UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5769
Van Kampen High Income Trust II
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(Exact name of registrant as specified in charter)
1221 Avenue of the Americas New York, New York 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas New York, New York 10020
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 12/31
Date of reporting period: 12/31/05
Item 1. Report to Shareholders.
The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen High
Income Trust II performed during the annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the trust's
financial statements and a list of trust investments as of December 31,
2005.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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Performance Summary as of 12/31/05
HIGH INCOME TRUST II
SYMBOL: VLT
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AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (4/28/89) 5.43% 5.22%
10-year 4.32 3.20
5-year 5.95 4.15
1-year -1.16 -11.46
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities and preferred shares, by
the total number of common shares outstanding. The common share market price is
the price the market is willing to pay for shares of the trust at a given time.
Common share market price is influenced by a range of factors, including supply
and demand and market conditions. Total return assumes an investment at the
beginning of the period, reinvestment of all distributions for the period in
accordance with the trust's dividend reinvestment plan, and sale of all shares
at the end of the period.
The 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, 2005
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;
and Josh Givelber, Vice President of the Adviser.
MARKET CONDITIONS
The fundamentals of the high yield bond market remained generally positive
throughout 2005. Default rates remained low, the economy advanced at a good
clip, and corporate earnings trends continued to be favorable. Given the low
yields available in the long-term bond market, high yield bonds were also
rewarded by income-oriented investors.
However, the period was also marked by notable volatility. After particularly
strong performance in 2004, the fortunes of the high yield market shifted
dramatically in the first portion of 2005. Heavy issuance in January resulted in
a less-favorable supply-and-demand relationship and unsettled the market. In
mid-March, General Motors (GM) announced poor earnings and production cuts.
Apprehensions about the auto industry gave way to anxiety about the strength of
other corporations and the broad economy. High yield investors also were
troubled that the migration of GM and other auto-related bonds from the
investment-grade universe to the high yield universe could further disrupt
supply and demand trends. In the face of these uncertainties, the high yield
market declined through mid-May.
On a more positive note, the high yield market recovered over the balance of the
year, despite protracted high oil prices and the devastation caused by the Gulf
Coast hurricanes. Investors adjusted to the inclusion of GM and Ford Motor
within the high yield universe, and new issuance slowed. The fundamental
strength of the high yield market and the resiliency of the U.S. economy helped
to sustain investor interest in the asset class.
(1)Team members may change without notice from time to time.
2
PERFORMANCE ANALYSIS
The trust's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the trust's portfolio securities, cash and other assets, less all
liabilities and preferred shares, by the total number of common shares
outstanding, while market price reflects the supply and demand for the shares.
As a result, the two returns can differ, as they did during the reporting
period. On an NAV basis and a market price basis, the trust underperformed its
benchmark index, the J.P. Morgan Global High Yield Index.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2005
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BASED ON BASED ON J.P. MORGAN GLOBAL
NAV MARKET PRICE HIGH YIELD INDEX
-1.16% -11.46% 3.07%
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Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. Investment return, net asset value and common share market price will
fluctuate and trust shares, when sold, may be worth more or less than their
original cost. See Performance Summary for additional performance information
and index definition.
As the airline and auto industries struggled throughout the period, the trust
was well served by its underweighting in the transportation sector relative to
the J.P. Morgan Global High Yield Index. Moreover, our investment analysis led
us to steer clear of several of the most troubled names in the auto and
auto-parts industry. Security selection in the cable sector and utility sectors
also helped boost relative performance.
The trust was hindered by security selection in the forest products, housing and
financials sectors. Within forest products, company-specific events slowed
performance. In the housing sector, building product companies faltered as
concerns grew about a slowing housing market. Because many building product
companies carry high levels of debt, they would likely be particularly
vulnerable to a real estate downturn. In financials, negative company-specific
developments hindered the trust's return.
Throughout the period, we sought to maintain a balanced and well-diversified
portfolio. Our research-intensive, risk-conscious approach led us to increase
the trust's exposure to the transportation, healthcare, food and tobacco, and
energy sectors. Although we increased exposure to transportation, the trust
remained underweight as compared to the index at the end of the reporting
period. In contrast, we decreased exposure to the housing, diversified media,
and cable industries.
As the year progressed, we slightly decreased the amount of overall credit risk
in the portfolio within the parameters of our income-oriented discipline. We
adopted this more conservative posture because the lower-quality segment of the
3
market appeared to offer less value, in our view. In terms of issuer size, we
continued to focus on larger companies because of their financial flexibility,
their relative ability to withstand less-favorable financial conditions, and
their superior access to capital markets.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the trust in the future.
4
RATINGS ALLOCATIONS AS OF 12/31/05
A/A 1.4%
BBB/Baa 3.2
BB/Ba 45.6
B/B 46.3
CCC/Caa 3.3
CC/Ca 0.1
Non-Rated 0.1
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100.0%
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 12/31/05
Healthcare 8.3%
Energy 8.2
Gaming & Leisure 7.8
Chemicals 7.0
Utility 6.8
Food & Tobacco 6.3
Cable 6.2
Transportation 6.1
Forest Products 5.0
Telecommunications 4.6
Diversified Media 4.1
Consumer Products 3.8
Metals 3.1
Services 2.9
Retail 2.6
Food & Drug 2.4
Wireless Communications 2.3
Housing 2.3
Manufacturing 1.9
Information Technology 1.0
Broadcasting 0.9
Aerospace 0.8
Apparel, Accessories & Luxury Goods 0.6
Financial 0.5
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Total Long-Term Investments 95.5%
Short-Term Investments 4.5
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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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 847-2424.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the trust voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge by visiting our Web site at www.vankampen.com.
This information is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
6
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
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CORPORATE BONDS 169.4%
AEROSPACE 1.5%
$1,175 K & F Acquisition, Inc. ........................ 7.750% 11/15/14 $ 1,192,625
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BROADCASTING 1.5%
395 Lin Television Corp. ........................... 6.500 05/15/13 380,681
315 Lin Television Corp., Ser B..................... 6.500 05/15/13 303,581
515 Salem Communications Corp. ..................... 7.750 12/15/10 536,244
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1,220,506
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CABLE 11.1%
1,175 Cablevision Systems Corp. (Floating Rate)....... 8.716 04/01/09 1,192,625
845 CCH I LLC., 144A--Private Placement (a)......... 11.000 10/01/15 714,025
1,490 Echostar DBS Corp. ............................. 6.375 10/01/11 1,441,575
785 Echostar DBS Corp. ............................. 6.625 10/01/14 756,544
80 Intelsat Bermuda Ltd., 144A--
Private Placement (Bermuda) (a)................. 8.250 01/15/13 81,200
2,195 Intelsat Bermuda Ltd., 144A--Private Placement
(Floating Rate) (Bermuda) (a)................... 8.695 01/15/12 2,241,644
1,700 Kabel Deutschland GmbH, 144A--
Private Placement (Germany) (a)................. 10.625 07/01/14 1,797,750
693 PanAmSat Corp. ................................. 9.000 08/15/14 729,382
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8,954,745
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CHEMICALS 12.5%
1,070 Equistar Chemicals LP........................... 10.125 09/01/08 1,166,300
600 Equistar Chemicals LP........................... 10.625 05/01/11 663,000
740 Innophos, Inc.,144A--Private Placement (a)...... 8.875 08/15/14 749,250
335 ISP Chemco, Inc. ............................... 10.250 07/01/11 358,450
1,575 ISP Holdings, Inc. ............................. 10.625 12/15/09 1,661,625
250 Koppers, Inc. .................................. 9.875 10/15/13 272,500
1,350 Lyondell Chemical Co. .......................... 10.500 06/01/13 1,540,687
905 Millennium America, Inc. ....................... 9.250 06/15/08 980,794
930 Nalco Co. ...................................... 7.750 11/15/11 960,225
860 Rhodia SA (France).............................. 8.875 06/01/11 885,800
762 Rockwood Specialties Group, Inc. ............... 10.625 05/15/11 839,152
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10,077,783
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CONSUMER PRODUCTS 6.9%
470 Amscan Holdings, Inc. .......................... 8.750 05/01/14 398,325
765 Eastman Kodak Co. .............................. 7.250 11/15/13 735,023
365 Oxford Industrials, Inc. ....................... 8.875 06/01/11 373,669
2,150 Phillips Van-Heusen Corp. ...................... 7.250 02/15/11 2,193,000
935 Rayovac Corp. .................................. 8.500 10/01/13 820,462
505 Spectrum Brands, Inc. .......................... 7.375 02/01/15 424,200
544 Tempur Pedic, Inc. ............................. 10.250 08/15/10 590,920
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5,535,599
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DIVERSIFIED MEDIA 7.3%
740 AMC Entertainment, Inc. (Floating Rate)......... 8.590 08/15/10 764,975
See Notes to Financial Statements 7
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA (CONTINUED)
$1,425 CanWest Media, Inc. (Canada).................... 8.000% 09/15/12 $ 1,462,406
685 Dex Media West Finance Corp. ................... 9.875 08/15/13 763,775
370 Houghton Mifflin Co. ........................... 8.250 02/01/11 383,875
1,075 Houghton Mifflin Co. ........................... 9.875 02/01/13 1,154,281
1,500 Primedia, Inc. ................................. 8.875 05/15/11 1,391,250
------------
5,920,562
------------
ENERGY 14.6%
1,440 CHC Helicopter Corp. (Canada)................... 7.375 05/01/14 1,463,400
1,825 Chesapeake Energy Corp. ........................ 6.625 01/15/16 1,856,937
330 Compagnie Generale de Geophysique, SA
(France) (France)............................... 7.500 05/15/15 343,200
1,500 Frontier Oil Corp. ............................. 6.625 10/01/11 1,537,500
160 Hanover Compressor Co. ......................... 8.625 12/15/10 170,000
670 Hanover Compressor Co. ......................... 9.000 06/01/14 733,650
288 Hanover Equipment Trust......................... 8.500 09/01/08 299,880
280 Hanover Equipment Trust......................... 8.750 09/01/11 297,500
920 Hilcorp Energy Finance Corp., 144A--Private
Placement (a)................................... 7.750 11/01/15 940,700
467 Hilcorp Energy Finance Corp., 144A--Private
Placement (a)................................... 10.500 09/01/10 519,537
328 Magnum Hunter Resources, Inc. .................. 9.600 03/15/12 357,520
650 Pacific Energy Partners......................... 7.125 06/15/14 672,750
750 Pogo Producing Co., 144A--Private Placement
(a)............................................. 6.875 10/01/17 735,000
1,785 Vintage Petroleum, Inc. ........................ 7.875 05/15/11 1,874,250
------------
11,801,824
------------
FINANCIAL 0.9%
725 Residential Capital Corp. ...................... 6.375 06/30/10 737,395
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FOOD & DRUG 4.2%
1,200 Delhaize America, Inc. ......................... 8.125 04/15/11 1,314,080
265 Jean Coutu Group (PJC), Inc. (Canada)........... 7.625 08/01/12 262,350
790 Jean Coutu Group (PJC), Inc. (Canada)........... 8.500 08/01/14 726,800
2,750 Jitney-Jungle Stores America, Inc. (b) (c)
(d)............................................. 12.000 03/01/06 0
1,105 Rite Aid Corp. ................................. 8.125 05/01/10 1,129,862
------------
3,433,092
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FOOD & TOBACCO 11.2%
1,300 Constellation Brands, Inc. ..................... 8.000 02/15/08 1,361,750
595 Michael Foods, Inc. ............................ 8.000 11/15/13 612,850
405 Pilgrim's Pride Corp. .......................... 9.250 11/15/13 434,362
1,635 Pilgrim's Pride Corp. .......................... 9.625 09/15/11 1,749,450
1,855 RJ Reynolds Tobacco Holdings, Inc., 144A--
Private Placement (a)........................... 6.500 07/15/10 1,855,000
685 Smithfield Foods, Inc. ......................... 7.000 08/01/11 702,125
8 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FOOD & TOBACCO (CONTINUED)
$ 380 Smithfield Foods, Inc. ......................... 7.625% 02/15/08 $ 394,250
1,810 Smithfield Foods, Inc. ......................... 8.000 10/15/09 1,918,600
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9,028,387
------------
FOREST PRODUCTS 8.9%
890 Abitibi-Consolidated, Inc. (Canada)............. 6.000 06/20/13 758,725
391 Abitibi-Consolidated, Inc. (Canada)............. 8.550 08/01/10 397,842
1,270 Crown Americas LLC, 144A--
Private Placement (a)........................... 7.625 11/15/13 1,323,975
1,000 Graphic Packaging International, Inc. .......... 9.500 08/15/13 960,000
2,370 Owens-Brockway Glass Containers, Inc. .......... 8.875 02/15/09 2,485,537
170 Pliant Corp. ................................... 11.125 09/01/09 152,150
395 Pliant Corp. (b)................................ 13.000 06/01/10 79,000
1,855 Tembec Industries, Inc. (Canada)................ 7.750 03/15/12 1,001,700
------------
7,158,929
------------
GAMING & LEISURE 14.0%
750 Ceasars Entertainment........................... 8.875 09/15/08 812,813
136 HMH Properties, Inc. ........................... 7.875 08/01/08 138,210
965 Host Marriott LP................................ 6.375 03/15/15 967,413
1,135 Host Marriott LP................................ 7.125 11/01/13 1,186,075
1,515 Isle of Capri Casinos, Inc. .................... 7.000 03/01/14 1,484,700
740 Las Vegas Sands Corp. .......................... 6.375 02/15/15 715,950
265 MGM Mirage, Inc. ............................... 5.875 02/27/14 254,400
2,420 MGM Mirage, Inc. ............................... 6.000 10/01/09 2,416,975
1,510 Mohegan Tribal Gaming Authority................. 7.125 08/15/14 1,553,413
395 Starwood Hotels & Resorts Worldwide, Inc. ...... 7.875 05/01/12 437,463
1,160 Station Casinos, Inc. .......................... 6.000 04/01/12 1,162,900
175 Station Casinos, Inc. .......................... 6.875 03/01/16 179,813
------------
11,310,125
------------
HEALTHCARE 14.8%
1,875 Amerisourcebergen Corp., 144A--
Private Placement (a)........................... 5.625 09/15/12 1,884,375
595 Community Health Systems, Inc. ................. 6.500 12/15/12 582,356
605 Davita, Inc. ................................... 6.625 03/15/13 618,613
1,985 Extendicare Health Services, Inc. .............. 6.875 05/01/14 1,950,263
655 Fisher Scientific International, Inc., 144A--
Private Placement (a)........................... 6.125 07/01/15 658,275
97 Fresenius Medical Care Capital Trust II......... 7.875 02/01/08 1,003,950
415 Fresenius Medical Care Capital Trust IV......... 7.875 06/15/11 444,050
895 HCA, Inc. ...................................... 6.375 01/15/15 909,171
882 HCA, Inc. ...................................... 8.750 09/01/10 979,899
150 National Nephrology Associates, Inc., 144A--
Private Placement (a)........................... 9.000 11/01/11 166,875
525 Omnicare, Inc. ................................. 6.750 12/15/13 533,531
See Notes to Financial Statements 9
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
$ 750 Res-Care, Inc., 144A--Private Placement (a)..... 7.750% 10/15/13 $ 753,750
1,405 Ventas Realty LP................................ 6.750 06/01/10 1,447,150
------------
11,932,258
------------
HOUSING 4.1%
1,515 Associated Materials, Inc. (e).................. 0/11.250 03/01/14 749,925
1,090 Interface, Inc. ................................ 9.500 02/01/14 1,090,000
650 Technical Olympic USA, Inc. .................... 9.000 07/01/10 660,563
505 Technical Olympic USA, Inc. .................... 9.000 07/01/10 513,206
340 Technical Olympic USA, Inc. .................... 10.375 07/01/12 336,175
------------
3,349,869
------------
INFORMATION TECHNOLOGY 1.7%
1,340 Iron Mountain, Inc. ............................ 8.625 04/01/13 1,403,650
------------
MANUFACTURING 3.3%
365 General Cable Corp. ............................ 9.500 11/15/10 388,725
925 JohnsonDiversey, Inc. .......................... 9.625 05/15/12 934,250
764 Manitowoc, Inc. ................................ 10.500 08/01/12 851,860
590 Propex Fabrics, Inc. ........................... 10.000 12/01/12 529,525
------------
2,704,360
------------
METALS 5.6%
140 Doe Run Resources Corp. (Acquired 02/15/01 to
10/15/04, Cost $122,979) (f) (g)................ 11.750 11/01/08 110,012
245 Foundation, PA Coal Co. ........................ 7.250 08/01/14 254,494
1,310 Massey Energy Co., 144A--Private Placement
(a)............................................. 6.875 12/15/13 1,328,013
1,460 Novelis, Inc., 144A--Private
Placement (Canada) (a).......................... 7.250 02/15/15 1,368,750
765 UCAR Finance, Inc. ............................. 10.250 02/15/12 811,856
585 United States Steel Corp. ...................... 9.750 05/15/10 639,113
------------
4,512,238
------------
RETAIL 4.7%
830 Brown Shoe Co., Inc. ........................... 8.750 05/01/12 871,500
405 General Nutrition Center, Inc. ................. 8.500 12/01/10 350,325
1,400 JC Penney Corp., Inc. .......................... 8.000 03/01/10 1,540,346
1,025 Petro Stopping Center Financial................. 9.000 02/15/12 1,035,250
------------
3,797,421
------------
SERVICES 5.2%
45 Allied Waste North America, Inc. ............... 7.875 04/15/13 46,688
950 Allied Waste North America, Inc. ............... 8.500 12/01/08 1,002,250
1,140 Allied Waste North America, Inc. ............... 8.875 04/01/08 1,208,400
295 Buhrmann US, Inc. .............................. 7.875 03/01/15 289,469
790 Buhrmann US, Inc. .............................. 8.250 07/01/14 796,913
700 MSW Energy Holdings II LLC...................... 7.375 09/01/10 722,750
150 MSW Energy Holdings LLC......................... 8.500 09/01/10 160,500
------------
4,226,970
------------
10 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 8.2%
$1,325 Axtel SA (Mexico)............................... 11.000% 12/15/13 $ 1,503,875
500 Exodus Communications, Inc. (b) (c) (d)......... 11.250 07/01/08 0
1,000 Qwest Corp. .................................... 7.875 09/01/11 1,082,500
3,000 Qwest Corp., 144A--Private Placement (Floating
Rate) (a)....................................... 7.741 06/15/13 3,251,250
785 Wind Acquisition Finance SA, 144A--
Private Placement (Luxembourg) (a).............. 10.750 12/01/15 814,438
------------
6,652,063
------------
TRANSPORTATION 10.8%
340 Arvin Meritor, Inc. ............................ 8.750 03/01/12 327,250
1,130 Ford Motor Credit Co. .......................... 5.625 10/01/08 992,124
1,175 General Motors Acceptance Corp. ................ 4.375 12/10/07 1,044,564
1,080 General Motors Acceptance Corp. ................ 6.875 09/15/11 986,024
530 General Motors Acceptance Corp. ................ 6.875 08/28/12 478,322
710 General Motors Corp. ........................... 7.125 07/15/13 472,150
1,185 Lear Corp. ..................................... 8.110 05/15/09 1,103,671
2,250 Sonic Automotive, Inc. ......................... 8.625 08/15/13 2,188,125
1,055 TRW Automotive, Inc. ........................... 9.375 02/15/13 1,147,313
------------
8,739,543
------------
UTILITY 12.2%
850 AES Corp. ...................................... 7.750 03/01/14 895,688
41 AES Corp. ...................................... 8.875 02/15/11 44,536
127 AES Corp. ...................................... 9.375 09/15/10 139,383
615 CMS Energy Corp. ............................... 6.300 02/01/12 611,156
115 CMS Energy Corp. ............................... 7.500 01/15/09 119,025
700 CMS Energy Corp. ............................... 8.500 04/15/11 765,625
600 Colorado Interstate Gas Co., 144A--
Private Placement (a)........................... 6.800 11/15/15 616,065
1,010 Dynegy Holdings, Inc. .......................... 6.875 04/01/11 999,900
640 Dynegy Holdings, Inc., 144A--
Private Placement (a)........................... 9.875 07/15/10 704,800
405 IPALCO Enterprises, Inc. ....................... 8.625 11/14/11 443,475
835 Monongahela Power Co. .......................... 5.000 10/01/06 834,726
510 Nevada Power Co. ............................... 8.250 06/01/11 567,375
552 Nevada Power Co. ............................... 9.000 08/15/13 610,654
620 PSEG Energy Holdings............................ 7.750 04/16/07 644,800
1,185 PSEG Energy Holdings............................ 8.625 02/15/08 1,238,325
290 Reliant Energy, Inc. ........................... 6.750 12/15/14 254,475
340 Southern Natural Gas Co. ....................... 8.875 03/15/10 365,063
------------
9,855,071
------------
WIRELESS COMMUNICATIONS 4.2%
1,775 Nextel Communications, Inc. .................... 6.875 10/31/13 1,853,249
1,000 Rural Cellular Corp. ........................... 8.250 03/15/12 1,060,000
See Notes to Financial Statements 11
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS (CONTINUED)
$ 435 Rural Cellular Corp. (Floating Rate)............ 8.991% 03/15/10 $ 449,138
------------
3,362,387
------------
TOTAL CORPORATE BONDS............................................................. 136,907,402
------------
EQUITIES 1.1%
DecisionOne Corp. (12,056 common stock warrants) (d) (h).......................... 0
DecisionOne Corp. (5,483 common shares) (d) (h)................................... 0
Doe Run Resources Corp. (1 common stock warrant) (d) (h).......................... 0
HCI Direct, Inc. (60,714 common shares) (d) (h)................................... 910,710
Hosiery Corp. of America, Inc. (1000 common shares) (d) (h)....................... 0
VS Holdings, Inc. (20,207 common shares) (d) (h).................................. 0
------------
TOTAL EQUITIES.................................................................... 910,710
------------
TOTAL LONG-TERM INVESTMENTS 170.5%
(Cost $143,633,065)............................................................. 137,818,112
REPURCHASE AGREEMENT 8.0%
State Street Bank & Trust Co. ($6,481,000 par collateralized by U.S. Government
obligations in a pooled cash account, interest rate of 4.12%, dated 12/30/05, to
be sold on 01/03/06 at $6,483,967)
(Cost $6,481,000)................................................................. 6,481,000
------------
TOTAL INVESTMENTS 178.5%
(Cost $150,114,065)............................................................. 144,299,112
OTHER ASSETS IN EXCESS OF LIABILITIES 2.5%....................................... 2,021,242
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (81.0%)....................... (65,489,561)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.................................... $ 80,830,793
============
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) Non-income producing as security is in default.
(c) This borrower has filed for protection in federal bankruptcy court.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
12 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005 continued
(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 0.1% of net
assets applicable to common shares.
(h) Non-income producing security.
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Total Investments (Cost $150,114,065)....................... $144,299,112
Cash........................................................ 402
Interest Receivable......................................... 2,795,212
Other....................................................... 1,445
------------
Total Assets............................................ 147,096,171
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 86,889
Income Distributions--Common Shares....................... 66,751
Other Affiliates.......................................... 9,557
Trustees' Deferred Compensation and Retirement Plans........ 448,497
Accrued Expenses............................................ 164,123
------------
Total Liabilities....................................... 775,817
Preferred Shares (including accrued distributions).......... 65,489,561
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 80,830,793
============
NET ASSET VALUE PER COMMON SHARE ($80,830,793 divided by
18,893,621 shares outstanding)............................ $ 4.28
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 18,893,621 shares issued and
outstanding).............................................. $ 188,936
Paid in Surplus............................................. 147,793,704
Accumulated Undistributed Net Investment Income............. (825,498)
Net Unrealized Depreciation................................. (5,814,953)
Accumulated Net Realized Loss............................... (60,511,396)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 80,830,793
============
PREFERRED SHARES
($.01 par value, authorized 100,000,000 shares, 2,616 issued
with liquidation preference of $25,000 per share)......... $ 65,400,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $146,230,793
============
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Interest.................................................... $ 7,632,275
Dividends................................................... 242,856
Other....................................................... 164,190
-----------
Total Income............................................ 8,039,321
-----------
EXPENSES:
Investment Advisory Fee..................................... 701,387
Merger Costs................................................ 213,360
Preferred Share Maintenance................................. 113,915
Legal....................................................... 44,632
Trustees' Fees and Related Expenses......................... 40,050
Custody..................................................... 20,594
Other....................................................... 228,432
-----------
Total Expenses.......................................... 1,362,370
-----------
NET INVESTMENT INCOME....................................... $ 6,676,951
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (465,425)
-----------
Net Unrealized Depreciation During the Period............... (5,972,386)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(6,437,811)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,484,853)
===========
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $(1,245,713)
===========
See Notes to Financial Statements 15
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, 2005 DECEMBER 31, 2004
--------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 6,676,951 $ 4,262,473
Net Realized Gain/Loss............................... (465,425) 755,174
Net Unrealized Appreciation/Depreciation During the
Period............................................. (5,972,386) 542,340
Distributions to Preferred Shareholders:
Net Investment Income.............................. (1,484,853) (410,282)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations......................................... (1,245,713) 5,149,705
Distributions to Common Shareholders:
Net Investment Income.............................. (5,595,543) (3,600,383)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES......................... (6,841,256) 1,549,322
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Acquired Through Merger:
Common Shares.................................... 49,072,045 -0-
----------- -----------
TOTAL INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES............................................. 42,230,789 1,549,322
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.............................. 38,600,004 37,050,682
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of ($825,498)
and ($234,620), respectively)...................... $80,830,793 $38,600,004
=========== ===========
16 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2005 2004 2003 2002 2001
-----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $ 4.76 $ 4.57 $ 3.79 $ 4.77 $ 5.40
------- ------- ------- ------- -------
Net Investment Income.................... .52 .52 .52 .60 .90
Net Realized and Unrealized Gain/Loss.... (.45) .16 .75 (.89) (.61)
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................. (.11) (.05) (.04) (.07) (.18)
Return of Capital Distributions........ -0- -0- -0-* -0-* -0-*
------- ------- ------- ------- -------
Total from Investment Operations........... (.04) .63 1.23 (.36) .11
Distributions Paid to Common Shareholders:
Net Investment Income.................... (.44) (.44) (.44) (.58) (.73)
Return of Capital Distributions.......... -0- -0- (.01) (.04) (.01)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......... $ 4.28 $ 4.76 $ 4.57 $ 3.79 $ 4.77
======= ======= ======= ======= =======
Common Share Market Price at End of the
Period................................... $ 4.14 $ 5.14 $ 5.08 $ 4.07 $ 5.75
Total Return (a)........................... -11.46% 10.83% 37.20% -19.86% 13.57%
Net Assets Applicable to Common Shares at
End of the Period (In millions).......... $ 80.8 $ 38.6 $ 37.1 $ 30.7 $ 38.7
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (b).......... 2.43% 2.12% 2.25% 2.28% 2.14%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(b)...................................... 11.89% 11.51% 12.29% 14.50% 16.83%
Portfolio Turnover......................... 62% 86% 74% 81% 63%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (b)........... 1.37% 1.21% 1.24% 1.18% 1.15%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(c)...................................... 9.24% 10.40% 11.34% 12.93% 13.40%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......... 2,616 1,112 1,112 1,112 1,360
Asset Coverage Per Preferred Share (d)..... $55,933 $59,715 $58,320 $52,652 $53,426
Involuntary Liquidating Preference Per
Preferred Share.......................... $25,000 $25,000 $25,000 $25,000 $25,000
Average Market Value Per Preferred Share... $25,000 $25,000 $25,000 $25,000 $25,000
* 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) Ratios reflect the effect of dividend payments to preferred shareholders.
(d) 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.
See Notes to Financial Statements 17
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005
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. 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, 2005, 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 income is comprised primarily of consent fees.
Consent fees are earned as compensation for agreeing to changes in the terms of
debt instruments.
18
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 continued
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 2005, the Trust had an accumulated capital loss
carryforward for tax purposes of $60,509,040 which will expire according to the
following table:
AMOUNT EXPIRATION
$ 1,986,400................................................. December 31, 2006
6,008,551................................................. December 31, 2007
9,851,557................................................. December 31, 2008
17,412,110................................................. December 31, 2009
17,027,138................................................. December 31, 2010
6,782,916................................................. December 31, 2011
875,105.................................................. December 31, 2012
565,263.................................................. December 31, 2013
A portion of the capital loss carryforward above was acquired due to a
merger with another regulated investment company, please see Footnote 3 for
details. Furthermore, the utilization of the capital loss carryforward amount
above may be limited due to the merger.
At December 31, 2005, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $150,554,350
============
Gross tax unrealized appreciation........................... $ 3,490,105
Gross tax unrealized depreciation........................... (9,745,343)
------------
Net tax unrealized depreciation on investments.............. $ (6,255,238)
============
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,
2005 and 2004 were as follows:
2005 2004
Distributions paid from:
Ordinary income........................................... $6,971,990 $4,011,590
Long-term capital gain.................................... -0- -0-
---------- ----------
$6,971,990 $4,011,590
========== ==========
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
19
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 continued
federal income tax purposes, permanent differences between book and tax basis
reporting for the 2005 fiscal year have been identified and appropriately
reclassified. Permanent differences of $152,303 relating to consent fee income
received from tender offers were reclassified from accumulated undistributed net
investment income to accumulated net realized loss. A permanent book and tax
difference relating to excise taxes paid which are not deductible for tax
purposes totaling $10,252 was reclassified from accumulated undistributed net
investment income to paid in surplus. Additionally, permanent book and tax
differences of $251,496 relating to book to tax amortization differences were
reclassified from accumulated undistributed net investment income to accumulated
net realized loss. A permanent book to tax difference of $213,360 relating to
merger costs which are not deductible for tax purposes was reclassified from
accumulated undistributed net investment income to paid in surplus.
As of December 31, 2005, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $277,255
Long-term capital gain...................................... -0-
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, 2005, the Trust recognized expenses of
approximately $8,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each Trust. For the year ended December 31, 2005
the Trust recognized expenses of approximately $53,000 representing Van Kampen
Investments Inc.'s or its affiliates (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses on the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's
20
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 continued
years of service to the Trust. The maximum annual benefit per trustee under the
plan is $2,500.
3. CAPITAL TRANSACTIONS
At December 31, 2005 and 2004, paid in surplus related to common shares
aggregated $147,793,704 and $64,211,619, respectively.
Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
Beginning Shares..................................... 8,109,000 8,109,000
Shares Acquired Through Merger....................... 10,784,621 -0-
---------- ---------
Ending Shares........................................ 18,893,621 8,109,000
========== =========
On July 29, 2005 the Trust acquired all of the assets and liabilities of Van
Kampen High Income Trust (ticker symbol VIT) through a tax free reorganization
approved by VIT shareholders on July 22, 2005. The Trust issued 10,784,621
common shares with a net asset value of $49,072,045 and 1,504 Auction Preferred
Shares ("APS") with a liquidation value of $37,600,000 in exchange for VIT's net
assets. The shares of VIT were converted into Trust shares at a ratio of
0.786581 to 1 and 1 to 4, for common shares and APS, respectively. Net
unrealized depreciation of VIT as of July 29, 2005 was $1,265,478. The Trust
assumed VIT book to tax accretion differences, which resulted in a $263,880
increase to accumulated undistributed net investment income and a corresponding
decrease to net unrealized appreciation. Combined net assets applicable to
common shares on the day of reorganization were $85,969,581 and combined net
assets including preferred shares were $151,369,581. Included in these net
assets was a capital loss carryforward of $33,329,662, of which all can be
utilized by the acquiring Trust, deferred compensation and retirement plan
balance of $229,390 and non-accrual interest income of $16,968, all carried
forward from the Van Kampen High Income Trust. The Trust incurred merger
expenses of $213,360, which represent costs related to the preparation,
printing, and distribution of the Proxy Statement/Prospectus, Reorganization
Agreement and registration statements as well as legal, audit, and filing fees.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $61,478,932 and $63,948,928,
respectively.
5. AUCTION PREFERRED SHARES
As of December 31, 2005, the Trust has outstanding 2,616 Auction Preferred
Shares ("APS"). Series A contains 1,112 shares and Series B contains 1,504
shares. Dividends are cumulative and the dividend rates are currently reset
every 28 days through an auction process. The rate in effect on December 31,
2005 was 4.286%. During the year ended December 31, 2005, the rates ranged from
2.300% to 4.301%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of "Preferred Share
Maintenance" expense on the Statement of Operations.
21
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 continued
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.
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
22
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, 2005, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, 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, 2005, 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 7, 2006
23
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES, OFFICERS, AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and
Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 W. Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
TRANSFER AGENT
EQUISERVE TRUST COMPANY, N.A.
c/o Computershare Investor Services
P.O. Box 43010
Providence, Rhode Island 02940-3010
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER, & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606-4301
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
December 31, 2005. For corporate shareholders, 3% of the distributions qualify
for the dividends received deduction. As provided by the American Jobs
Creation Act of 2004, certain interest-related dividends paid by the Trust may
not be subjected to U.S. withholding tax. The Trust intends to designate up to
a maximum of $6,971,990 as qualifying as interest-related dividends. In
January, the Trust provides tax information to shareholders for the preceding
calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
24
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Funds generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (60) Trustee Trustee Chairman and Chief 66 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 (67) Trustee Trustee Prior to January 1999, 64 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.
25
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFfiCERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (65) Trustee Trustee President of CAC, L.L.C., 66 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
26
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFfiCERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of 64 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (54) Trustee Trustee Director and President of 64 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 (70) Trustee Trustee Prior to 1998, President 66 Trustee/Director/Managing
14 Huron Trace since 1992 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
27
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFfiCERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (70) Trustee Trustee President of Nelson 64 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 (65) Trustee Trustee President Emeritus and 66 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. (64) Trustee Trustee Chief Communications 64 Trustee/Director/Managing
815 Cumberstone Road since 2003 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
28
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS continued
INTERESTED TRUSTEE*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 66 Trustee/Director/Managing
333 West Wacker Drive since 1989 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
29
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFFICERS continued
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Ronald E. Robison (67) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Executive since May 2003. Managing Director of Van Kampen Advisors
Officer Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan
Stanley & Co. Incorporated. Managing Director and Director
of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution Inc. Chief Executive Officer and Director of
Morgan Stanley Trust. Executive Vice President and Principal
Executive Officer of the Institutional and Retail Morgan
Stanley Funds. Director of Morgan Stanley SICAV. Previously
Chief Global Operations Officer of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (63) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer 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.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
30
VAN KAMPEN HIGH INCOME TRUST II
TRUSTEES AND OFfiCERS continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza Officer and since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Chief Executive Officer has certified to the New
York Stock Exchange that, as of July 18, 2005, he was not aware of any violation
by the Trust of NYSE corporate governance listing standards.
The certifications by the Trust's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Trust's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
31
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors
Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van
Kampen Exchange Corp., as well as current and former individual investors in
Van Kampen mutual funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised
by us. This Policy is, however, applicable to individuals who select us to
be a custodian of securities or assets in individual retirement accounts,
401(k) accounts, 529 Educational Savings Accounts, accounts subject to the
Uniform Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we
help you achieve your financial objectives. This Policy describes what
non-public personal information we collect about you, why we collect it, and
when we may share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies
you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information
from applications and other forms you submit to us, from your dealings with
us, from consumer reporting agencies, from our Web sites and from third
parties and other sources.
(continued on next page)
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you
better and to manage our business, we may disclose personal information we
collect about you to our affiliated companies and to non-affiliated third
parties as required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise
required or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except
to enable them to provide services on our behalf, to perform joint marketing
agreements with
(continued on back)
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
902, 911, 104
VLT ANR 2/06
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-00266P-Y12/05
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 March 2005 and a third time in
August 2005 and a fourth time in September 2005. All four editions of Exhibit B
are attached. Additionally, Exhibit B was amended to remove Mitchell M. Merin as
a covered officer.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 12A.
(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:
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
2004
AUDIT FEES........................ $44,200 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES...... $ 800(2) $ 321,000(3)
TAX FEES................ $ 1,600(4) $ 0
ALL OTHER FEES.......... $ 0 $ 0
TOTAL NON-AUDIT FEES.............. $ 2,400 $ 321,000
TOTAL............................. $46,600 $ 321,000
REGISTRANT COVERED ENTITIES(1)
---------- ------------------
2003
AUDIT FEES......................... $42,130 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES....... $ 750(2) $ 198,000(3)
TAX FEES................. $ 1,550(4) $ 0
ALL OTHER FEES........... $ 0 $ 0
TOTAL NON-AUDIT FEES............... $ 2,300 $ 198,000
TOTAL.............................. $44,430 $ 198,000
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control with
the Adviser that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent agreed upon procedures provided that
are reasonably related to the performance of the audit of the
financial statements of the Registrant.
(3) Audit-Related Fees represent assurance and related services provided
that are reasonably related to the performance of the audit of the
financial statements of the Covered Entities' and funds advised by
the Adviser or its affiliates, specifically attestation services
provided in connection with a SAS 70 Report.
(4) Tax Fees represent tax advice and compliance services provided in
connection with the review of the Registrant's tax.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
JOINT AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
VAN KAMPEN FUNDS
AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether
such services are consistent with the SEC's rules on auditor independence. The
Audit Committee will also consider whether the Independent Auditors are best
positioned to provide the most effective and efficient services, for reasons
such as its familiarity with the Fund's business, people, culture, accounting
systems, risk profile and other factors, and whether the service might enhance
the Fund's ability to manage or control risk or improve audit quality. All such
factors will be considered as a whole, and no one factor should necessarily be
determinative.
The Audit Committee is also mindful of the relationship between fees for
audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval
-------------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval
Policy and Procedures (the "Policy"), amended as of the date above,
supercedes and replaces all prior versions that may have been amended from
time to time.
(2) Terms used in this Policy and not otherwise defined herein shall have the
meanings as defined in the Joint Audit Committee Charter.
from the Audit Committee. The Audit Committee will add to or subtract from the
list of general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services. Hence, the Audit Committee believes it may grant
general pre-approval to those Tax services that have historically been provided
by the Independent Auditors, that the Audit Committee has reviewed and believes
would not impair the independence of the Independent Auditors, and that are
consistent with the SEC's rules on auditor independence. The Audit Committee
will not permit the retention of the Independent Auditors in connection with a
transaction initially recommended by the Independent Auditors, the sole business
purpose of which may be tax avoidance and the tax treatment of which may not be
supported in the Internal Revenue Code and related regulations. The Audit
Committee will consult with Director of Tax or outside counsel to determine that
the tax planning and reporting positions are consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services involving large and complex
transactions not listed in Appendix B.3 must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated), including tax services proposed to be provided by the
Independent Auditors to any executive officer or trustee/director/managing
general partner of the Fund, in his or her individual capacity, where such
services are paid for by the Fund (generally applicable only to internally
managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services
are determined to have a direct impact on the operations or financial reporting
of the Registrant. 100% of such services were pre-approved by the audit
committee pursuant to the Audit Committee's pre-approval policies and procedures
(included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Craig Kennedy, Jerry Choate and Rod Dammeyer.
(b) Not applicable.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust's and its investment advisor's Proxy Voting Policies and Procedures
are as follows:
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policy and
procedures for voting proxies ("Policy") with respect to securities held in the
accounts of clients applies to those MSIM entities that provide discretionary
investment management services and for which a MSIM entity has authority to vote
proxies. The Policy will be reviewed and, updated, as necessary, to address new
or revised proxy voting issues. The MSIM entities covered by the Policy
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley
Investment Management Limited, Morgan Stanley Investment Management Company,
Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan Stanley
Investment Management Private Limited, Morgan Stanley Hedge Fund Partners GP LP,
Morgan Stanley Hedge Fund Partners LP, Van Kampen Asset Management, and Van
Kampen Advisors Inc. (each an "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will use its best efforts to vote proxies as part of its
authority to manage, acquire and dispose of account assets. With respect to the
MSIM registered management investment companies (Van Kampen, Institutional and
Advisor Funds)(collectively referred to herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies pursuant to authority granted under its applicable
investment advisory agreement or, in the absence of such authority, as
authorized by the Board of Directors or Trustees of the
MSIM Funds. A MSIM Affiliate will not vote proxies if the "named fiduciary" for
an ERISA account has reserved the authority for itself, or in the case of an
account not governed by ERISA, the investment management or investment advisory
agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates
will, in a prudent and diligent manner, vote proxies in the best interests of
clients, including beneficiaries of and participants in a client's benefit
plan(s) for which the MSIM Affiliates manage assets, consistent with the
objective of maximizing long-term investment returns ("Client Proxy Standard").
In certain situations, a client or its fiduciary may provide a MSIM Affiliate
with a proxy voting policy. In these situations, the MSIM Affiliate will comply
with the client's policy unless to do so would be inconsistent with applicable
laws or regulations or the MSIM Affiliate's fiduciary responsibility.
Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as MSIM Affiliates may
retain from time to time, the "Research Providers") are independent advisers
that specialize in providing a variety of fiduciary-level proxy-related services
to institutional investment managers, plan sponsors, custodians, consultants,
and other institutional investors. The services provided include in-depth
research, global issuer analysis, and voting recommendations. While the MSIM
Affiliates may review and utilize the recommendations of the Research Providers
in making proxy voting decisions, they are in no way obligated to follow such
recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A.
below) will carefully monitor and supervise the services provided by the
Research Providers.
Voting Proxies for Certain Non-U.S. Companies - While the proxy voting process
is well established in the United States and other developed markets with a
number of tools and services available to assist an investment manager, voting
proxies of non-U.S. companies located in certain jurisdictions, particularly
emerging markets, may involve a number of problems that may restrict or prevent
a MSIM Affiliate's ability to vote such proxies. These problems include, but are
not limited to: (i) proxy statements and ballots being written in a language
other than English; (ii) untimely and/or inadequate notice of shareholder
meetings; (iii) restrictions on the ability of holders outside the issuer's
jurisdiction of organization to exercise votes; (iv) requirements to vote
proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies
will be voted on a best efforts basis only, after weighing the costs and
benefits to MSIM's clients of voting such proxies, consistent with the Client
Proxy Standard. ISS has been retained to provide assistance to the MSIM
Affiliates in connection with voting their clients' non-U.S. proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) this Policy,
including the guidelines set forth below. These guidelines address a broad range
of issues, including board size and composition, executive compensation,
anti-takeover proposals, capital structure proposals and social responsibility
issues and are meant to be general voting parameters on issues that arise most
frequently. The MSIM Affiliates, however, may, pursuant to the procedures set
forth in Section IV. below, vote in a manner that is not in accordance with the
following general guidelines, provided the vote is approved by the Proxy Review
Committee and is consistent with the Client Proxy Standard. A MSIM Affiliate
will not generally vote a proxy if it has sold the affected security between the
record date and the meeting date.
III. GUIDELINES
A. CORPORATE GOVERNANCE MATTERS. The following proposals will generally be voted
as indicated below, unless otherwise determined by the Proxy Review Committee.
i. General.
1. Generally, routine management proposals will be supported. The
following are examples of routine management proposals:
- Approval of financial statements, director and auditor
reports.
- General updating/corrective amendments to the charter.
- Proposals related to the conduct of the annual meeting, except
those proposals that relate to the "transaction of such other
business which may come before the meeting."
2. Proposals to eliminate cumulative voting generally will be
supported; proposals to establish cumulative voting in the election
of directors will not be supported.
3. Proposals requiring confidential voting and independent tabulation
of voting results will be supported.
4. Proposals requiring a U.S. company to have a separate Chairman and
CEO will not be supported. Proposals requiring non-U.S. companies to
have a separate Chairman and CEO will be supported.
5. Proposals by management of non-U.S. companies regarding items that
are clearly related to the regular course of business will be
supported.
6. Proposals to require the company to expense stock options will be
supported.
7. Open-ended requests for adjournment generally will not be supported.
However, where management specifically states the reason for
requesting an adjournment and the requested adjournment is necessary
to permit a proposal that would otherwise be supported under this
Policy to be carried out (i.e. an uncontested corporate
transaction), the adjournment request will be supported.
8. Proposals to declassify the Board of Directors (if management
supports a classified board) generally will not be supported.
9. Proposal requiring that the company prepare reports that are costly
to provide or that would require duplicative efforts or expenditures
that are of a non-business nature or would provide no pertinent
information from the perspective of institutional shareholders
generally will not be supported.
ii. Election of Directors. In situations where no conflict exists and
where no specific governance deficiency has been noted, unless otherwise
determined by the
Proxy Review Committee, proxies will be voted in support of nominees of
management.
1. The following proposals generally will be supported:
- Proposals requiring that a certain percentage (up to 66 2/3%)
of the company's board members be independent directors.
- Proposals requiring that members of the company's
compensation, nominating and audit committees be comprised of
independent or unaffiliated directors.
2. Unless otherwise determined by the Proxy Review Committee, a
withhold vote will be made in the following circumstances:
(a) If a company's board is not comprised of a majority of
disinsterested directors, a withhold vote will be made for
interested directors. A director nominee may be deemed to be
interested if the nominee has, or any time during the previous
five years had, a relationship with the issuer (e.g.,
investment banker, counsel or other professional service
provider, or familial relationship with a senior officer of
the issuer) that may impair his or her independence;
(b) If a nominee who is interested is standing for election as a
member of the company's compensation, nominating or audit
committees;
(c) A direct conflict exists between the interests of the nominee
and the public shareholders;
(d) Where the nominees standing for election have not taken action
to implement generally accepted governance practices for which
there is a "bright line" test. These would include elimination
of dead hand or slow hand poison pills, requiring audit,
compensation or nominating committees to be composed of
independent directors and requiring a majority independent
board;
(e) A nominee has failed to attend at least 75% of board meetings
within a given year without a reasonable excuse; or
(f) A nominee serves on the board of directors for more than six
companies (excluding investment companies).
iii. Auditors
1. Generally, management proposals for selection or ratification of
auditors will be supported. However, such proposals may not be
supported if the audit fees are excessive. Generally, to determine
if audit fees are excessive, a 50% test will be applied for audit
fees in excess of $1 million: if audit fees are $1 million or more,
non-audit fees should less than 50% of the total fees paid to the
auditor. If audit fees are less than $1 million, the fees will be
reviewed case by case by the Proxy Review Committee.
2. Proposals requiring auditors to attend the annual meeting of
shareholders will be supported.
3. Proposals to indemnify auditors will not be supported.
iv. Anti-Takeover Matters
1. Proposals to modify or rescind existing supermajority vote
requirements to amend the charter or bylaws will be supported;
proposals to amend by-laws to require a supermajority shareholder
vote to pass or repeal certain provisions will not be supported.
2. Proposals relating to the adoption of anti-greenmail provisions will
be supported, provided that the proposal: (i) defines greenmail;
(ii) prohibits buyback offers to large block holders (holders of at
least 1% of the outstanding shares and in certain cases, a greater
amount, as determined by the Proxy Review Committee) not made to all
shareholders or not approved by disinterested shareholders; and
(iii) contains no anti-takeover measures or other provisions
restricting the rights of shareholders.
3. Proposals requiring shareholder approval or ratification of a
shareholder rights plan or poison pill will be supported.
B. CAPITALIZATION CHANGES. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- Proposals relating to capitalization changes that eliminate
other classes of stock and/or eliminate unequal voting rights.
- Proposals to increase the authorization of existing classes of
common stock (or securities convertible into common stock) if:
(i) a clear and legitimate business purpose is stated; (ii)
the number of shares requested is reasonable in relation to
the purpose for which authorization is requested; and (iii)
the authorization does not exceed 100% of shares currently
authorized and at least 30% of the new authorization will be
outstanding.
- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals for share repurchase plans.
- Proposals to reduce the number of authorized shares of common
or preferred stock, or to eliminate classes of preferred
stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth
in the corporate charter. Reverse stock splits that do not
adjust proportionately to the authorized share amount
generally will be approved if the resulting increase in
authorized shares coincides with the proxy guidelines set
forth above for common stock increases.
2. The following proposals generally will not be supported
(notwithstanding management support).
- Proposals relating to capitalization changes that add classes
of stock which substantially dilute the voting interests of
existing shareholders.
- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.
- Proposals to create "blank check" preferred stock.
- Proposals relating to changes in capitalization by 100% or
more.
C. COMPENSATION. The following proposals generally will be voted as indicated
below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- Proposals relating to director fees, provided the amounts are
not excessive relative to other companies in the country or
industry.
- Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part of a
broad-based employee plan, including all non-executive
employees.
- Proposals for the establishment of employee stock option plans
and other employee ownership plans, provided that our research
does not indicate that approval of the plan would be against
shareholder interest.
- Proposals for the establishment of employee retirement and
severance plans, provided that our research does not indicate
that approval of the plan would be against shareholder
interest.
2. Blanket proposals requiring shareholder approval of all severance
agreements will not be supported, however, proposals that require
shareholder approval for agreements in excess of three times the
annual compensation (salary and bonus) generally will be supported.
3. Blanket proposals requiring shareholder approval of executive
compensation generally will not be supported.
4. Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations generally
will not be supported.
D. OTHER RECURRING ITEMS. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. Proposals to add restrictions related to social, political,
environmental or special interest issues that do not relate directly
to the business of the company and which do not appear to be
directed specifically to the business or financial interest of the
company generally will not be supported.
2. Proposals requiring adherence to workplace standards that are not
required or customary in market(s) to which the proposals relate
will not be supported.
E. ITEMS TO BE REVIEWED BY THE PROXY REVIEW COMMITTEE
The following types of non-routine proposals, which potentially may have a
substantive financial or best interest impact on an issuer, will be voted as
determined by the Proxy Review Committee.
i. Corporate Transactions
- Proposals relating to mergers, acquisitions and other special
corporate transactions (i.e., takeovers, spin-offs, sales of
assets, reorganizations, restructurings and recapitalizations)
will be examined on a case-by-case basis. In all cases,
Research Providers' research and analysis will be used along
with MSIM Affiliates' research and analysis, including, among
other things, MSIM internal company-specific knowledge.
Proposals for mergers or other significant transactions that
are friendly, approved by the Research Providers, and where
there is no portfolio manager objection, generally will be
supported.
ii. Compensation
- Proposals relating to change-in-control provisions in
non-salary compensation plans, employment contracts, and
severance agreements that benefit management and would be
costly to shareholders if triggered. With respect to proposals
related to severance and change of control situations, MSIM
Affiliates will support a maximum of three times salary and
bonus.
- Proposals relating to Executive/Director stock option plans.
Generally, stock option plans should be incentive based. The
Proxy Review Committee will evaluate the the quantitative
criteria used by a Research Provider when considering such
Research Provider's recommendation. If the Proxy Review
Committee determines that the criteria used by the Research
Provider is reasonable, the proposal will be supported if it
falls within a 5% band above the Research Provider's
threshold.
- Compensation proposals that allow for discounted stock options
that have not been offered to employees in general.
iii. Other
- Proposals for higher dividend payouts.
- Proposals recommending set retirement ages or requiring
specific levels of stock ownership by directors.
- Proposals for election of directors, where a director nominee
is related to MSIM (i.e. on an MSIM Fund's Board of
Directors/Trustees or part of MSIM senior management) must be
considered by the Proxy Review Committee. If the proposal
relates to a director nominee who is on a Van Kampen Fund's
Board of Directors/Trustees, to the extent that the shares of
the relevant company are held by a Van Kampen Fund, the Van
Kampen Board shall vote the proxies with respect to those
shares, to the extent practicable. In the event that the
Committee cannot contact the Van Kampen Board in advance of
the shareholder meeting, the Committee will vote such shares
pursuant to the Proxy Voting Policy.
- Proposals requiring diversity of board membership relating to
broad based social, religious or ethnic groups.
- Proposals to limit directors' liability and/or broaden
indemnification of directors. Generally, the Proxy Review
Committee will support such proposals provided that the
officers and directors are eligible for indemnification and
liability protection if they have acted in good faith on
company business and were found innocent of any civil or
criminal charges for duties performed on behalf of the
company.
F. FUND OF FUNDS. Certain Funds advised by an MSIM Affiliate invest only in
other MSIM funds. If an underlying fund has a shareholder meeting, in order to
avoid any potential conflict of interest, such proposals will be voted in the
same proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.
IV. ADMINISTRATION OF POLICY
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing the Policy and, in this regard, has
expressly adopted it.
(a) The Committee, which is appointed by MSIM's Chief Investment
Officer ("CIO"), consists of senior investment professionals
who represent the different investment disciplines and
geographic locations of the firm. The Committee is responsible
for establishing MSIM's Policy and determining how MSIM will
vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority
to amend, as necessary, the Policy and establish and direct
voting positions consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to the
Policy and (2) review proposals at upcoming shareholder
meetings of MSIM portfolio companies in accordance with this
Policy including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee, or its
designee, will timely communicate to ISS MSIM's Policy (and
any amendments to them and/or any additional guidelines or
procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing certain
shares of the same issuer that are the subject of the same
proxy solicitation and held by one or more MSIM portfolios to
be voted differently than other shares) and/or "override
voting" (i.e., voting all MSIM portfolio shares in a manner
contrary to the Policy); (2) review and approve upcoming
votes, as appropriate, for matters for which specific
direction has been provided in this Policy; and (3) determine
how to vote matters for which specific direction has not been
provided in this Policy. Split votes generally will not be
approved within a single Global Investor Group investment
team. The Committee may take into account Research Providers'
recommendations and research as well as any other relevant
information they may request or receive, including portfolio
manager and/or analyst research, as applicable. Generally,
proxies related to securities held in accounts that are
managed pursuant to quantitative, index or index-like
strategies ("Index Strategies") will be voted in the same
manner as those held in actively managed accounts. Because
accounts managed using Index Strategies are passively managed
accounts, research from portfolio managers and/or analysts
related to securities held in these accounts may not be
available. If the affected securities are held only in
accounts that are managed pursuant to Index Strategies, and
the proxy relates to a matter that is not described in this
Policy, the Committee will consider all available information
from the Research Providers, and to the extent that the
holdings are significant, from the portfolio managers and/or
analysts.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential material
conflict of interest, or gives rise to the appearance of a
potential material conflict of interest, the Committee will
request a special committee to review, and recommend a course
of action with respect to, the conflict(s) in question
("Special Committee"). The Special Committee shall be
comprised of the Chairperson of the Proxy Review Committee,
the Compliance Director for the area of the firm involved or
his/her designee, a senior portfolio manager (if practicable,
one who is a member of the Proxy Review Committee) designated
by the Proxy Review Committee, and MSIM's Chief Investment
Officer or his/her designee. The Special Committee may request
the assistance of MSIM's General Counsel or his/her designee
and will have sole discretion to cast a vote. In addition to
the research provided by Research Providers, the Special
Committee may request analysis from MSIM Affiliate investment
professionals and outside sources to the extent it deems
appropriate.
(f) The Committee and the Special Committee, or their designee(s),
will document in writing all of their decisions and actions,
which documentation will be maintained by the Committee and
the Special Committee, or their designee(s), for a period of
at least 6 years. To the
extent these decisions relate to a security held by a MSIM
U.S. registered investment company, the Committee and Special
Committee, or their designee(s), will report their decisions
to each applicable Board of Trustees/Directors of those
investment companies at each Board's next regularly scheduled
Board meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during
the most recently ended calendar quarter immediately preceding
the Board meeting.
(g) The Committee and Special Committee, or their designee(s),
will timely communicate to applicable portfolio managers, the
Compliance Departments and, as necessary, to ISS, decisions of
the Committee and Special Committee so that, among other
things, ISS will vote proxies consistent with their decisions.
B. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
1. If there is a possibility that a vote may involve a material
conflict of interest, the vote must be decided by the Special
Committee in consultation with MSIM's General Counsel or
his/her designee.
2. A material conflict of interest could exist in the following
situations, among others:
(a) The issuer soliciting the vote is a client of MSIM or an
affiliate of MSIM and the vote is on a material matter
affecting the issuer;
(b) The proxy relates to Morgan Stanley common stock or any other
security issued by Morgan Stanley or its affiliates; or
(c) Morgan Stanley has a material pecuniary interest in the matter
submitted for a vote (e.g., acting as a financial advisor to a
party to a merger or acquisition for which Morgan Stanley will
be paid a success fee if completed).
C. PROXY VOTING REPORTS
(a) MSIM will promptly provide a copy of this Policy to any client
requesting them. MSIM will also, upon client request, promptly
provide a report indicating how each proxy was voted with
respect to securities held in that client's account.
(b) MSIM's legal department is responsible for filing an annual
Form N-PX on behalf of each registered management investment
company for which such filing is required, indicating how all
proxies were voted with respect to such investment company's
holdings.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
TRUST MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Trust is managed by
members of the Adviser's Taxable Fixed Income team. The team consists of
portfolio managers and analysts. Current members of the team jointly and
primarily responsible for the day-to-day management of the Trust's portfolio are
Gordon W. Loery, an Executive Director of the Adviser and Joshua Givelber, a
Vice President of the Adviser.
Mr. Loery has been associated with the Adviser in an investment management
capacity since June 1990 and joined the team managing the Trust in July 2001.
Mr. Givelber has been associated with the Adviser in an investment management
capacity since June 1999 and joined the team managing the Trust in April 2003.
The composition of the team may change without notice from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following information is dated as of December 31, 2005
As of December 31, 2005, Mr. Loery managed eleven mutual funds with a total of
approximately $2.1 billion in assets; five pooled investment vehicles other than
mutual funds with a total of approximately $934 million; and one other account
with a total of approximately $1 thousand.
As of December 31, 2005, Mr. Givelber managed seven mutual funds with a total of
approximately $1.6 billion in assets; no pooled investment vehicles other than
mutual funds; and no other accounts.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one client over another resulting in conflicts of interest.
For instance, the Adviser may receive fees from certain accounts that are higher
than the fee it receives from the Trust, or it may receive a performance-based
fee on certain accounts. In those instances, the portfolio managers may have an
incentive to favor the higher and/or performance-based fee accounts over the
Trust. The portfolio managers of the Trust do not currently manage assets for
other investment companies, pooled investment vehicles or other accounts that
charge a performance fee. The Adviser has adopted trade allocation and other
policies and procedures that it believes are reasonably designed to address
these and other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all accounts managed by the portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a
mandatory program that defers a portion of discretionary year-end compensation
into restricted stock
units or other awards based on Morgan Stanley common stock that are subject to
vesting and other conditions;
- Investment Management Deferred Compensation Plan (IMDCP) awards -- a mandatory
program that defers a portion of discretionary year-end compensation and
notionally invests it in designated Trusts advised by the Adviser or its
affiliates. The award is subject to vesting and other conditions. Portfolio
managers must notionally invest a minimum of 25% to a maximum of 75% of the
IMDCP deferral into a combination of the designated open-end funds they manage
that are included in the IMDCP Fund menu;
- Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary year-end
compensation and directly or notionally invest the deferred amount: (1) across a
range of designated investment Trusts, including Trusts advised by the Adviser
or its affiliates; and/or (2) in Morgan Stanley stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the Trusts/accounts managed by the portfolio
manager. Investment performance is calculated for one-, three- and five-year
periods measured against an appropriate securities market index (or indices) for
the Trusts/accounts managed by the portfolio manager. In the case of the Trust,
the Trust's investment performance is measured against the Lehman Brothers
Municipal Bond Index and against appropriate rankings or rating prepared by
Lipper Inc., Morningstar Inc. or similar independent services which monitor
Trust performance. Other Trusts/accounts managed by the same portfolio manager
may be measured against this same index and same rankings or ratings, if
appropriate, or against other indices and other rankings or ratings that are
deemed more appropriate given the size and/or style of such Trusts/accounts as
set forth in such Trusts'/accounts' disclosure materials and guidelines. The
assets managed by the portfolio managers in Trusts, pooled investment vehicles
and other accounts are described in "Other Accounts Managed by the Portfolio
Managers" above. Generally, the greatest weight is placed on the three- and
five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles and
other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management, and
the overall performance of the Global Investor Group, a department within Morgan
Stanley Investment Management that includes all investment professionals.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of December 31, 2005, the dollar range of securities beneficially owned by
each portfolio manager in the Trust is shown below:
Gordon W. Loery: None (1)
Joshua Givelber: None
(1) Not included in the table above the portfolio manager has made investments
in more or more mutual funds managed by the same portfolio management team
pursuant to a similar strategy.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(1) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen High Income Trust II
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: February 9, 2006
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 9, 2006
By: /s/ Phillip G. Goff
-------------------
Name: Phillip G. Goff
Title: Principal Financial Officer
Date: February 9, 2006