UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5769
Van Kampen High Income Trust II
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas New York, New York 10020
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas New York, New York 10020
-------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 12/31
Date of reporting period: 12/31/03
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,
2003.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the trust will achieve its investment
objective. The trust is subject to market risk, which is the possibility
that the market values of securities owned by the trust will decline and,
therefore, the value of the trust shares may be less than what you paid
for them. Accordingly, you can lose money investing in this trust.
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
Performance Summary
AVERAGE ANNUAL TOTAL RETURNS
HIGH INCOME TRUST II
SYMBOL: VLT
-------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (04/28/89) 5.33% 6.09%
10-year 4.46 4.71
5-year 1.36 0.91
1-year 32.54 37.20
-------------------------------------------------------
Past performance is no guarantee of future results. Investment return, 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.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor. The NAV per share is determined by dividing
the value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding. The common share
market price is the price the market is willing to pay for shares of the trust
at a given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions. Total return assumes an
investment at the beginning of the period, reinvestment of all distributions for
the period in accordance with the trust's dividend reinvestment plan, and sale
of all shares at the end of the period.
The Chase 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.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2003
Van Kampen High Income Trust II is managed by the adviser's High Yield team.(1)
Current team members include Gordon Loery, Executive Director; Josh Givelber,
Vice President; Chad Liu, Vice President; and Sheila Finnerty, Managing
Director.
MARKET CONDITIONS
The high-yield market entered the 12-month period on a strong footing and
continued to rally sharply through the end of the year. The CSFB High Yield
Index, a broad benchmark for the high-yield bond market, returned 27.94 percent
for calendar 2003, its second-best annual performance since the asset class
developed in the mid-1980s.
Many factors contributed to the high-yield market's stellar performance in 2003.
Improving perceptions regarding the economy, the credit cycle, and defaults led
to renewed investor interest in credit-sensitive issues. Several highly visible
high-yield companies produced positive earnings surprises, and the Moody's
issuer-based default rate fell by more than half over the course of the year.
Low interest rates added to the allure of high-yield bonds for yield-hungry
investors. The resulting record inflows into the asset class provided portfolio
managers with large amounts of cash that handily offset a near-record amount of
new issuance. In addition, many high-yield mutual funds, which began the year
with conservative portfolios relative to the high-yield indices, began heavily
buying lower-rated credits in an attempt to catch up to the rallying market.
These factors combined to produce significant price appreciation across all
sectors of the high yield-market, with the most speculative companies in the
lowest credit tiers tending to perform most strongly. Wireless communications,
utilities, telecom, and cable--among the worst performers in 2001 and 2002--were
the best performing sectors in 2003. More typically defensive sectors, such as
consumer products and food and drug, lagged, as did forest products and metals.
(1)Team members may change without notice at any time.
2
PERFORMANCE ANALYSIS
A closed-end fund's return can be calculated based upon either the market price
or the net asset value (NAV) of its shares. NAV per share is determined by
dividing the value of the trust's portfolio securities, cash and other assets,
less all liabilities, by the total number of common shares outstanding, while
market price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On both a market-price and a NAV basis, the
trust outperformed its benchmark, the Chase High Yield Index. (See table below.)
In keeping with our focus on bottom-up issue selection, the greatest driver of
the trust's performance was strong credit selection. Many of the portfolio's
best performers entered the year at a steep discount to their par (or face)
value, and enjoyed robust price appreciation as well as attractive income over
the course of the year. In the wireless sector, the portfolio's position in
Nextel benefited from the company's continued financial strength coupled with a
low valuation at the beginning of the period. The trust enjoyed similarly strong
performance from companies in the broadcasting, utilities, cable,
telecommunications and chemicals industries.
The trust uses leverage on an ongoing basis to enhance its dividend to common
shareholders. The trust borrows money at short-term rates through the issuance
of preferred shares. The proceeds are invested in longer-term securities, taking
advantage of the difference between short- and longer-term rates. With
short-term rates at historic lows during the period, the difference between
short- and longer-term rates was relatively high. This made using leverage a
particularly profitable approach during the period, and added to the trust's
strong performance.
While the trust's performance outpaced its benchmark, not all of its positions
were beneficial. The rapid rise in the market price of CCC-rated debt led us to
trim some of the trust's exposure to those securities in order to redeploy
assets into parts of the market we viewed as more attractive. While we remain
convinced of the wisdom of this approach in the long-term, it did cause the
portfolio to miss some of the price performance of these lower-rated securities.
The trust benefited from strong credit selection within utilities, though our
stringent investment criteria made it difficult to find attractive companies in
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2003
-----------------------------------------------
BASED BASED ON CHASE HIGH
ON NAV MARKET PRICE YIELD INDEX
32.54% 37.20% 27.50%
-----------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset
value and common share market price will fluctuate and trust shares, when sold,
may be worth more or less than their original cost. See Performance Summary for
additional performance information and index definition.
3
that sector given its widespread problem of overcapacity. As a result, the trust
did not fully benefit from this sector's strong performance during the year.
Going forward, we hope to see continued improvement in the economy, which should
bode well for the high-yield market, and we will continue to closely monitor the
market for compelling investment opportunities.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
TOP 5 SECTORS AS OF 12/31/03 RATINGS ALLOCATIONS AS OF 12/31/03
Gaming & Leisure 13.0% A/A 0.6%
Energy 9.7 BBB/Baa 10.4
Utility 6.2 BB/Ba 46.4
Chemicals 6.0 B/B 40.3
Housing 5.8 CCC/Caa & below 2.1
Non-Rated 0.2
Subject to change daily. Sector percentages are as a percentage of long-term
investments. Ratings allocation percentages are as a percentage of long-term
debt investment. Provided for informational purposes only and should not be
deemed as a recommendation to buy securities in the sectors shown above.
Securities are classified by sectors that represent broad groupings of related
industries. Ratings allocation 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.
4
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
December 31, 2003
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 162.4%
BROADCASTING 4.0%
$ 210 Granite Broadcasting Corp., 144A--Private
Placement (a).................................... 9.750% 12/01/10 $ 210,525
555 Nextmedia Operating, Inc. ....................... 10.750 07/01/11 632,700
615 TV Azteca S.A. (Mexico).......................... 10.500 02/15/07 631,912
------------
1,475,137
------------
CABLE 9.1%
755 Charter Communication Holdings LLC............... 9.625 11/15/09 668,175
110 CSC Holdings, Inc. .............................. 7.250 07/15/08 114,950
340 CSC Holdings, Inc. .............................. 8.125 07/15/09 367,200
140 CSC Holdings, Inc. .............................. 9.875 02/15/13 147,000
445 DirecTV Holdings LLC............................. 8.375 03/15/13 518,425
850 Echostar DBS Corp. .............................. 9.375 02/01/09 893,562
635 Echostar DBS Corp., 144A--Private Placement
(a).............................................. 6.375 10/01/11 654,050
------------
3,363,362
------------
CHEMICALS 10.0%
460 Equistar Chemicals LP............................ 10.125 09/01/08 506,000
180 FMC Corp. ....................................... 10.250 11/01/09 211,500
145 Huntsman Advanced Materials LLC, 144A--Private
Placement (a).................................... 11.000 07/15/10 160,950
145 ISP Chemco, Inc. ................................ 10.250 07/01/11 163,850
675 ISP Holdings, Inc. .............................. 10.625 12/15/09 745,875
105 Koppers, Inc.,144A--Private Placement (a)........ 9.875 10/15/13 116,287
55 Kraton Polymers LLC, 144A--Private Placement
(a).............................................. 8.125 01/15/14 57,475
40 Millennium America, Inc. ........................ 7.000 11/15/06 41,200
385 Millennium America, Inc. ........................ 9.250 06/15/08 421,575
395 Nalco Co., 144A--Private Placement (a)........... 7.750 11/15/11 424,625
57 PCI Chemicals Canada, Inc. (Canada).............. 10.000 12/31/08 51,717
18 Pioneer Cos., Inc. (b)........................... 4.640 12/31/06 16,377
365 Rhodia S.A., 144A--Private Placement (France)
(a).............................................. 8.875 06/01/11 337,625
245 Rockwood Specialties Group, Inc., 144A--Private
Placement (a).................................... 10.625 05/15/11 274,400
155 Westlake Chemical Corp., 144A--Private Placement
(a).............................................. 8.750 07/15/11 170,500
------------
3,699,956
------------
See Notes to Financial Statements 5
YOUR TRUST'S INVESTMENTS
December 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CONSUMER PRODUCTS 2.0%
$ 130 Elizabeth Arden, Inc. ........................... 11.750% 02/01/11 $ 155,350
155 Oxford Industrials, Inc., 144A--Private Placement
(a).............................................. 8.875 06/01/11 170,306
235 Rayovac Corp. ................................... 8.500 10/01/13 250,275
146 Tempur Pedic, Inc., 144A--Private Placement
(a).............................................. 10.250 08/15/10 163,520
------------
739,451
------------
DIVERSIFIED MEDIA 7.8%
485 Alliance Atlantis Communications, Inc.
(Canada)......................................... 13.000 12/15/09 555,325
250 Dex Media East Finance Corp...................... 12.125 11/15/12 308,750
260 Dex Media West Finance Corp., 144A--Private
Placement (a).................................... 9.875 08/15/13 303,550
125 Nexstar Finance, Inc., 144A--Private Placement
(a).............................................. 7.000 01/15/14 126,250
160 PEI Holdings, Inc. .............................. 11.000 03/15/10 186,400
510 Primedia, Inc. .................................. 8.875 05/15/11 540,600
380 Salem Communications Corp. ...................... 7.750 12/15/10 398,050
310 Vivendi Universal S.A. (France).................. 9.250 04/15/10 368,900
110 Vivendi Universal S.A., 144A--Private Placement
(France) (a)..................................... 6.250 07/15/08 117,012
------------
2,904,837
------------
ENERGY 16.2%
560 BRL Universal Equipment.......................... 8.875 02/15/08 603,400
430 Chesapeake Energy Corp. ......................... 7.875 03/15/04 435,375
160 Citgo Petroleum Corp. ........................... 11.375 02/01/11 186,400
475 El Paso Production Holding Co., 144A--Private
Placement (a).................................... 7.750 06/01/13 470,250
910 Frontier Oil Corp. .............................. 11.750 11/15/09 1,032,850
85 GulfTerra Energy Partners LP..................... 8.500 06/01/10 96,900
285 GulfTerra Energy Partners LP..................... 10.625 12/01/12 354,825
70 Hanover Compressor Co. .......................... 8.625 12/15/10 73,150
275 Hanover Equipment Trust.......................... 8.500 09/01/08 292,875
120 Hanover Equipment Trust.......................... 8.750 09/01/11 127,800
345 Hilcorp Energy Finance Corp., 144A--Private
Placement (a).................................... 10.500 09/01/10 379,500
215 Magnum Hunter Resources, Inc. ................... 9.600 03/15/12 245,100
65 MSW Energy Holdings LLC.......................... 8.500 09/01/10 71,175
295 MSW Energy Holdings LLC, 144A--Private Placement
(a).............................................. 7.375 09/01/10 309,750
254 Port Arthur Finance Corp. ....................... 12.500 01/15/09 303,342
235 Tesoro Petroleum Corp. .......................... 9.000 07/01/08 244,987
135 Tesoro Petroleum Corp. .......................... 9.625 04/01/12 148,500
605 Vintage Petroleum, Inc. ......................... 7.875 05/15/11 641,300
------------
6,017,479
------------
6 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FINANCIAL 2.0%
$ 240 Banco Nacional de Comercio Exterior (Mexico)..... 7.250% 02/02/04 $ 241,200
435 Istar Financial, Inc. ........................... 8.750 08/15/08 504,600
------------
745,800
------------
FOOD & DRUG 1.8%
90 Couche-Tard US Finance, 144A--Private Placement
(a).............................................. 7.500 12/15/13 94,725
510 Delhaize America, Inc. .......................... 8.125 04/15/11 589,050
1,180 Jitney-Jungle Stores America, Inc. (c) (d) (e)... 12.000 03/01/06 0
------------
683,775
------------
FOOD & TOBACCO 9.6%
410 Altria Group, Inc. .............................. 7.000 11/04/13 438,168
550 Constellation Brands, Inc. ...................... 8.000 02/15/08 613,250
255 Michael Foods, Inc., 144A--Private Placement
(a).............................................. 8.000 11/15/13 267,112
165 National Beef Packing Co., 144A--Private
Placement (a).................................... 10.500 08/01/11 170,775
570 Pilgrim's Pride Corp. ........................... 9.625 09/15/11 629,850
155 PPC Escrow Corp., 144A--Private Placement (a).... 9.250 11/15/13 161,200
465 Smithfield Foods, Inc. .......................... 7.625 02/15/08 471,975
760 Smithfield Foods, Inc. .......................... 8.000 10/15/09 805,600
------------
3,557,930
------------
FOREST PRODUCTS 9.7%
70 Abitibi-Consolidated, Inc. (Canada).............. 8.550 08/01/10 78,071
390 Abitibi-Consolidated, Inc. (Canada).............. 6.000 06/20/13 374,961
445 Georgia-Pacific Corp. ........................... 8.875 02/01/10 509,525
460 MDP Acquisitions PLC (Ireland)................... 9.625 10/01/12 517,500
175 Norampac, Inc. (Canada).......................... 6.750 06/01/13 183,312
1,020 Owens-Brockway Glass Containers, Inc. ........... 8.875 02/15/09 1,123,275
790 Tembec Industries, Inc. (Canada)................. 7.750 03/15/12 790,000
------------
3,576,644
------------
GAMING & LEISURE 21.6%
690 Harrahs Operating Co., Inc. ..................... 7.875 12/15/05 752,100
345 Hilton Hotels Corp. ............................. 7.950 04/15/07 384,244
170 Hilton Hotels Corp. ............................. 7.625 12/01/12 191,887
510 HMH Properties, Inc. ............................ 7.875 08/01/08 532,950
435 Horseshoe Gaming LLC............................. 8.625 05/15/09 461,644
1,075 International Game Technology.................... 7.875 05/15/04 1,097,511
210 LodgeNet Entertainment Corp. .................... 9.500 06/15/13 231,000
480 MGM Mirage, Inc. ................................ 6.000 10/01/09 495,600
1,100 Mohegan Tribal Gaming Authority.................. 8.125 01/01/06 1,190,750
380 Park Place Entertainment Corp. .................. 7.875 12/15/05 408,025
325 Park Place Entertainment Corp. .................. 8.875 09/15/08 368,875
800 Starwood Hotels & Resorts Worldwide, Inc. ....... 7.375 05/01/07 868,000
See Notes to Financial Statements 7
YOUR TRUST'S INVESTMENTS
December 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
GAMING & LEISURE (CONTINUED)
$ 595 Station Casinos, Inc. ........................... 8.375% 02/15/08 $ 640,369
350 Station Casinos, Inc. ........................... 9.875 07/01/10 386,750
------------
8,009,705
------------
HEALTHCARE 9.5%
485 AmerisourceBergen Corp. ......................... 8.125 09/01/08 549,263
295 Fisher Scientific International, Inc. ........... 8.125 05/01/12 317,863
410 Fresenius Medical Care Capital Trust II.......... 7.875 02/01/08 439,725
180 Fresenius Medical Care Capital Trust IV.......... 7.875 06/15/11 195,300
800 HCA, Inc. ....................................... 6.910 06/15/05 842,986
35 Manor Care, Inc. ................................ 7.500 06/15/06 38,150
115 Manor Care, Inc. ................................ 8.000 03/01/08 130,525
145 Medco Health Solutions, Inc. .................... 7.250 08/15/13 158,465
65 National Nephrology Associates, Inc., 144A--
Private Placement (a)............................ 9.000 11/01/11 68,413
195 Omnicare, Inc. .................................. 8.125 03/15/11 214,013
70 Omnicare, Inc. .................................. 6.125 06/01/13 70,525
360 Tenet Healthcare Corp. .......................... 6.500 06/01/12 346,950
140 Tenet Healthcare Corp. .......................... 7.375 02/01/13 141,400
------------
3,513,578
------------
HOUSING 9.7%
405 CB Richard Ellis Service, Inc. .................. 11.250 06/15/11 459,675
90 CBRE Escrow, Inc., 144A--Private Placement (a)... 9.750 05/15/10 100,350
455 LNR Property Corp. .............................. 7.625 07/15/13 481,163
135 LNR Property Corp., 144A--Private Placement
(a).............................................. 7.250 10/15/13 138,038
265 Louisiana Pacific Corp. ......................... 10.875 11/15/08 316,675
150 Meritage Corp. .................................. 9.750 06/01/11 168,375
80 Nortek Holdings, Inc. ........................... 9.250 03/15/07 82,600
410 Schuler Homes, Inc. ............................. 9.375 07/15/09 463,300
130 Technical Olympic USA, Inc. ..................... 9.000 07/01/10 140,400
170 Technical Olympic USA, Inc. ..................... 9.000 07/01/10 183,600
295 Technical Olympic USA, Inc. ..................... 10.375 07/01/12 331,875
675 Webb (Del E.) Corp. ............................. 10.250 02/15/10 721,406
------------
3,587,457
------------
INFORMATION TECHNOLOGY 5.6%
415 Avaya, Inc. ..................................... 11.125 04/01/09 487,625
325 Fairchild Semiconductor Corp. ................... 10.500 02/01/09 364,000
570 Iron Mountain, Inc. ............................. 8.625 04/01/13 618,450
215 Xerox Capital Europe PLC (United Kingdom)........ 5.875 05/15/04 218,225
365 Xerox Corp. ..................................... 7.125 06/15/10 392,375
------------
2,080,675
------------
8 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MANUFACTURING 7.6%
$ 315 ABB Finance, Inc. ............................... 6.750% 06/03/04 $ 302,497
411 Communications & Power Industries, Inc. ......... 12.000 08/01/05 422,303
115 Flowserve Corp. ................................. 12.250 08/15/10 133,975
395 Johnsondiversey, Inc. ........................... 9.625 05/15/12 442,400
500 Manitowoc, Inc. ................................. 10.500 08/01/12 571,875
390 Trimas Corp. .................................... 9.875 06/15/12 408,525
495 Tyco Intl Group S.A. (Luxembourg)................ 6.375 02/15/06 529,650
------------
2,811,225
------------
METALS 2.5%
142 Doe Run Resources Corp. (Acquired 02/15/01, Cost
$119,173) (e) (f) (h)............................ 11.750 11/01/08 49,732
155 General Cable Corp., 144A--Private Placement
(a).............................................. 9.500 11/15/10 166,625
900 GS Technologies Operating, Inc. (c) (d) (e)...... 12.250 10/01/05 0
325 UCAR Finance, Inc. .............................. 10.250 02/15/12 375,375
295 United States Steel Corp. ....................... 9.750 05/15/10 333,350
------------
925,082
------------
RETAIL 4.1%
96 Big 5 Corp. ..................................... 10.875 11/15/07 101,280
215 General Nutrition Centers, Inc., 144A--Private
Placement (a).................................... 8.500 12/01/10 221,450
480 Payless Shoesource, Inc. ........................ 8.250 08/01/13 464,400
60 Penney JC Co., Inc. ............................. 7.600 04/01/07 66,525
235 Penney JC Co., Inc. ............................. 8.000 03/01/10 270,544
345 Penney JC Co., Inc. ............................. 9.000 08/01/12 414,431
------------
1,538,630
------------
SERVICES 6.6%
1,140 Allied Waste North America, Inc. ................ 8.875 04/01/08 1,282,500
310 United Rentals North America, Inc., 144A--
Private Placement (a)............................ 7.750 11/15/13 318,138
750 Waste Management, Inc. .......................... 7.125 10/01/07 844,213
------------
2,444,851
------------
TELECOMMUNICATIONS 1.0%
355 Axtel S.A., 144A--Private Placement (Mexico)
(a).............................................. 11.000 12/15/13 363,875
220 Exodus Communications, Inc. (c) (d) (e).......... 11.250 07/01/08 0
------------
363,875
------------
TRANSPORTATION 8.7%
335 Autonation, Inc. ................................ 9.000 08/01/08 386,088
345 General Motors Acceptance Corp. ................. 7.500 07/15/05 370,908
320 Intermet Corp. .................................. 9.750 06/15/09 329,600
435 Laidlaw International, Inc., 144A--Private
Placement (a).................................... 10.750 06/15/11 493,725
See Notes to Financial Statements 9
YOUR TRUST'S INVESTMENTS
December 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TRANSPORTATION (CONTINUED)
$ 605 Lear Corp. ...................................... 8.110% 05/15/09 $ 714,656
305 Sonic Automotive, Inc. .......................... 8.625 08/15/13 323,300
115 Sonic Automotive, Inc., 144A--Private Placement
(a).............................................. 8.625 08/15/13 121,900
410 TRW Automotive, Inc. ............................ 9.375 02/15/13 470,475
------------
3,210,652
------------
UTILITY 10.4%
54 AES Corp. ....................................... 9.375 09/15/10 60,143
18 AES Corp. ....................................... 8.875 02/15/11 19,710
180 Allegheny Energy, Inc. .......................... 7.750 08/01/05 182,475
320 Calpine Corp. ................................... 8.625 08/15/10 251,200
165 Calpine Corp., 144A--Private Placement (a)....... 8.500 07/15/10 161,700
50 CMS Energy Corp. ................................ 7.500 01/15/09 51,750
295 CMS Energy Corp. ................................ 8.500 04/15/11 320,075
405 Dynegy Holdings, Inc. ........................... 6.875 04/01/11 375,131
295 Dynegy Holdings, Inc., 144A--Private Placement
(a).............................................. 9.875 07/15/10 333,350
170 IPALCO Enterprises, Inc. ........................ 8.625 11/14/11 190,825
350 Monongahela Power Co. ........................... 5.000 10/01/06 357,875
290 Nevada Power Co., 144A--Private Placement (a).... 9.000 08/15/13 322,263
475 PSEG Energy Holdings, Inc. ...................... 9.125 02/10/04 479,750
145 Southern Natural Gas Co. ........................ 8.875 03/15/10 163,850
305 TNP Enterprises, Inc. ........................... 10.250 04/01/10 333,975
200 Transcontinental Gas Pipe Line Corp. ............ 8.875 07/15/12 237,500
------------
3,841,572
------------
WIRELESS COMMUNICATIONS 2.9%
845 Nextel Communications, Inc. ..................... 9.375 11/15/09 925,275
143 Telecorp PCS, Inc. .............................. 10.625 07/15/10 167,229
------------
1,092,504
------------
TOTAL CORPORATE BONDS 162.4%................................................. 60,184,177
------------
GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 3.5%
405 Federal Republic of Brazil (Brazil).............. 11.250 07/26/07 475,875
140 Republic of Columbia (Columbia).................. 10.750 01/15/13 159,950
550 United Mexican States (Mexico)................... 8.625 03/12/08 649,000
------------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS............................ 1,284,825
------------
10 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003
MARKET
DESCRIPTION VALUE
EQUITIES 0.8%
DecisionOne Corp. (2,450 common shares) (e) (g).............................. $ 0
DecisionOne Corp. (5,386 common stock warrants) (e) (g)...................... 0
Dobson Communications Corp., 144A--Private Placement (215 convertible
preferred shares) (a)...................................................... 38,700
Doe Run Resources Corp. (1 common stock warrant) (e) (g)..................... 0
HCI Direct, Inc. (30,357 common shares) (e) (g).............................. 236,785
Hosiery Corp. of America, Inc. (500 common shares) (e) (g)................... 0
Pioneer Cos., Inc. (3,675 common shares) (g)................................. 29,951
VS Holdings, Inc. (8,891 common shares) (e) (g).............................. 1,660
------------
TOTAL EQUITIES............................................................... 307,096
------------
TOTAL LONG-TERM INVESTMENTS 166.7%
(Cost $61,159,407)......................................................... 61,776,098
REPURCHASE AGREEMENT 5.7%
State Street Bank & Trust Co. ($2,116,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 12/31/03, to be sold
on 01/02/04 at $2,116,100)
(Cost $2,116,000).......................................................... 2,116,000
------------
TOTAL INVESTMENTS 172.4%
(Cost $63,275,407)......................................................... 63,892,098
OTHER ASSETS IN EXCESS OF LIABILITIES 2.6%.................................. 959,443
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (75.0%).................. (27,800,859)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 37,050,682
============
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(b) Variable rate security. Interest rate shown is that in effect at December
31, 2003.
(c) Non-income producing as security is in default.
(d) This borrower has filed for protection in federal bankruptcy court.
(e) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(f) Payment-in-kind security.
See Notes to Financial Statements 11
YOUR TRUST'S INVESTMENTS
December 31, 2003
(g) Non-income producing security.
(h) 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.
12 See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2003
ASSETS:
Total Investments (Cost $63,275,407)........................ $ 63,892,098
Receivables:
Interest.................................................. 1,300,500
Investments Sold.......................................... 244,181
Other....................................................... 818
------------
Total Assets.......................................... 65,437,597
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 243,191
Income Distributions--Common Shares....................... 47,973
Investment Advisory Fee................................... 38,399
Other Affiliates.......................................... 4,808
Trustees' Deferred Compensation and Retirement Plans........ 172,656
Accrued Expenses............................................ 79,029
------------
Total Liabilities..................................... 586,056
Preferred Shares (including accrued distributions).......... 27,800,859
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 37,050,682
============
NET ASSET VALUE PER COMMON SHARE ($37,050,682 divided by
8,109,000 shares outstanding)............................. $ 4.57
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 8,109,000 shares issued and
outstanding).............................................. $ 81,090
Paid in Surplus............................................. 64,211,338
Net Unrealized Appreciation................................. 616,691
Accumulated Undistributed Net Investment Income............. (613,037)
Accumulated Net Realized Loss............................... (27,245,400)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 37,050,682
============
PREFERRED SHARES
($.01 par value, authorized 100,000,000 shares, 1,112 issued
with liquidation preference of $25,000 per share)......... $ 27,800,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $ 64,850,682
============
See Notes to Financial Statements 13
Statement of Operations
For the Year Ended December 31, 2003
INVESTMENT INCOME:
Interest.................................................... $ 4,962,914
Dividends................................................... 365
Other....................................................... 8,018
------------
Total Income............................................ 4,971,297
------------
EXPENSES:
Investment Advisory Fee..................................... 433,883
Preferred Share Maintenance................................. 80,274
Trustees' Fees and Related Expenses......................... 48,362
Audit....................................................... 44,048
Shareholder Services........................................ 38,690
Legal....................................................... 16,768
Custody..................................................... 14,882
Other....................................................... 92,572
------------
Total Expenses.......................................... 769,479
------------
NET INVESTMENT INCOME....................................... $ 4,201,818
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (5,545,510)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (11,068,264)
End of the Period......................................... 616,691
------------
Net Unrealized Appreciation During the Period............... 11,684,955
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,139,445
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (325,692)
============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 10,015,571
============
14 See Notes to Financial Statements
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
--------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 4,201,818 $ 4,855,716
Net Realized Loss.................................... (5,545,510) (8,628,105)
Net Unrealized Appreciation During the Period........ 11,684,955 1,421,734
Distributions to Preferred Shareholders:
Net Investment Income.............................. (317,415) (526,962)
Return of Capital Distribution..................... (8,277) (38,780)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations......................................... 10,015,571 (2,916,397)
Distributions to Common Shareholders:
Net Investment Income.............................. (3,587,601) (4,682,374)
Return of Capital Distribution..................... (93,545) (344,582)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES......................... 6,334,425 (7,943,353)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.............................. 30,716,257 38,659,610
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of ($613,037)
and ($1,036,698), respectively).................... $37,050,682 $30,716,257
=========== ===========
See Notes to Financial Statements 15
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------
2003 2002 2001 (C)
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 3.79 $ 4.77 $ 5.40
------- ------- -------
Net Investment Income.................................... .52 .60 .90
Net Realized and Unrealized Gain/Loss.................... .75 (.89) (.61)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income.................................. (.04) (.07) (.18)
Return of Capital Distributions........................ -0-* -0-* -0-*
------- ------- -------
Total from Investment Operations........................... 1.23 (.36) .11
Distributions Paid to Common Shareholders:
Net Investment Income.................................. (.44) (.58) (.73)
Return of Capital Distributions........................ (.01) (.04) (.01)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......................... $ 4.57 $ 3.79 $ 4.77
======= ======= =======
Common Share Market Price at End of the Period............. $ 5.08 $ 4.07 $ 5.75
Total Return (a)........................................... 37.20% -19.86% 13.57%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................ $ 37.1 $ 30.7 $ 38.7
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (b)........................................ 2.25% 2.28% 2.14%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b).......................... 12.29% 14.50% 16.83%
Portfolio Turnover......................................... 74% 81% 63%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (b)............................................... 1.24% 1.18% 1.15%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).......................... 11.34% 12.93% 13.40%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......................... 1,112 1,112 1,360
Asset Coverage Per Preferred Share (e)..................... $58,320 $52,652 $53,426
Involuntary Liquidating Preference Per Preferred Share..... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share................... $25,000 $25,000 $25,000
* Amount is less than $.01.
(a) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(b) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(c) As required, effective January 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the period ended December 31, 2001 was to decrease net investment income per
share by $.02, increase net realized and unrealized gains and losses per
share by $.02 and decrease the ratio of net investment income to average net
assets applicable to common shares by .40%. Per share, ratios and
supplemental data for periods prior to December 31, 2001 have not been
restated to reflect this change in presentation.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
16
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
$ 6.56 $ 7.59 $ 8.44 $ 8.31 $ 8.12 $ 7.32 $ 8.98
------- ------- -------- -------- -------- -------- --------
1.10 1.14 1.18 1.20 1.23 1.27 1.28
(1.11) (1.00) (.77) .18 .21 .81 (1.53)
(.33) (.27) (.30) (.29) (.29) (.32) (.23)
-0-* -0- -0- -0- -0- -0- -0-
------- ------- -------- -------- -------- -------- --------
(.34) (.13) .11 1.09 1.15 1.76 (.48)
(.76) (.90) (.96) (.96) (.96) (.96) (1.18)
(.06) -0- -0- -0- -0- -0- -0-
------- ------- -------- -------- -------- -------- --------
$ 5.40 $ 6.56 $ 7.59 $ 8.44 $ 8.31 $ 8.12 $ 7.32
======= ======= ======== ======== ======== ======== ========
$ 5.69 $ 5.75 $ 8.625 $ 9.8125 $ 9.375 $ 8.75 $ 7.50
12.13% -25.28% -2.73% 15.34% 18.91% 30.33% -12.94%
$ 43.8 $ 53.2 $ 61.6 $ 68.4 $ 67.4 $ 65.8 $ 59.4
2.03% 1.97% 1.92% 1.83% 1.89% 1.96% 1.97%
18.16% 16.32% 14.54% 14.43% 15.19% 16.19% 15.75%
40% 56% 65% 98% 94% 124% 125%
1.07% 1.10% 1.14% 1.10% 1.12% 1.15% 1.17%
12.66% 12.41% 10.85% 10.93% 11.58% 12.09% 12.87%
1,520 1,800 900 900 900 900 900
$53,812 $54,557 $118,418 $126,015 $124,849 $123,135 $115,957
$25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements 17
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003
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.
Effective November 30, 2003, the Trust's investment adviser, Van Kampen
Investment Advisory Corp. merged into its affiliate, Van Kampen Asset
Management.
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 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.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute
18
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003
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, 2003, the Trust had an accumulated capital loss
carryforward for tax purposes of $25,739,010 which expires between December 31,
2007 and December 31, 2011.
At December 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $63,616,117
===========
Gross tax unrealized appreciation........................... $ 4,435,643
Gross tax unrealized depreciation........................... (4,159,662)
-----------
Net tax unrealized appreciation on investments.............. $ 275,981
===========
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,
2003 and 2002 was as follows:
2003 2002
Distributions paid from:
Ordinary income........................................... $3,889,082 $5,224,881
Return of capital......................................... 101,822 383,362
---------- ----------
$3,990,904 $5,608,243
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting for the 2003 fiscal year have been
identified and appropriately reclassified. Permanent differences of $132,940
relating to book to tax amortization differences were reclassified from
accumulated undistributed net investment income to accumulated net realized
loss, $5,860 relating to fee income received from tender offers were
reclassified from accumulated undistributed net investment income to accumulated
net realized loss, $101,601 relating to return of capital distributions were
reclassified from accumulated undistributed net investment income to paid in
surplus, and $2,448,303 relating to a portion of the capital loss carry forward
that expired during the tax year ended December 31, 2003, were reclassified from
accumulated net realized loss to paid in surplus.
19
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003
Net realized gains or losses may differ for financial reporting and tax
purposes as a result of post-October losses of $1,506,389 which are not
recognized for tax purposes until the first day of the following year.
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, 2003, the Trust recognized expenses of
approximately $4,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended December
31, 2003, the Trust recognized expenses of approximately $23,800 representing
Van Kampen Investments Inc.'s or its affiliates (collectively "Van Kampen") cost
of providing accounting and legal services to the Trust, which are reported as
part of "Other" and "Legal" expenses, respectively, in the Statement of
Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments were $43,360,860 and $43,510,470, respectively.
4. AUCTION PREFERRED SHARES
As of December 31, 2003, the Trust has outstanding 1,112 Auction Preferred
Shares ("APS"). Dividends are cumulative and the dividend rate is currently
reset every 28 days through an auction process. The rate in effect on December
31, 2003 was 1.128%. During the year ended December 31, 2003, the rates ranged
from 0.95% to 1.39%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
20
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to December 31, 2000, were audited by other auditors whose report, dated
February 4, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the Trust's
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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, 2003, the results of its
operations, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 6, 2004
21
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. All Common Shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate. Common Shareholders who elect not to
participate in the Plan will receive all distributions of dividends and capital
gains in cash paid by check mailed directly to the Common Shareholder by the
Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
22
RIGHT TO WITHDRAW
All Common Shareholders of the Trust are deemed to be participants in the
Plan unless they specifically elect not to participate. You may withdraw from
the Plan at any time by calling 1-800-341-2929 or by writing State Street Bank
and Trust Company. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan, and a cash payment will be made for any fractional
Common Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
2800 Post Oak Blvd.
Houston, TX 77056
Attn: Closed-End Funds
23
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUSAN H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
24
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
Inc. ("Van Kampen Investments"), Van Kampen Asset Management ("Asset Management"
or the "Adviser"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen
Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services Inc.
("Investor Services"). The term "Fund Complex" includes each of the investment
companies advised by the Adviser or its affiliates as of the date of this
Statement of Additional Information. Trustees serve until reaching their
retirement age or until their successors are duly elected and qualified.
Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 88 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. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
J. Miles Branagan (71) Trustee Trustee Private investor. 86 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
25
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
Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 86 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.
26
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 (63) Trustee Trustee President of CAC, llc., a 88 Trustee/Director/Managing
CAC, llc. since 1989 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of Stericycle,
San Diego, CA 92122-6223 services. Prior to July Inc., TheraSense, Inc.,
2000, Managing Partner of Ventana Medical Systems,
Equity Group Corporate Inc., GATX Corporation
Investment (EGI), a and Trustee of The
company that makes Scripps Research
private investments in Institute and the
other companies. University of Chicago
Hospitals and Health
Systems. Prior to January
2004, Director of
TeleTech Holdings Inc.
and Arris Group, Inc.
Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
February 2001, Vice
Chairman and Director of
Anixter International,
Inc. and 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). Prior to April
1999, Director of Metal
Management, Inc.
27
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 (55) Trustee Trustee Managing Partner of 86 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (51) Trustee Trustee Director and President of 86 Trustee/Director/Managing
11 DuPont Circle, N.W. since 2003 the German Marshall Fund General Partner of funds
Washington, D.C. 20016 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 (68) Trustee Trustee Prior to 1998, President 88 Trustee/Director/Managing
736 North Western Avenue since 1992 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
28
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 (67) Trustee Trustee President of Nelson 86 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 (63) Trustee Trustee President Emeritus and 88 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, P.H.D. Trustee Trustee Currently with Paladin 86 Trustee/Director/Managing
(62) since 2003 Capital Group-Paladin General Partner of funds
2001 Pennsylvania Avenue Homeland Security Fund in the Fund Complex.
Suite 400 since November 2003. Director of Neurogen
Washington, DC 20006 Previously, Chief Corporation, a
Communications Officer of pharmaceutical company,
the National Academy of since January 1998.
Sciences/National
Research Council, an
independent, federally
chartered policy
institution, since 2001
and Chief Operating
Officer from 1993 to
2001. Director of the
Institute for Defense
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, 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.
29
INTERESTED TRUSTEES:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (50) Trustee, Trustee President and Chief 86 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
30
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
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 88 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 88 Trustee/Director/Managing
333 West Wacker Drive since 1989 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
31
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
Stephen L. Boyd (63) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Adviser and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Adviser and Van Kampen Advisors Inc. Prior to December 2000,
Executive Vice President and Chief Investment Officer of Van
Kampen Investments, and President and Chief Operating
Officer of the Adviser. Prior to April 2000, Executive Vice
President and Chief Investment Officer for Equity
Investments of the Adviser. Prior to October 1998, Vice
President and Senior Portfolio Manager with AIM Capital
Management, Inc. Prior to February 1998, Senior Vice
President and Portfolio Manager of Van Kampen American
Capital Asset Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American Capital
Management, Inc.
Stefanie V. Chang (37) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Adviser and Van Kampen
Advisors Inc. since December 2002.
32
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 R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Adviser
1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 the Fixed Income Department of the Adviser and Van Kampen
Advisors Inc. Prior to December 2000, Senior Vice President
of the Adviser and Van Kampen Advisors Inc. Prior to May
2000, Senior Vice President of the investment grade taxable
group for the Adviser. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
Ronald E. Robison (65) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (47) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the Adviser,
New York, NY 10020 Van Kampen Advisors Inc., the Distributor, Investor Services
and certain other subsidiaries of Van Kampen Investments.
Managing Director and General Counsel-Mutual Funds of Morgan
Stanley Investment Advisors, Inc. Vice President and
Secretary of funds in the Fund Complex. Prior to July 2001,
Managing Director, General Counsel, Secretary and Director
of Van Kampen Investments, the Adviser, the Distributor,
Investor Services, and certain other subsidiaries of Van
Kampen Investments. Prior to December 2000, Executive Vice
President, General Counsel, Secretary and Director of Van
Kampen Investments, the Adviser, Van Kampen Advisors Inc.,
the Distributor, Investor Services and certain other
subsidiaries of Van Kampen Investments. Prior to January
1999, Vice President and Associate General Counsel to New
York Life Insurance Company ("New York Life"), and prior to
March 1997, Associate General Counsel of New York Life.
Prior to December 1993, Assistant General Counsel of The
Dreyfus Corporation. Prior to August 1991, Senior Associate,
Willkie Farr & Gallagher. Prior to January 1989, Staff
Attorney at the Securities and Exchange Commission, Division
of Investment Management, Office of Chief Counsel.
33
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 (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 1996 the Adviser, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Adviser and Van
Kampen Advisors Inc.
34
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen Asset Management, Van
Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services
Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the
many Van Kampen mutual funds and Van Kampen unit investment trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 920, 913, 100
VLT ANR 2/04 13580B04-AS-2/04
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 not amended its Code of Ethics during the period covered by
the shareholder report presented in Item 1 hereto.
(d) The Trust has not granted a waiver or an implicit waiver from a provision of
its Code of Ethics.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : J. Miles Branagan, 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:
2003
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES........................... $38,135 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES......... $ 750 $230,000 (2)
TAX FEES................... $ 1,500 (3) $ 0 (4)
ALL OTHER FEES............. $ 0 $ 0
TOTAL NON-AUDIT FEES................. $ 2,250 $230,000
TOTAL................................ $40,385 $230,000
2002
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES........................... $36,000 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES......... $ 3,000 $95,000 (2)
TAX FEES................... $ 1,500 (3) $ 0 (4)
ALL OTHER FEES............. $ 0 $ 0
TOTAL NON-AUDIT FEES................. $ 4,500 $95,000
TOTAL................................ $40,500 $95,000
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 assurance and related services
provided that are reasonably related to the performance of the
audit of Covered Entities' financial statements.
(3) Tax Fees represent tax compliance services provided in
connection with the review of the Registrant's tax returns.
(4) Tax Fees represent tax compliance services provided in
connection with the review of Covered Entities' tax returns.
(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(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 from the Audit Committee.
--------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval
Policy and Procedures (the "Policy"), adopted as of the date above,
supercedes and replaces all prior versions that may have been
adopted 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.
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 following Audit services. All
other Audit services not listed below must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated):
- Statutory audits or financial audits for the Fund
- Services associated with SEC registration statements (including new
funds), periodic reports and other documents filed with the SEC or
other documents issued in connection with securities offerings (e.g.,
comfort letters for closed-end fund offerings, consents), and
assistance in responding to SEC comment letters
- Consultations by the Fund's management as to the accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB, or other regulatory or standard
setting bodies (Note: Under SEC rules, some consultations may be
"audit related" services rather than "audit" services)
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 following Audit-related
services. All other Audit-related services not listed below must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated):
- Attest procedures not required by statute or regulation (including
agreed upon procedures related to the Closed-End Fund asset coverage
tests required by the rating agencies and/or lenders)
- Due diligence services pertaining to potential fund mergers
- Issuance of SAS-70 reports on internal controls of Morgan Stanley
Trust Co. and MSIM Trade Operations
- Consultations by the Fund's management as to the accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB, or other regulatory or
standard-setting bodies (Note: Under SEC rules, some consultations may
be "audit" services rather than "audit-related" services)
- Information systems reviews not performed in connection with the audit
(e.g., application data center and technical reviews)
- General assistance with implementation of the requirements of SEC
rules or listing standards promulgated pursuant to the Sarbanes-Oxley
Act
- Audit of record keeping services performed by Morgan Stanley Trust
Fund related to the New Jersey State Retirement Plan
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 following Tax Services. All Tax services involving large and
complex transactions not listed below 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):
- U.S. federal, state and local tax planning and advice
- U.S. federal, state and local tax compliance
- International tax planning and advice
- International tax compliance
- Review of federal, state, local and international income, franchise,
and other tax returns
- Identification of Passive Foreign Investment Companies
- Review of closed-end funds pro rata allocation of taxable income and
capital gains to common and preferred shares.
- Domestic and foreign tax planning, compliance, and advice
- Assistance with tax audits and appeals before the IRS and similar
state, local and foreign agencies
- Tax advice and assistance regarding statutory, regulatory or
administrative developments (e.g., excise tax reviews, evaluation of
Fund's tax compliance function)
- Review the calculations of taxable income from corporate actions
including reorganizations related to bankruptcy filings and provide
guidance related to the foregoing
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 following All Other services.
Permissible All Other services not listed below must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated):
- Risk management advisory services, e.g., assessment and testing of
security infrastructure controls
The following is a list of the SEC's prohibited non-audit services. 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:
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions
- Human resources
- Broker-dealer, investment adviser or investment banking services
- Legal services
- Expert services unrelated to the audit
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. 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 Investment Advisory Corporation
- Van Kampen Asset Management Inc.
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Trust Company
- Van Kampen Investor Services Inc.
- Van Kampen Management Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Investments LP
- Morgan Stanley Trust Company
(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 (attached hereto).
(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.
Not applicable.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust's and its investment advisor's Proxy Voting Policies and Procedures
are as follows:
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
Proxy Research Services - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and recordkeeping.
MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor
and supervise the services provided by the proxy research services.
Voting Proxies for certain Non-US Companies - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals
are generally voted in support of management, subject to the
review and approval of the Proxy Review Committee, as
appropriate.
o Selection or ratification of auditors.
o Approval of financial statements, director and
auditor reports.
o Election of Directors.
o Limiting Directors' liability and broadening
indemnification of Directors.
o Requirement that a certain percentage (up to 66 2/3%)
of its Board's members be comprised of independent
and unaffiliated Directors.
o Requirement that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
o Recommendations to set retirement ages or require
specific levels of stock ownership by Directors.
o General updating/corrective amendments to the
charter.
o Elimination of cumulative voting.
o Elimination of preemptive rights.
o Provisions for confidential voting and independent
tabulation of voting results.
o Proposals related to the conduct of the annual
meeting except those proposals that relate to the
"transaction of such other business which may come
before the meeting."
2. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on a
shareholder, are generally voted in support of management,
subject to the review and approval of the Proxy Review
Committee, as appropriate.
Capitalization changes
o Capitalization changes that eliminate other classes
of stock and voting rights.
o 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.
o Proposals to create a new class of preferred stock or
for issuances of preferred stock up to 50% of issued
capital.
o Proposals for share repurchase plans.
o Proposals to reduce the number of authorized shares
of common or preferred stock, or to eliminate classes
of preferred stock.
o Proposals to effect stock splits.
o Proposals to effect reverse stock splits if
management proportionately reduces the authorized
share amount set forth in the corporate charter.
Reverse stock splits that do not adjust
proportionately to the authorized share amount will
generally be approved if the resulting increase in
authorized shares coincides with the proxy guidelines
set forth above for common stock increases.
Compensation
o Director fees, provided the amounts are not excessive
relative to other companies in the country or
industry.
o 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.
o Establishment of Employee Stock Option Plans and
other employee ownership plans.
Anti-Takeover Matters
o Modify or rescind existing supermajority vote
requirements to amend the charters or bylaws.
o Adoption of anti-greenmail provisions provided that
the proposal: (i) defines greenmail; (ii) prohibits
buyback offers to large block holders not made to all
shareholders or not approved by disinterested
shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights
of shareholders.
3. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on the
shareholder, are generally voted against (notwithstanding
management support), subject to the review and approval of the
Proxy Review Committee, as appropriate.
o Capitalization changes that add classes of stock
which substantially dilute the voting interests of
existing shareholders.
o Proposals to increase the authorized number of shares
of existing classes of stock that carry preemptive
rights or supervoting rights.
o Creation of "blank check" preferred stock.
o Changes in capitalization by 100% or more.
o Compensation proposals that allow for discounted
stock options that have not been offered to employees
in general.
o Amendments to bylaws that would require a
supermajority shareholder vote to pass or repeal
certain provisions.
o Proposals to indemnify auditors.
4. The following types of non-routine proposals, which
potentially may have a potential financial or best interest
impact on an issuer, are voted as determined by the Proxy
Review Committee.
Corporate Transactions
o Mergers, acquisitions and other special corporate
transactions (i.e., takeovers, spin-offs, sales of
assets, reorganizations, restructurings and
recapitalizations) will be examined on a case-by-case
basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates'
research and analysis, based on, among other things,
MSIM internal company-specific knowledge.
o 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.
o Shareholders rights plans that allow appropriate
offers to shareholders to be blocked by the board or
trigger provisions that prevent legitimate offers
from proceeding.
o Executive/Director stock option plans. Generally,
stock option plans should meet the following
criteria:
(i) Whether the stock option plan is incentive
based;
(ii) For mature companies, should be no more than
5% of the issued capital at the time of
approval;
(iii) For growth companies, should be no more than
10% of the issued capital at the time of
approval.
Anti-Takeover Provisions
o Proposals requiring shareholder ratification of
poison pills.
o Anti-takeover and related provisions that serve to
prevent the majority of shareholders from exercising
their rights or effectively deter the appropriate
tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported,
subject to the review and approval of the Proxy Review
Committee, as appropriate:
o Requiring auditors to attend the annual meeting of
shareholders.
o Requirement that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
o Requirement that a certain percentage of its Board's
members be comprised of independent and unaffiliated
Directors.
o Confidential voting.
o Reduction or elimination of supermajority vote
requirements.
2. The following shareholder proposals will be voted as
determined by the Proxy Review Committee.
o Proposals that limit tenure of directors.
o Proposals to limit golden parachutes.
o Proposals requiring directors to own large amounts of
stock to be eligible for election.
o Restoring cumulative voting in the election of
directors.
o Proposals that request or require disclosure of
executive compensation in addition to the disclosure
required by the Securities and Exchange Commission
("SEC") regulations.
o Proposals that limit retirement benefits or executive
compensation.
o Requiring shareholder approval for bylaw or charter
amendments.
o Requiring shareholder approval for shareholder rights
plan or poison pill.
o Requiring shareholder approval of golden parachutes.
o Elimination of certain anti-takeover related
provisions.
o Prohibit payment of greenmail.
3. The following shareholder proposals are generally not
supported, subject to the review and approval of the
Committee, as appropriate.
o Requirements that the issuer prepare reports that are
costly to provide or that would require duplicative
efforts or expenditures that are of a non-business
nature or would provide no pertinent information from
the perspective of institutional shareholders.
o Restrictions related to social, political or special
interest issues that impact the ability of the
company to do business or be competitive and that
have a significant financial or best interest impact
to the shareholders.
o Proposals that require inappropriate endorsements or
corporate actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
Following are some of the functions and responsibilities of
the Committee.
(a) The Committee, which will consist of members
designated by MSIM's Chief Investment Officer, is
responsible for establishing MSIM's proxy voting
policies and guidelines and determining how MSIM will
vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the
authority to amend as necessary MSIM's proxy voting
policies and guidelines (as expressed in these Proxy
Voting Policy and Procedures) and establish and
direct voting positions consistent with the Client
Proxy Standard.
(c) The Committee will meet at least monthly to (among
other matters): (1) address any outstanding issues
relating to MSIM's Proxy Voting Policy and
Procedures; and (2) generally review proposals at
upcoming shareholder meetings of MSIM portfolio
companies in accordance with this Policy and
Procedures including, as appropriate, the voting
results of prior shareholder meetings of the same
issuer where a similar proposal was presented to
shareholders. The Committee, or its designee, will
timely communicate to ISS MSIM's Proxy Voting Policy
and Procedures (and any amendments to them and/or any
additional guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among
other matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are
the subject of the same proxy solicitation and held
by one or more MSIM portfolios to be voted
differently than other shares) and/or "override
voting" (i.e., voting all MSIM portfolio shares in a
manner contrary to the Procedures); (2) review and
approve upcoming votes, as appropriate, for matters
for which specific direction has been provided in
Sections I, II, and III above; and (3) determine how
to vote matters for which specific direction has not
been provided in Sections I, II and III above. Split
votes will generally not be approved within a single
Global Investor Group team. The Committee may take
into account ISS recommendations and the research
provided by IRRC as well as any other relevant
information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of
interest, the Committee will designate a special
committee to review, and recommend a course of action
with respect to, the conflict(s) in question
("Special Committee"). The Special Committee may
request the assistance of the Law and Compliance
Departments and will have sole discretion to cast a
vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special
Committee, or their designee(s) for a period of at
least 6 years. To the extent these decisions relate
to a security held by a MSIM U.S. registered
investment company, the Committee and Special
Committee, or their designee(s), will report their
decisions to each applicable Board of
Trustees/Directors of those investment companies at
each Board's next regularly Scheduled Board meeting.
The report will contain information concerning
decisions made by the Committee and Special Committee
during the most recently ended calendar quarter
immediately preceding the Board meeting.
The Committee and Special Committee, or their designee(s), will timely
communicate to applicable PMs, the Compliance Departments and, as necessary to
ISS, decisions of the Committee and Special Committee so that, among other
things, ISS will vote proxies consistent with their decisions.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen High Income Trust II
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: February 18, 2004
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 18, 2004
By: /s/ John L. Sullivan
--------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: February 18, 2004