10 465,350
140 Magnum Hunter Resources, Inc. ................... 9.600 03/15/12 159,600
275 Pacific Energy Partners.......................... 7.125 06/15/14 294,250
615 Plains Exploration & Production Co. ............. 7.125 06/15/14 673,425
227 Port Arthur Finance Corp. ....................... 12.500 01/15/09 266,255
135 Tesoro Petroleum Corp. .......................... 9.625 04/01/12 155,925
760 Vintage Petroleum, Inc. ......................... 7.875 05/15/11 813,200
-----------
5,736,473
-----------
FINANCIAL 1.4%
510 Refco Finance Holdings LLC, 144A--Private
Placement (a).................................... 9.000 08/01/12 561,000
-----------
FOOD & DRUG 4.0%
510 Delhaize America, Inc. .......................... 8.125 04/15/11 597,069
115 Jean Coutu Group (PJC), Inc., 144A--Private
Placement (Canada) (a)........................... 7.625 08/01/12 122,187
530 Jean Coutu Group (PJC), Inc., 144A--Private
Placement (Canada) (a)........................... 8.500 08/01/14 545,900
1,180 Jitney-Jungle Stores America, Inc. (c) (d) (e)... 12.000 03/01/06 0
270 Rite Aid Corp. .................................. 8.125 05/01/10 286,875
-----------
1,552,031
-----------
FOOD & TOBACCO 7.9%
550 Constellation Brands, Inc. ...................... 8.000 02/15/08 600,875
255 Michael Foods, Inc. ............................. 8.000 11/15/13 270,300
155 Pilgrim's Pride Corp. ........................... 9.250 11/15/13 174,375
570 Pilgrim's Pride Corp. ........................... 9.625 09/15/11 644,100
305 Smithfield Foods, Inc. .......................... 7.000 08/01/11 327,112
See Notes to Financial Statements 9
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FOOD & TOBACCO (CONTINUED)
$ 160 Smithfield Foods, Inc. .......................... 7.625% 02/15/08 $ 172,000
760 Smithfield Foods, Inc. .......................... 8.000 10/15/09 845,500
-----------
3,034,262
-----------
FOREST PRODUCTS 13.0%
755 Abitibi-Consolidated, Inc. (Canada).............. 6.000 06/20/13 723,856
245 Abitibi-Consolidated, Inc. (Canada).............. 8.550 08/01/10 266,744
410 Georgia-Pacific Corp. ........................... 8.875 02/01/10 479,187
575 Graphic Packaging International, Inc. ........... 9.500 08/15/13 656,937
415 MDP Acquisitions PLC (Ireland)................... 9.625 10/01/12 464,800
175 Norampac, Inc. (Canada).......................... 6.750 06/01/13 185,062
1,020 Owens-Brockway Glass Containers, Inc. ........... 8.875 02/15/09 1,113,075
365 Pliant Corp. .................................... 13.000 06/01/10 357,700
790 Tembec Industries, Inc. (Canada)................. 7.750 03/15/12 768,275
-----------
5,015,636
-----------
GAMING & LEISURE 13.2%
325 Ceasars Entertainment............................ 8.875 09/15/08 368,875
240 Gaylord Entertainment Co., 144A--Private
Placement (a).................................... 6.750 11/15/14 242,400
690 Harrahs Operating Co., Inc. ..................... 7.875 12/15/05 719,325
129 HMH Properties, Inc. ............................ 7.875 08/01/08 133,192
200 Host Marriott LP................................. 7.125 11/01/13 214,750
500 Intrawest Corp., 144A--Private Placement (Canada)
(a).............................................. 7.500 10/15/13 534,375
355 Isle of Capri Casinos, Inc. ..................... 7.000 03/01/14 363,875
115 MGM Mirage, Inc. ................................ 5.875 02/27/14 113,562
830 MGM Mirage, Inc. ................................ 6.000 10/01/09 854,900
645 Mohegan Tribal Gaming Authority.................. 7.125 08/15/14 682,087
380 Park Place Entertainment Corp. .................. 7.875 12/15/05 395,200
465 Station Casinos, Inc. ........................... 6.000 04/01/12 476,044
-----------
5,098,585
-----------
HEALTHCARE 9.6%
290 AmerisourceBergen Corp. ......................... 8.125 09/01/08 324,075
255 Community Health Systems, Inc., 144A--Private
Placement (a).................................... 6.500 12/15/12 258,188
845 Extendicare Health Services, Inc. ............... 6.875 05/01/14 866,125
295 Fisher Scientific International, Inc. ........... 8.125 05/01/12 328,925
125 Fisher Scientific International, Inc., 144A--
Private Placement (a)............................ 6.750 08/15/14 134,688
410 Fresenius Medical Care Capital Trust II.......... 7.875 02/01/08 445,875
180 Fresenius Medical Care Capital Trust IV.......... 7.875 06/15/11 201,600
380 HCA, Inc. ....................................... 6.375 01/15/15 382,239
65 National Nephrology Associates, Inc., 144A--
Private Placement (a)............................ 9.000 11/01/11 75,563
10 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
$ 335 Team Health Inc. ................................ 9.000% 04/01/12 $ 329,138
325 Tenet Healthcare Corp., 144A--
Private Placement (a)............................ 9.875 07/01/14 355,875
-----------
3,702,291
-----------
HOUSING 9.2%
59 CB Richard Ellis Service, Inc. .................. 9.750 05/15/10 67,555
405 CB Richard Ellis Service, Inc. .................. 11.250 06/15/11 467,775
465 Interface, Inc. ................................. 9.500 02/01/14 509,175
455 Nortek, Inc., 144A--Private Placement (a)........ 8.500 09/01/14 477,750
650 Ply Gem Industries, Inc., 144A--
Private Placement (a)............................ 9.000 02/15/12 663,000
250 Propex Fabrics, Inc., 144A--
Private Placement (a)............................ 10.000 12/01/12 260,625
330 RMCC Acquisition Co., 144A--
Private Placement (a)............................ 9.500 11/01/12 330,825
280 Technical Olympic USA, Inc. ..................... 9.000 07/01/10 301,000
215 Technical Olympic USA, Inc. ..................... 9.000 07/01/10 231,125
230 Technical Olympic USA, Inc. ..................... 10.375 07/01/12 258,750
-----------
3,567,580
-----------
INFORMATION TECHNOLOGY 4.1%
335 Iron Mountain, Inc. ............................. 7.750 01/15/15 341,700
570 Iron Mountain, Inc. ............................. 8.625 04/01/13 608,475
590 Xerox Corp. ..................................... 7.125 06/15/10 640,150
-----------
1,590,325
-----------
MANUFACTURING 4.5%
115 Flowserve Corp. ................................. 12.250 08/15/10 127,650
395 Johnsondiversey, Inc. ........................... 9.625 05/15/12 443,388
325 Manitowoc, Inc. ................................. 10.500 08/01/12 375,375
755 Trimas Corp. .................................... 9.875 06/15/12 804,075
-----------
1,750,488
-----------
METALS 2.8%
159 Doe Run Resources Corp. (Acquired 02/15/01 to
10/15/04, Cost $139,441) (f) (g)................. 11.750 11/01/08 135,862
105 Foundation PA Coal Co., 144A--
Private Placement (a)............................ 7.250 08/01/14 112,350
155 General Cable Corp. ............................. 9.500 11/15/10 175,925
325 UCAR Finance, Inc. .............................. 10.250 02/15/12 372,938
248 United States Steel Corp. ....................... 9.750 05/15/10 283,960
-----------
1,081,035
-----------
RETAIL 1.7%
215 General Nutrition Center, Inc. .................. 8.500 12/01/10 204,250
435 Petro Stopping Center Financial.................. 9.000 02/15/12 462,188
-----------
666,438
-----------
See Notes to Financial Statements 11
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
SERVICES 7.3%
$1,140 Allied Waste North America, Inc. ................ 8.875% 04/01/08 $ 1,225,500
380 Buhrmann US, Inc. ............................... 8.250 07/01/14 386,175
295 MSW Energy Holdings II LLC....................... 7.375 09/01/10 311,225
65 MSW Energy Holdings LLC.......................... 8.500 09/01/10 71,500
295 United Rentals North America, Inc. .............. 6.500 02/15/12 289,100
540 United Rentals North America, Inc. .............. 7.750 11/15/13 531,900
-----------
2,815,400
-----------
TELECOMMUNICATIONS 6.4%
450 Axtel SA (Mexico)................................ 11.000 12/15/13 487,125
640 Cincinnati Bell, Inc. ........................... 7.250 07/15/13 660,800
220 Exodus Communications, Inc. (c) (d) (e).......... 11.250 07/01/08 0
320 Qwest Communications International, Inc., 144A--
Private Placement (a) (b)........................ 6.040 02/15/09 325,600
525 Qwest Corp. ..................................... 6.625 09/15/05 538,125
425 Qwest Corp., 144A--Private Placement (a)......... 7.875 09/01/11 463,250
-----------
2,474,900
-----------
TRANSPORTATION 7.0%
335 AutoNation, Inc. ................................ 9.000 08/01/08 384,413
435 Laidlaw International, Inc. ..................... 10.750 06/15/11 510,038
795 Sonic Automotive, Inc. .......................... 8.625 08/15/13 851,644
820 TRW Automotive, Inc. ............................ 9.375 02/15/13 955,300
-----------
2,701,395
-----------
UTILITY 11.9%
365 AES Corp. ....................................... 7.750 03/01/14 397,850
18 AES Corp. ....................................... 8.875 02/15/11 20,655
54 AES Corp. ....................................... 9.375 09/15/10 63,045
245 Calpine Corp., 144A--Private Placement (a)....... 8.500 07/15/10 211,313
50 CMS Energy Corp. ................................ 7.500 01/15/09 53,500
295 CMS Energy Corp. ................................ 8.500 04/15/11 336,669
405 Dynegy Holdings, Inc. ........................... 6.875 04/01/11 391,838
295 Dynegy Holdings, Inc., 144A--
Private Placement (a)............................ 9.875 07/15/10 331,138
170 IPALCO Enterprises, Inc. ........................ 8.625 11/14/11 191,250
350 Monongahela Power Co. ........................... 5.000 10/01/06 358,071
220 Nevada Power Co. ................................ 8.250 06/01/11 253,825
360 Nevada Power Co. ................................ 9.000 08/15/13 423,000
300 PSEG Energy Holdings, Inc. ...................... 7.750 04/16/07 318,750
200 Reliant Energy, Inc. ............................ 6.750 12/15/14 199,750
145 Southern Natural Gas Co. ........................ 8.875 03/15/10 163,125
580 TNP Enterprises, Inc. ........................... 10.250 04/01/10 622,050
200 Trans Continental Gas Pipe Line Corp. ........... 8.875 07/15/12 244,250
-----------
4,580,079
-----------
12 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS 6.4%
$ 120 Centennial Communications Corp. ................. 8.125% 02/01/14 $ 123,900
750 Nextel Communications, Inc. ..................... 6.875 10/31/13 817,500
210 Rogers Wireless Communications, Inc.,
144A--Private Placement (Canada) (a)............. 7.500 03/15/15 222,600
155 Rogers Wireless Communications, Inc.,
144A--Private Placement (Canada) (a)............. 8.000 12/15/12 164,688
185 Rural Cellular Corp. (b)......................... 6.990 03/15/10 192,400
425 Rural Cellular Corp. ............................ 8.250 03/15/12 451,563
500 SBA Communications Corp., 144A--Private Placement
(a).............................................. 8.500 12/01/12 512,500
-----------
2,485,151
-----------
TOTAL CORPORATE BONDS 162.8%................................................ 62,845,259
-----------
DESCRIPTION VALUE
-------------------------------------------------------------------------------------------
EQUITIES 0.6%
DecisionOne Corp. (2,450 common shares) (e) (h).............................. 0
DecisionOne Corp. (5,386 common stock warrants) (e) (h)...................... 0
Doe Run Resources Corp. (1 common stock warrant) (e) (h)..................... 0
HCI Direct, Inc. (30,357 common shares) (e) (h).............................. 236,785
Hosiery Corp. of America, Inc. (500 common shares) (e) (h)................... 0
VS Holdings, Inc. (8,891 common shares) (e) (h).............................. 1,600
-----------
TOTAL EQUITIES............................................................... 238,385
-----------
TOTAL LONG-TERM INVESTMENTS 163.4%
(Cost $61,924,613)......................................................... 63,083,644
REPURCHASE AGREEMENT 5.9%
State Street Bank & Trust Co. ($2,287,000 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 2.15%,
dated 12/31/04, to be sold on 01/03/05 at $2,287,410)
(Cost $2,287,000)............................................................ 2,287,000
-----------
TOTAL INVESTMENTS 169.3%
(Cost $64,211,613)......................................................... 65,370,644
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
DESCRIPTION VALUE
-----------------------------------------------------------------------------------------------
OTHER ASSETS IN EXCESS OF LIABILITIES 2.7%...................................... $ 1,032,876
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (72.0%)...................... (27,803,516)
-----------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%................................... $38,600,004
===========
Percentages are calculated as a percentage of net assets applicable to common
shares.
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(b) Variable rate security. Interest rate shown is that in effect at December
31, 2004.
(c) Non-income producing as security is in default.
(d) This borrower has filed for protection in federal bankruptcy court.
(e) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(f) Payment-in-kind security.
(g) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers. Restricted securities comprise 0.4% of net
assets applicable to common shares.
(h) Non-income producing security.
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Total Investments (Cost $64,211,613)........................ $ 65,370,644
Cash........................................................ 997
Receivables:
Interest.................................................. 1,208,648
Investments Sold.......................................... 201,491
Other....................................................... 798
------------
Total Assets............................................ 66,782,578
------------
LIABILITIES:
Payables:
Income Distributions--Common Shares....................... 44,391
Investment Advisory Fee................................... 39,325
Other Affiliates.......................................... 4,750
Trustees' Deferred Compensation and Retirement Plans........ 208,091
Accrued Expenses............................................ 82,501
------------
Total Liabilities....................................... 379,058
Preferred Shares (including accrued distributions).......... 27,803,516
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 38,600,004
============
NET ASSET VALUE PER COMMON SHARE
($38,600,004 divided by 8,109,000 shares outstanding)....... $ 4.76
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 8,109,000 shares issued and
outstanding).............................................. $ 81,090
Paid in Surplus............................................. 64,211,619
Net Unrealized Appreciation................................. 1,159,031
Accumulated Undistributed Net Investment Income............. (234,620)
Accumulated Net Realized Loss............................... (26,617,116)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 38,600,004
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 1,112 issued with liquidation preference of
$25,000 per share)........................................ $ 27,800,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $ 66,400,004
============
See Notes to Financial Statements 15
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Interest.................................................... $4,958,932
Other....................................................... 88,180
----------
Total Income............................................ 5,047,112
----------
EXPENSES:
Investment Advisory Fee..................................... 453,820
Preferred Share Maintenance................................. 82,351
Trustees' Fees and Related Expenses......................... 48,336
Professional Fees........................................... 44,081
Legal....................................................... 16,509
Custody..................................................... 12,371
Other....................................................... 127,171
----------
Total Expenses.......................................... 784,639
----------
NET INVESTMENT INCOME....................................... $4,262,473
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 755,174
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 616,691
End of the Period......................................... 1,159,031
----------
Net Unrealized Appreciation During the Period............... 542,340
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,297,514
==========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (410,282)
==========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $5,149,705
==========
16 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, 2004 DECEMBER 31, 2003
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 4,262,473 $ 4,201,818
Net Realized Gain/Loss.................................. 755,174 (5,545,510)
Net Unrealized Appreciation During the Period........... 542,340 11,684,955
Distributions to Preferred Shareholders:
Net Investment Income................................. (410,282) (317,415)
Return of Capital Distribution........................ -0- (8,277)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 5,149,705 10,015,571
Distributions to Common Shareholders:
Net Investment Income................................. (3,600,383) (3,587,601)
Return of Capital Distribution........................ -0- (93,545)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 1,549,322 6,334,425
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 37,050,682 30,716,257
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of ($234,620) and ($613,037),
respectively)......................................... $38,600,004 $37,050,682
=========== ===========
See Notes to Financial Statements 17
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.
-----------------------------
2004 2003 2002
-----------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 4.57 $ 3.79 $ 4.77
------- ------- -------
Net Investment Income.................................... .52 .52 .60
Net Realized and Unrealized Gain/Loss.................... .16 .75 (.89)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income.................................. (.05) (.04) (.07)
Return of Capital Distributions........................ -0- -0-* -0-*
------- ------- -------
Total from Investment Operations........................... .63 1.23 (.36)
Distributions Paid to Common Shareholders:
Net Investment Income.................................. (.44) (.44) (.58)
Return of Capital Distributions........................ -0- (.01) (.04)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......................... $ 4.76 $ 4.57 $ 3.79
======= ======= =======
Common Share Market Price at End of the Period............. $ 5.14 $ 5.08 $ 4.07
Total Return (a)........................................... 10.83% 37.20% -19.86%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................ $ 38.6 $ 37.1 $ 30.7
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (b)........................................ 2.12% 2.25% 2.28%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b).......................... 11.51% 12.29% 14.50%
Portfolio Turnover......................................... 86% 74% 81%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (b)............................................... 1.21% 1.24% 1.18%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).......................... 10.40% 11.34% 12.93%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......................... 1,112 1,112 1,112
Asset Coverage Per Preferred Share (e)..................... $59,715 $58,320 $52,652
Involuntary Liquidating Preference Per Preferred Share..... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share................... $25,000 $25,000 $25,000
* Amount is less than $.01.
(a)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.
(b)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(c)As required, effective January 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the period ended December 31, 2001 was to decrease net investment income per
share by $.02, increase net realized and unrealized gains and losses per
share by $.02 and decrease the ratio of net investment income to average net
assets applicable to common shares by .40%. Per share, ratios and
supplemental data for periods prior to December 31, 2001 have not been
restated to reflect this change in presentation.
(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.
18
Year Ended December 31,
-----------------------------------------------------------------------------
2001 (c) 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
$ 5.40 $ 6.56 $ 7.59 $ 8.44 $ 8.31 $ 8.12 $ 7.32
------- ------- ------- -------- -------- -------- --------
.90 1.10 1.14 1.18 1.20 1.23 1.27
(.61) (1.11) (1.00) (.77) .18 .21 .81
(.18) (.33) (.27) (.30) (.29) (.29) (.32)
-0-* -0-* -0- -0- -0- -0- -0-
------- ------- ------- -------- -------- -------- --------
.11 (.34) (.13) .11 1.09 1.15 1.76
(.73) (.76) (.90) (.96) (.96) (.96) (.96)
(.01) (.06) -0- -0- -0- -0- -0-
------- ------- ------- -------- -------- -------- --------
$ 4.77 $ 5.40 $ 6.56 $ 7.59 $ 8.44 $ 8.31 $ 8.12
======= ======= ======= ======== ======== ======== ========
$ 5.75 $ 5.69 $ 5.75 $ 8.625 $ 9.8125 $ 9.375 $ 8.75
13.57% 12.13% -25.28% -2.73% 15.34% 18.91% 30.33%
$ 38.7 $ 43.8 $ 53.2 $ 61.6 $ 68.4 $ 67.4 $ 65.8
2.14% 2.03% 1.97% 1.92% 1.83% 1.89% 1.96%
16.83% 18.16% 16.32% 14.54% 14.43% 15.19% 16.19%
63% 40% 56% 65% 98% 94% 124%
1.15% 1.07% 1.10% 1.14% 1.10% 1.12% 1.15%
13.40% 12.66% 12.41% 10.85% 10.93% 11.58% 12.09%
1,360 1,520 1,800 900 900 900 900
$53,426 $53,812 $54,557 $118,418 $126,015 $124,849 $123,135
$25,000 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements 19
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004
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, 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. Securities which are not valued by independent pricing
services or dealers are valued at fair value using procedures established in
good faith by the Board of Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
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, 2004, the Trust had no when-issued and
delayed delivery purchase commitments.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Trust may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
discount is accreted and premium is amortized over the expected life of each
applicable security. Other
20
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued
income is comprised primarily of consent fees. Consent fees are earned as
compensation for agreeing to changes in the terms of debt instruments.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 2004, the Trust had an accumulated capital loss
carryforward for tax purposes of $26,614,115 which will expire according to the
following table:
AMOUNT EXPIRATION
$1,997,967.................................................. December 31, 2007
3,362,300.................................................. December 31, 2008
5,094,823.................................................. December 31, 2009
9,494,354.................................................. December 31, 2010
5,789,566.................................................. December 31, 2011
875,105................................................... December 31, 2012
At December 31, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $64,512,750
===========
Gross tax unrealized appreciation........................... $ 3,818,330
Gross tax unrealized depreciation........................... (2,960,436)
-----------
Net tax unrealized appreciation on investments.............. $ 857,894
===========
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 to common 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,
2004 and 2003 were as follows:
2004 2003
Distributions paid from:
Ordinary income........................................... $4,011,590 $3,889,082
Return of capital......................................... -- 101,822
---------- ----------
$4,011,590 $3,990,904
========== ==========
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting for the 2004 fiscal year have been
identified and appropriately reclassified. Permanent
21
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued
differences of $216,540 relating to book to tax amortization differences were
reclassified from accumulated undistributed net investment income to accumulated
net realized loss and permanent differences of $87,760 relating to fee income
received from tender offers were reclassified from accumulated undistributed net
investment income to accumulated net realized loss. Also, a permanent book and
tax difference relating to the true-up of prior year adjustments totaling $2,171
was reclassified from accumulated undistributed net investment income to
accumulated net realized loss in the amount of $1,890 and capital in the amount
of $281.
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $332,847
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, 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 of the Trust.
For the year ended December 31, 2004, the Trust recognized expenses of
approximately $3,900 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended December
31, 2004, the Trust recognized expenses of approximately $24,300 representing
Van Kampen Investments Inc.'s or its affiliates (collectively "Van Kampen") cost
of providing accounting and legal services to the Trust, which are reported as
part of "Other" and "Legal" expenses, respectively, in the Statement of
Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments were $53,450,774 and $53,375,108, respectively.
22
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued
4. AUCTION PREFERRED SHARES
As of December 31, 2004, the Trust has outstanding 1,112 Auction Preferred
Shares ("APS"). Dividends are cumulative and the dividend rate is currently
reset every 28 days through an auction process. The rate in effect on December
31, 2004 was 2.308%. During the year ended December 31, 2004, the rates ranged
from 1.068% to 2.308%.
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.
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.
5. 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.
23
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, 2004, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Fund's financial highlights for the periods ended prior
to December 31, 2000, were audited by other auditors whose report, dated
February 10, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes 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 Fund'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, 2004, 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, 2004, 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 11, 2005
24
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. All Common Shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate. Common Shareholders who elect not to
participate in the Plan will receive all distributions of dividends and capital
gains in cash paid by check mailed directly to the Common Shareholder by the
Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
25
VAN KAMPEN HIGH INCOME TRUST II
DIVIDEND REINVESTMENT PLAN continued
RIGHT TO WITHDRAW
All Common Shareholders of the Trust are deemed to be participants in the
Plan unless they specifically elect not to participate. You may withdraw from
the Plan at any time by calling 1-800-341-2929 or by writing State Street Bank
and Trust Company. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan, and a cash payment will be made for any fractional
Common Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
2800 Post Oak Blvd.
Houston, TX 77056
Attn: Closed-End Funds
26
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUSAN H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
27
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 83 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 (66) Trustee Trustee Prior to January 1999, 81 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.
28
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 83 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 Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
29
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 81 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 81 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 83 Trustee/Director/Managing
736 North Western Avenue since 1992 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
30
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 81 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 83 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 81 Trustee/Director/Managing
(63) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
31
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 81 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
32
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 83 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 83 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
Fund Complex.
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Messrs. Merin and Powers are interested persons
of funds in the Fund Complex and the Adviser by reason of their current or
former positions with Morgan Stanley or its affiliates. Mr. Whalen is an
interested person of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
33
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James W. Garrett (36) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Treasurer since 2005 Chief Financial Officer and Treasurer of the Morgan Stanley
New York, NY 10020 Institutional Funds since 2002 and funds in the Fund Complex
since January 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
34
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Ronald E. Robison (66) Executive Vice Officer Principal Executive Officer of funds in the Fund Complex
1221 Avenue of the Americas President and since 2003 since May 2003. Chief Executive Officer and Chairman of
New York, NY 10020 Principal Executive Investor Services. Executive Vice President and Principal
Officer Executive Officer of funds in the Fund Complex. Managing
Director of Morgan Stanley. Chief Administrative Officer,
Managing Director and Director of Morgan Stanley Investment
Advisors Inc., Morgan Stanley Services Company Inc. and
Managing Director and Director of Morgan Stanley
Distributors Inc. Chief Executive Officer and Director of
Morgan Stanley Trust. Executive Vice President and Principal
Executive Officer of the Institutional and Retail Morgan
Stanley Funds; Director of Morgan Stanley SICAV; previously
Chief Global Operations Officer and Managing Director of
Morgan Stanley Investment Management Inc.
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
35
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each time
you return to one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of these
sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
The Statement of Additional Information includes additional information about
Fund trustees and is available, without charge, upon request by calling
1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2004 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC. 902, 911, 104
VLT ANR 3/05 RN05-00264P-Y12/04
(VAN KAMPEN INVESTMENTS LOGO)
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) The Trust has amended its Code of Ethics during the period covered by
the shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Further, due to personnel changes at the Adviser, the list of Covered Officers
set forth in Exhibit B and the General Counsel designee to whom questions about
the application of the Code should be referred in Exhibit C were amended during
the period. Exhibit B was then amended again in February 2005. 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 11A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : 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:
2004
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES....................... $42,130 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.......... $750(2) $198,000(3)
TAX FEES.................... $1550(4) $0
ALL OTHER FEES.............. $0 $0
TOTAL NON-AUDIT FEES............. $2,300 $198,000
TOTAL............................ $44,430 $198,000
2003
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES....................... $38,135 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.......... $3,000(2) $230,000(3)
TAX FEES.................... $1,500(4) $0
ALL OTHER FEES.............. $0 $0
TOTAL NON-AUDIT FEES............. $4,500 $230,000
TOTAL............................ $42,635 $230,000
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:
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies 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 the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group 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 Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. 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 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 we 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 statement of proxy voting
policy. In these
situations, the MSIM Affiliate will comply with the client's policy unless to do
so would be inconsistent with applicable laws or regulations or the MSIM
Affiliate's fiduciary responsibility.
Proxy Research Services - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.
Voting Proxies for certain Non-US Companies - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
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) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals are
generally voted in support of management, subject to the
review and approval of the Proxy Review Committee, as
appropriate.
- Selection or ratification of auditors.
- Approval of financial statements, director and
auditor reports.
- Election of Directors.
- Limiting Directors' liability and broadening
indemnification of Directors.
- Requirement that a certain percentage (up to 66 2/3%)
of its Board's members be comprised of independent
and unaffiliated Directors.
- Requirement that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
- Recommendations to set retirement ages or require
specific levels of stock ownership by Directors.
- General updating/corrective amendments to the
charter.
- Elimination of cumulative voting.
- Elimination of preemptive rights.
- Provisions for confidential voting and independent
tabulation of voting results.
- 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. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a
shareholder, are generally voted in support of management,
subject to the review and approval of the Proxy Review
Committee, as appropriate.
Capitalization changes
- Capitalization changes that eliminate other classes
of stock and 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 will
generally be approved if the resulting increase in
authorized shares coincides with the proxy guidelines
set forth above for common stock increases.
Compensation
- Director fees, provided the amounts are not excessive
relative to other companies in the country or
industry.
- 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.
- Establishment of Employee Stock Option Plans and
other employee ownership plans.
Anti-Takeover Matters
- Modify or rescind existing supermajority vote
requirements to amend the charters or bylaws.
- Adoption of anti-greenmail provisions provided that
the proposal: (i) defines greenmail; (ii) prohibits
buyback offers to large block holders not made to all
shareholders or not approved by disinterested
shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights
of shareholders.
3. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on the
shareholder, are generally voted against (notwithstanding
management support), subject to the review and approval of the
Proxy Review Committee, as appropriate.
- 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.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted
stock options that have not been offered to employees
in general.
- Amendments to bylaws that would require a
supermajority shareholder vote to pass or repeal
certain provisions.
- Proposals to indemnify auditors.
4. The following types of non-routine proposals, which
potentially may have a potential financial or best interest
impact on an issuer, are voted as determined by the Proxy
Review Committee.
Corporate Transactions
- Mergers, acquisitions and other special corporate
transactions (i.e., takeovers, spin-offs, sales of
assets, reorganizations, restructurings and
recapitalizations) will be examined on a case-by-case
basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates'
research and analysis, based on, among other things,
MSIM internal company-specific knowledge.
- 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.
- Shareholders rights plans that allow appropriate
offers to shareholders to be blocked by the board or
trigger provisions that prevent legitimate offers
from proceeding.
- Executive/Director stock option plans. Generally,
stock option plans should meet the following
criteria:
(i) Whether the stock option plan is incentive
based;
(ii) For mature companies, should be no more than
5% of the issued capital at the time of
approval;
(iii) For growth companies, should be no more than
10% of the issued capital at the time of
approval.
Anti-Takeover Provisions
- Proposals requiring shareholder ratification of
poison pills.
- Anti-takeover and related provisions that serve to
prevent the majority of shareholders from exercising
their rights or effectively deter the appropriate
tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported,
subject to the review and approval of the Proxy Review
Committee, as appropriate:
- Requiring auditors to attend the annual meeting of
shareholders.
- Requirement that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
- Requirement that a certain percentage of its Board's
members be comprised of independent and unaffiliated
Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote
requirements.
2. The following shareholder proposals will be voted as determined
by the Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
- Proposals requiring directors to own large amounts of
stock to be eligible for election.
- Restoring cumulative voting in the election of
directors.
- Proposals that request or require disclosure of
executive compensation in addition to the disclosure
required by the Securities and Exchange Commission
("SEC") regulations.
- Proposals that limit retirement benefits or executive
compensation.
- Requiring shareholder approval for bylaw or charter
amendments.
- Requiring shareholder approval for shareholder rights
plan or poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related
provisions.
- Prohibit payment of greenmail.
3. The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as
appropriate.
- Requirements that the issuer 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.
- Restrictions related to social, political or special
interest issues that impact the ability of the
company to do business or be competitive and that
have a significant financial or best interest impact
to the shareholders.
- Proposals that require inappropriate endorsements or
corporate actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
Following are some of the functions and responsibilities of
the Committee.
(a) The Committee, which will consist of members
designated by MSIM's Chief Investment Officer, is
responsible for establishing MSIM's proxy voting
policies and guidelines 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 MSIM's proxy voting
policies and guidelines (as expressed in these Proxy
Voting Policy and Procedures) and establish and
direct voting positions consistent with the Client
Proxy Standard.
(c) The Committee will meet at least monthly to (among
other matters): (1) address any outstanding issues
relating to MSIM's Proxy Voting Policy and
Procedures; and (2) generally review proposals at
upcoming shareholder meetings of MSIM portfolio
companies in accordance with this Policy and
Procedures including, as appropriate, the voting
results of prior shareholder meetings of the same
issuer where a similar proposal was presented to
shareholders. The Committee, or its designee, will
timely communicate to ISS MSIM's Proxy Voting Policy
and Procedures (and any amendments to them and/or any
additional guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among
other matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are
the subject of the same proxy solicitation and held
by one or more MSIM portfolios to be voted
differently than other shares) and/or "override
voting"
(i.e., voting all MSIM portfolio shares in a manner
contrary to the Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in Sections I,
II, and III above; and (3) determine how to vote
matters for which specific direction has not been
provided in Sections I, II and III above. Split votes
will generally not be approved within a single Global
Investor Group team. The Committee may take into
account ISS recommendations and the research provided
by IRRC as well as any other relevant information
they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of
interest, the Committee will designate a special
committee to review, and recommend a course of action
with respect to, the conflict(s) in question
("Special Committee"). The Special Committee may
request the assistance of the Law and Compliance
Departments and will have sole discretion to cast a
vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special
Committee, or their designee(s) for a period of at
least 6 years. To the 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.
The Committee and Special Committee, or their designee(s), will timely
communicate to applicable PMs, 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.
Item 8. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 10. 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 registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 11. Exhibits.
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) 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 17, 2005
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 17, 2005
By: /s/ James W. Garrett
--------------------
Name: James W. Garrett
Title: Principal Financial Officer
Date: February 17, 2005