UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5769
Van Kampen High Income Trust II
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(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
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(Address of principal executive offices) (Zip code)
Ronald Robison
522 Fifth Avenue, New York, New York 10036
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 12/31
Date of reporting period: 6/30/07
Item 1. Report to Shareholders.
The Trust's semi-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 semiannual 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 June 30, 2007.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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Performance Summary as of 6/30/2007
HIGH INCOME TRUST II
SYMBOL: VLT
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AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (4/28/89) 5.58% 5.26%
10-year 3.54 1.30
5-year 10.63 4.72
1-year 10.89 13.07
6-month 1.42 2.53
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities and preferred shares, by
the total number of common shares outstanding. The common share market price is
the price the market is willing to pay for shares of the trust at a given time.
Common share market price is influenced by a range of factors, including supply
and demand and market conditions. Total return assumes an investment at the
beginning of the period, reinvestment of all distributions for the period in
accordance with the trust's dividend reinvestment plan, and sale of all shares
at the end of the period. The trust's adviser has waived or reimbursed fees and
expenses from time to time; absent such waivers/ reimbursements the trust's
returns would have been lower.
The Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index is an
unmanaged, broad based index that reflects the general performance of the U.S.
dollar denominated, fixed-rate, non-investment grade, taxable corporate bond
market. Issuers are capped at 2% of the index. It is not possible to invest
directly in an index.
1
Trust Report
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2007
MARKET CONDITIONS
Moderate economic growth, accommodating Treasury yields, low defaults and
reasonably good earnings combined to push high-yield debt prices higher during
the first quarter of 2007. As a result, spreads tightened by two basis points
for the quarter to close at 297 basis points over Treasuries, and the high-
yield sector outperformed both equities and Treasuries. During that time,
investors seemed confident that slower, but moderate economic growth and lower
interest rates would continue to be positive for high-yield companies. In the
second quarter, however, the high-yield market faced a host of headwinds,
including higher volatility, rising interest rates, ongoing problems in the sub-
prime mortgage market, and heavy new issue supply. The new issue calendar was
particularly heavy in May and June and included many aggressive, lower-rated
deals, some of which had to be postponed late in the quarter due to market
conditions and a general lack of interest. These factors contributed to a
decline in high-yield prices in June and only a slightly positive return for the
sector for the overall quarter. Nonetheless, high-yield still outperformed
Treasuries for the quarter, but underperformed equities. Spreads widened by 18
basis points to close the period 16 basis points wider than at the beginning of
the year, but still much tighter than they have historically been. These tight
spreads generally reflected many factors that remained positive for the high-
yield market, including very low default rates, moderate economic growth, global
demand for high yield, and solid corporate earnings.
The Federal Open Market Committee (the "Fed") left the target federal funds rate
unchanged at 5.25 percent throughout the reporting period, but stated that
inflation risks still remain a concern. Early in the year, when first-quarter
gross domestic product (GDP) growth slowed to just 0.7 percent, the market began
to speculate that the Fed might ease monetary policy and reduce the federal
funds rate, but as the economic outlook began to improve and inflation began to
moderate, these expectations dissipated as it became apparent the Fed would
remain on hold.
The high-yield market benefited from ongoing strong demand as investors
continued to reach for yield. As such, CCC rated securities outperformed
higher-quality issues for the overall period. Industry returns varied
considerably, but for the overall period, transportation services, wireless
communications, and cable turned in the best performance while finance
companies, home construction, and utilities were the worst performers.
2
PERFORMANCE ANALYSIS
The Trust's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the Trust's portfolio securities, cash and other assets, less all
liabilities and preferred shares, by the total number of common shares
outstanding, while market price reflects the supply and demand for the shares.
As a result, the two returns can differ, as they did during the reporting
period. The Trust underperformed its benchmark index, the Lehman Brothers U.S.
Corporate High Yield 2% Issuer Cap Index, on both an NAV and market price basis.
TOTAL RETURNS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2007
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LEHMAN BROTHERS
U.S. CORPORATE HIGH
BASED BASED ON YIELD 2% ISSUER
ON NAV MARKET PRICE CAP INDEX
1.42% 2.53% 2.96%
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Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. Investment return, net asset value and common share market price will
fluctuate and Trust shares, when sold, may be worth more or less than their
original cost. See Performance Summary for additional performance information
and index definition.
Although high-yield spreads widened in the latter months of the reporting
period, they still remained tight by historical standards. As such, we continue
to believe there is a strong likelihood that spreads will widen, which led us to
maintain the Trust's higher credit-rating profile. Although this defensive
positioning was beneficial late in the period when spreads widened, it detracted
from performance for the overall period as lower-quality bonds generally
outperformed.
The Trust's interest-rate positioning was also somewhat defensive as we
maintained a lower relative duration (a measure of interest rate sensitivity)
throughout the period. During the first quarter of the year, this positioning
dampened performance as interest rates generally declined. In the second
quarter, however, interest rates rose and the lower duration proved additive to
returns. As a result, the Trust's duration had a minimal impact on performance
for the overall period.
Strong security selection in various sectors, including energy and utilities,
added to relative returns, as did an underweight to the buildings products/home
builders sector early in the period. Conversely, security selection in
auto/vehicle parts and telecommunication services detracted from performance.
We continued to seek to maintain a balanced and well-diversified portfolio while
allowing for strategic overweights in securities and sectors that we believed
possessed the most attractive risk profiles. In terms of issuer size, we
3
focus on larger companies because of their financial flexibility, their ability
to withstand less favorable financial conditions, and their superior access to
capital markets. These strategies led to major sector overweights in the energy,
health care, and food and tobacco sectors as of the end of the period. The
largest sectors underweights were in technology, cable, telecom, and media.
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. During the course of the
period, the Trust's borrowing activity became more expensive, thereby tempering
its benefits.
The Trustees have approved a procedure whereby the trust may, when appropriate,
repurchase its shares in the open market or in privately negotiated transactions
at a price not above market value or NAV, whichever is lower at the time of
purchase. This may help support the market value of the trust's shares.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Trust in
the future.
CHANGES IN INVESTMENT POLICIES/PORTFOLIO MANAGER CHANGE
The fund approved changes/clarifications in its investment policies to allow the
fund to enter into the following transactions.
OPTIONS ON SWAPS. The fund may write (sell) and purchase put and call swap
options. A swap option is a contract that gives a counterparty the right (but
not the obligation) to enter into a new swap agreement or to shorten, extend,
cancel or otherwise modify an existing swap agreement, at some designated future
time on specified terms. The Fund may use swap options for hedging purposes or
to manage and mitigate the credit and interest rate risk of the fund.
A swap option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise modify an existing swap agreement, at some designated future time on
specified terms. The fund may write (sell) and purchase put and call swap
options. The use of swap options involves risks, including, among others,
changes in the market value of securities held by the fund, and of swap options
relating to those securities may not be proportionate, (ii) there may not be a
liquid market for the fund to sell a swap option, which could result in
difficulty closing a position, (iii) swap options can magnify the extent of
losses incurred due to changes in the market value of the securities to which
they relate and (iv) counterparty risk.
4
PORTFOLIO MANAGER CHANGE
The fund is managed by members of the Adviser's Taxable Fixed Income team. The
Taxable Fixed Income team consists of portfolio managers and analysts. The
current member of the team primarily responsible for the day-to-day management
and the execution of the overall strategy of the Fund's portfolio is Steven K.
Kreider, a Managing Director of the Adviser. Mr. Kreider has been associated
with the Adviser in an investment management capacity since 1988 and joined the
team that manages the fund in June 2007.
5
RATINGS ALLOCATION AS OF 6/30/07
BBB/Baa 11.2%
BB/Ba 39.5
B/B 47.3
CCC/Ccc 2.0
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 6/30/2007
Health Care 11.0%
Energy 9.4
Transportation 9.0
Gaming & Leisure 8.2
Food & Tobacco 6.9
Utility 6.0
Telecommunications 5.0
Chemicals 4.9
Cable 4.6
Forest Products 3.9
Diversified Media 3.3
Manufacturing 3.2
Retail 3.2
Wireless Communications 3.0
Metals 2.0
Services 2.0
Information Technology 1.7
Financial 1.6
Broadcasting 1.6
Aerospace 1.6
Consumer Products 1.5
Housing 1.1
Food & Drug 0.8
Integrated Telecommunication Services 0.0*
Apparel, Accessories & Luxury Goods 0.0*
Highways & Railtracks 0.0*
IT Consulting & Other Services 0.0*
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Total Long-Term Investments 95.5
Total Short-Term Investments 4.5
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Total Investments 100.0%
* Amount is less than 0.1%
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Ratings allocation percentages are as a
percentage of long-term debt investments. Summary of investments by industry
classification percentages are as a percentage of total investments. Securities
are classified by sectors that represent broad groupings of related industries.
Ratings allocations based upon ratings as issued by Standard and Poor's and
Moody's, respectively. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
6
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Van Kampen
also delivers the semiannual and annual reports to trust shareholders,
and makes these reports available on its public Web site,
www.vankampen.com. In addition to the semiannual and annual reports that
Van Kampen delivers to shareholders and makes available through the Van
Kampen public Web site, each trust files a complete schedule of portfolio
holdings with the SEC for the trust's first and third fiscal quarters on
Form N-Q. Van Kampen does not deliver the reports for the first and third
fiscal quarters to shareholders, nor are the reports posted to the Van
Kampen public Web site. You may, however, obtain the Form N-Q filings (as
well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web
site, http://www.sec.gov. You may also review and copy them at the SEC's
Public Reference Room in Washington, D.C. Information on the operation of
the SEC's Public Reference Room may be obtained by calling the SEC at
(800) SEC-0330. You can also request copies of these materials, upon
payment of a duplicating fee, by electronic request at the SEC's e-mail
address (publicinfo@sec.gov) or by writing the Public Reference section
of the SEC, Washington, DC 20549-0102.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 341-2929.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, the fund makes portfolio holdings information
available by periodically providing the information on its public web
site, www.vankampen.com. The fund provides a complete schedule of
portfolio holdings on the public web site on a calendar-quarter basis
approximately 31 calendar days after the close of the calendar quarter.
The fund also provides Top 10 holdings information on the public web site
approximately 15 business days following the end of each month. For more
information, call (800) 341-2929.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 341-2929 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the Trust voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge by visiting our Web site at www.vankampen.com.
This information is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
7
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
At meetings held on April 17, 2007 and May 30, 2007, the Board of Trustees, and
the independent trustees voting separately, considered and ultimately determined
that the terms of the investment advisory agreement are fair and reasonable and
approved the continuance of the investment advisory agreement as being in the
best interests of the Fund and its shareholders. In making its determination,
the Board of Trustees considered materials that were specifically prepared by
the investment adviser at the request of the Board and Fund counsel, and by an
independent provider of investment company data contracted to assist the Board,
relating to the investment advisory agreement review process. The Board also
considered information received periodically about the portfolio, performance,
the investment strategy, portfolio management team and fees and expenses of the
Fund. The Board of Trustees considered the investment advisory agreement over a
period of several months and the trustees held sessions both with the investment
adviser and separate from the investment adviser in reviewing and considering
the investment advisory agreement.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
breakpoints in the Fund's investment advisory fee schedule. The Board of
Trustees considered comparative advisory fees of the Fund and other investment
companies and/or other products at different asset levels, and considered the
trends in the industry. The Board of Trustees evaluated other benefits the
investment adviser and its affiliates derive from their relationship with the
Fund. The Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of
8
factors control or dominate the review process, and, after considering all
factors together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The trustees also
discuss certain other services which are provided on a cost-reimbursement basis
by the investment adviser or its affiliates to the Van Kampen funds including
certain accounting, administrative and legal services. The Board has determined
that the nature, extent and quality of the services provided by the investment
adviser support its decision to approve the investment advisory agreement.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, the Board spends more focused
time on the performance of the Fund and other funds in the Van Kampen complex,
paying specific attention to underperforming funds. The trustees discuss with
the investment adviser the performance goals and the actual results achieved in
managing the Fund. When considering a fund's performance, the trustees and the
investment adviser place emphasis on trends and longer-term returns (focusing on
one-year, three-year and five-year performance with special attention to
three-year performance) and, when a fund's weighted performance is under the
fund's benchmark, they discuss the causes and where necessary seek to make
specific changes to investment strategy or investment personnel. The Fund
discloses more information about its performance elsewhere in this report. The
trustees discuss with the investment adviser the level of advisory fees for this
Fund relative to comparable funds and other products advised by the adviser and
others in the marketplace. The trustees review not only the advisory fees but
other fees and expenses (whether paid to the adviser, its affiliates or others)
and the Fund's overall expense ratio. The Board has determined that the
performance, fees and expenses of the Fund support its decision to approve the
investment advisory agreement.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of the Board. The
trustees discuss with the investment adviser its revenues and expenses,
including among other things, revenues for advisory services, portfolio
management-related expenses, revenue sharing arrangement costs and allocated
expenses both on an
9
aggregate basis and per fund. The Board has determined that the analysis of the
investment adviser's expenses and profitability support its decision to approve
the investment advisory agreement.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
of the Fund and how that relates to the Fund's expense ratio and particularly
the Fund's advisory fee rate. In conjunction with its review of the investment
adviser's profitability, the trustees discuss with the investment adviser how
more (or less) assets can affect the efficiency or effectiveness of managing the
Fund's portfolio and whether the advisory fee level is appropriate relative to
current asset levels and/or whether the advisory fee structure reflects
economies of scale as asset levels change. The Board has determined that its
review of the actual and potential economies of scale of the Fund support its
decision to approve the investment advisory agreement.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory agreement.
10
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED)
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
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CORPORATE BONDS 174.5%
AEROSPACE 2.8%
$1,005 Hexcel Corp. ................................... 6.750% 02/01/15 $ 979,875
1,175 K & F Acquisition, Inc. ........................ 7.750 11/15/14 1,251,375
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2,231,250
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BROADCASTING 3.0%
835 LIN Television Corp. ........................... 6.500 05/15/13 820,387
335 LIN Television Corp., Ser B..................... 6.500 05/15/13 329,137
515 Salem Communications Corp. ..................... 7.750 12/15/10 522,725
655 Univision Communications, Inc. (a) (b).......... 9.750 03/15/15 650,088
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2,322,337
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CABLE 8.5%
1,175 Cablevision Systems Corp. (c)................... 9.820 04/01/09 1,233,750
410 CCH I LLC....................................... 11.000 10/01/15 429,987
495 Echostar DBS Corp. ............................. 5.750 10/01/08 495,000
1,740 Echostar DBS Corp. ............................. 6.375 10/01/11 1,709,550
785 Echostar DBS Corp. ............................. 6.625 10/01/14 751,637
80 Intelsat Subsidiary Holding Co., Ltd.
(Bermuda)....................................... 8.250 01/15/13 81,600
950 Intelsat Subsidiary Holding Co., Ltd.
(Bermuda)....................................... 8.625 01/15/15 978,500
145 NTL Cable PLC (United Kingdom).................. 8.750 04/15/14 150,075
100 NTL Cable PLC (United Kingdom).................. 9.125 08/15/16 105,250
693 PanAmSat Corp. ................................. 9.000 08/15/14 725,918
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6,661,267
------------
CHEMICALS 8.9%
611 Equistar Chemicals, LP.......................... 10.125 09/01/08 638,495
343 Equistar Chemicals, LP.......................... 10.625 05/01/11 362,722
740 Innophos, Inc. ................................. 8.875 08/15/14 769,600
705 Koppers, Inc. .................................. 9.875 10/15/13 756,113
1,350 Lyondell Chemical Co. .......................... 10.500 06/01/13 1,464,750
1,450 Nalco Co. ...................................... 7.750 11/15/11 1,468,125
750 Terra Capital, Inc. ............................ 7.000 02/01/17 727,500
834 Westlake Chemical Corp. ........................ 6.625 01/15/16 794,385
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6,981,690
------------
CONSUMER PRODUCTS 2.8%
915 Jarden Corp. ................................... 7.500 05/01/17 908,137
565 Oxford Industrials, Inc. ....................... 8.875 06/01/11 586,188
740 Steinway Musical Instruments, Inc. (b).......... 7.000 03/01/14 725,200
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2,219,525
------------
DIVERSIFIED MEDIA 6.0%
1,425 CanWest Media, Inc. (Canada).................... 8.000 09/15/12 1,421,438
685 Dex Media West LLC, Ser B....................... 9.875 08/15/13 736,375
1,095 Idearc, Inc. ................................... 8.000 11/15/16 1,111,425
515 Interpublic Group of Cos., Inc. ................ 6.250 11/15/14 475,087
985 Valassis Communications, Inc. (b)............... 8.250 03/01/15 965,300
------------
4,709,625
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See Notes to Financial Statements 11
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
ENERGY 17.2%
$1,440 CHC Helicopter Corp. (Canada)................... 7.375% 05/01/14 $ 1,378,800
1,825 Chesapeake Energy Corp. ........................ 6.625 01/15/16 1,765,687
350 Chesapeake Energy Corp. ........................ 7.500 09/15/13 357,875
230 Cimarex Energy Co. ............................. 7.125 05/01/17 225,400
525 Compagnie Generale de Geophysique, SA
(France)........................................ 7.500 05/15/15 527,625
1,500 Frontier Oil Corp. ............................. 6.625 10/01/11 1,470,000
160 Hanover Compressor Co. ......................... 8.625 12/15/10 165,800
670 Hanover Compressor Co. ......................... 9.000 06/01/14 711,875
288 Hanover Equipment Trust, Ser A.................. 8.500 09/01/08 288,000
280 Hanover Equipment Trust, Ser B.................. 8.750 09/01/11 289,100
1,670 Hilcorp Energy/Finance Corp. (b)................ 7.750 11/01/15 1,628,250
1,100 Kinder Morgan, Inc. ............................ 6.500 09/01/12 1,102,189
1,310 Massey Energy Co. .............................. 6.875 12/15/13 1,206,838
620 OPTI Canada, Inc. (Canada) (b).................. 8.250 12/15/14 632,400
650 Pacific Energy Partners......................... 7.125 06/15/14 673,199
1,085 Pogo Producing Co. ............................. 6.875 10/01/17 1,082,288
------------
13,505,326
------------
FINANCIAL 3.0%
205 Capmark Financial Group, Inc. (b)............... 5.875 05/10/12 202,524
85 Capmark Financial Group, Inc. (b)............... 6.300 05/10/17 83,796
1,455 Residential Capital LLC......................... 6.375 06/30/10 1,437,179
595 UCAR Finance, Inc. ............................. 10.250 02/15/12 626,237
------------
2,349,736
------------
FOOD & DRUG 1.5%
570 Rite Aid Corp. ................................. 8.125 05/01/10 579,263
560 SUPERVALU, Inc. ................................ 7.500 05/15/12 586,229
------------
1,165,492
------------
FOOD & TOBACCO 12.5%
150 Constellation Brands, Inc. (b).................. 7.250 05/15/17 147,000
1,300 Constellation Brands, Inc. ..................... 8.000 02/15/08 1,313,000
635 Michael Foods, Inc. ............................ 8.000 11/15/13 644,525
930 Pilgrim's Pride Corp. .......................... 7.625 05/01/15 932,325
2,205 Pilgrim's Pride Corp. .......................... 9.625 09/15/11 2,293,200
725 Reynolds American, Inc. ........................ 6.500 07/15/10 740,649
380 Smithfield Foods, Inc. ......................... 7.625 02/15/08 382,850
1,810 Smithfield Foods, Inc., Ser B................... 8.000 10/15/09 1,873,350
1,500 Tyson Foods, Inc. .............................. 6.850 04/01/16 1,547,610
------------
9,874,509
------------
FOREST PRODUCTS 7.1%
1,270 Crown Americas LLC.............................. 7.625 11/15/13 1,289,050
850 Georgia-Pacific Corp. (b)....................... 7.125 01/15/17 820,250
1,000 Graphic Packaging International, Inc. .......... 9.500 08/15/13 1,043,750
2,083 Owens-Brockway Glass Containers, Inc. .......... 8.875 02/15/09 2,129,867
320 P.H. Glatfelter Co. ............................ 7.125 05/01/16 324,000
------------
5,606,917
------------
12 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
GAMING & LEISURE 15.0%
$ 750 Caesars Entertainment, Inc. .................... 8.875% 09/15/08 $ 772,500
965 Host Marriott LP................................ 6.375 03/15/15 931,225
1,135 Host Marriott LP, Ser J......................... 7.125 11/01/13 1,139,256
1,630 Isle of Capri Casinos, Inc. .................... 7.000 03/01/14 1,550,537
1,370 Las Vegas Sands Corp. .......................... 6.375 02/15/15 1,310,063
2,900 MGM Mirage, Inc. ............................... 6.000 10/01/09 2,889,125
1,510 Mohegan Tribal Gaming Authority................. 7.125 08/15/14 1,502,450
1,160 Station Casinos, Inc. .......................... 6.000 04/01/12 1,096,200
175 Station Casinos, Inc. .......................... 6.875 03/01/16 155,313
490 Station Casinos, Inc. .......................... 7.750 08/15/16 487,550
------------
11,834,219
------------
HEALTH CARE 20.2%
1,510 Community Health Systems, Inc. ................. 6.500 12/15/12 1,576,016
405 Community Health Systems, Inc. (b) (d).......... 8.875 07/15/15 412,594
1,845 DaVita, Inc. ................................... 6.625 03/15/13 1,810,406
1,485 Fisher Scientific International, Inc. .......... 6.125 07/01/15 1,460,405
1,000 FMC Finance III, SA (Luxembourg) (b)............ 6.875 07/15/17 985,000
97 Fresenius Medical Care Capital Trust II......... 7.875 02/01/08 977,275
1,290 Fresenius Medical Care Capital Trust IV......... 7.875 06/15/11 1,341,600
595 HCA, Inc. ...................................... 5.750 03/15/14 505,006
170 HCA, Inc. ...................................... 6.250 02/15/13 153,850
895 HCA, Inc. ...................................... 6.375 01/15/15 762,988
882 HCA, Inc. ...................................... 8.750 09/01/10 922,792
165 Invacare Corp. ................................. 9.750 02/15/15 167,063
735 Omnicare, Inc. ................................. 6.750 12/15/13 705,600
710 Omnicare, Inc. ................................. 6.875 12/15/15 678,050
750 Res-Care, Inc. ................................. 7.750 10/15/13 772,500
575 Tenet Healthcare Corp. ......................... 9.875 07/01/14 572,125
1,405 Ventas Realty LP (REIT)......................... 6.750 06/01/10 1,426,075
650 Warner Chilcott Corp. .......................... 8.750 02/01/15 671,125
------------
15,900,470
------------
HOUSING 1.9%
1,090 Interface, Inc., Ser B.......................... 9.500 02/01/14 1,179,925
370 Realogy Corp. (b)............................... 10.500 04/15/14 353,350
------------
1,533,275
------------
INFORMATION TECHNOLOGY 3.1%
1,095 Freescale Semiconductor, Inc. (b)............... 8.875 12/15/14 1,051,200
1,340 Iron Mountain, Inc. ............................ 8.625 04/01/13 1,350,050
------------
2,401,250
------------
MANUFACTURING 5.9%
1,200 Case New Holland, Inc. ......................... 7.125 03/01/14 1,221,000
925 JohnsonDiversey, Inc., Ser B.................... 9.625 05/15/12 970,094
764 Manitowoc Co., Inc. ............................ 10.500 08/01/12 806,020
540 Propex Fabrics, Inc. ........................... 10.000 12/01/12 486,000
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
$1,140 RBS Global, Inc. & Rexnord Corp. ............... 9.500% 08/01/14 $ 1,174,200
------------
4,657,314
------------
METALS 3.7%
245 Foundation, PA Coal Co. ........................ 7.250 08/01/14 244,081
635 Freeport-McMoRan Copper & Gold, Inc. ........... 8.375 04/01/17 679,450
1,950 Novelis, Inc. (Canada).......................... 7.250 02/15/15 2,010,938
------------
2,934,469
------------
RETAIL 5.8%
830 Brown Shoe Co., Inc. ........................... 8.750 05/01/12 871,500
1,400 JC Penney Corp., Inc. .......................... 8.000 03/01/10 1,479,157
2,150 Phillips-Van Heusen Corp. ...................... 7.250 02/15/11 2,193,000
------------
4,543,657
------------
SERVICES 3.6%
2,210 Allied Waste North America, Inc. ............... 6.375 04/15/11 2,160,275
45 Allied Waste North America, Inc. ............... 7.875 04/15/13 45,731
215 ARAMARK Corp. (b)............................... 8.500 02/01/15 219,838
60 ARAMARK Corp. (b) (c)........................... 8.856 02/01/15 61,200
416 Aramark Services, Inc. ......................... 5.000 06/01/12 368,160
------------
2,855,204
------------
TELECOMMUNICATIONS 9.2%
861 Axtel, SA (Mexico).............................. 11.000 12/15/13 951,405
375 Citizens Communications Co. .................... 6.250 01/15/13 361,406
500 Exodus Communications, Inc. (e) (f) (g)......... 11.250 07/01/08 0
290 Nordic Tel Co. Holdings (Denmark) (b)........... 8.875 05/01/16 308,850
1,000 Qwest Corp. .................................... 7.875 09/01/11 1,047,500
3,000 Qwest Corp. (c)................................. 8.610 06/15/13 3,270,000
815 Wind Acquisition Finance, SA (Luxembourg) (b)... 10.750 12/01/15 939,288
345 Windstream Corp. ............................... 8.125 08/01/13 362,250
------------
7,240,699
------------
TRANSPORTATION 16.5%
1,115 Arvin Meritor, Inc. ............................ 8.750 03/01/12 1,131,725
390 Asbury Automotive Group, Inc. (b)............... 7.625 03/15/17 386,100
1,720 Ford Motor Credit Co. .......................... 5.800 01/12/09 1,684,224
615 Ford Motor Credit Co. .......................... 7.000 10/01/13 570,494
990 Ford Motor Credit Co. .......................... 7.250 10/25/11 953,669
1,175 General Motors Acceptance Corp. ................ 4.375 12/10/07 1,166,650
2,140 General Motors Acceptance Corp. ................ 6.875 09/15/11 2,106,907
710 General Motors Corp. ........................... 7.125 07/15/13 668,288
1,225 Petro Stopping Centers LP....................... 9.000 02/15/12 1,295,438
2,250 Sonic Automotive, Inc., Ser B................... 8.625 08/15/13 2,328,750
730 United Auto Group, Inc. ........................ 7.750 12/15/16 730,000
------------
13,022,245
------------
UTILITY 10.9%
850 AES Corp. ...................................... 7.750 03/01/14 856,375
41 AES Corp. ...................................... 8.875 02/15/11 43,409
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
UTILITY (CONTINUED)
$ 127 AES Corp. ...................................... 9.375% 09/15/10 $ 135,731
615 CMS Energy Corp. ............................... 6.300 02/01/12 611,236
465 CMS Energy Corp. ............................... 7.500 01/15/09 479,164
700 CMS Energy Corp. ............................... 8.500 04/15/11 748,033
1,490 Colorado Interstate Gas Co. .................... 6.800 11/15/15 1,539,788
795 Dynegy Holdings, Inc. (b)....................... 7.750 06/01/19 743,325
465 IPALCO Enterprises, Inc. ....................... 8.375 11/14/08 476,625
405 IPALCO Enterprises, Inc. ....................... 8.625 11/14/11 435,375
510 Nevada Power Co., Ser A......................... 8.250 06/01/11 554,398
765 NRG Energy, Inc. ............................... 7.375 01/15/17 769,781
484 PSEG Energy Holdings............................ 8.625 02/15/08 492,805
240 Reliant Energy, Inc. ........................... 7.875 06/15/17 234,600
315 Sierra Pacific Power Co., Ser H................. 6.250 04/15/12 319,119
175 TXU Energy Co. ................................. 7.000 03/15/13 180,722
------------
8,620,486
------------
WIRELESS COMMUNICATIONS 5.4%
1,425 American Tower Corp. ........................... 7.500 05/01/12 1,471,313
1,775 Nextel Communications, Inc., Ser E.............. 6.875 10/31/13 1,763,361
1,000 Rural Cellular Corp. ........................... 8.250 03/15/12 1,027,500
------------
4,262,174
------------
TOTAL CORPORATE BONDS 174.5%....................................... 137,433,136
------------
EQUITIES 0.0%
DecisionOne Corp. (5,483 Common Shares) (g) (h).............................. 0
Hosiery Corp. of America, Inc., Class A (1,000 Common Shares) (g) (h)........ 0
VS Holdings, Inc. (20,207 Common Shares) (g) (h)............................. 0
XO Holdings, Inc. (681 Common Shares) (h).................................... 3,037
XO Holdings, Inc., Ser A (1,364 Common Stock Warrants,
expiring 01/16/10) (h)..................................................... 989
XO Holdings, Inc., Ser B (1,022 Common Stock Warrants,
expiring 01/16/10) (h)..................................................... 429
XO Holdings, Inc., Ser C (1,022 Common Stock Warrants,
expiring 01/16/10) (h)..................................................... 174
--------------
TOTAL EQUITIES............................................................... 4,629
--------------
TOTAL LONG-TERM INVESTMENTS 174.5%
(Cost $139,607,598)........................................................ 137,437,765
--------------
See Notes to Financial Statements 15
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
DESCRIPTION VALUE
----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENTS 7.8%
Citigroup Global Markets, Inc. ($1,946,514 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 5.33%,
dated 06/29/07, to be sold on 07/02/07 at $1,947,379)...................... $ 1,946,514
State Street Bank & Trust Co. ($4,212,486 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 4.85%,
dated 06/29/07, to be sold on 07/02/07 at $4,214,189)...................... 4,212,486
--------------
TOTAL REPURCHASE AGREEMENTS.................................................. 6,159,000
--------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 0.4%
United States Treasury Bill ($300,000 par, yielding 4.966%, 07/12/07
maturity) (i).............................................................. 299,556
--------------
TOTAL SHORT-TERM INVESTMENTS 8.2%
(Cost $6,458,556).......................................................... 6,458,556
--------------
TOTAL INVESTMENTS 182.7%
(Cost $146,066,154)........................................................ 143,896,321
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%.................................. 356,040
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (83.1%).................. (65,489,272)
--------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 78,763,089
==============
Percentages are calculated as a percentage of net assets applicable to common
shares.
(a) Payment-in-kind security.
(b) 144A-Private Placement security which is exempt from registration under Rule
144A of the Securities Act of 1933, as amended. This security may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(c) Floating Rate Coupon
(d) Security purchased on a when-issued or delayed delivery basis.
(e) Non-income producing as security is in default.
(f) This borrower has filed for protection in federal bankruptcy court.
(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(h) Non-income producing security as this stock currently does not declare
income dividends.
(i) All or a portion of this security has been physically segregated in
connection with open futures contracts.
REIT--Real Estate Investment Trust
16 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 (UNAUDITED) continued
FUTURES CONTRACTS OUTSTANDING AS OF JUNE 30, 2007:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
LONG CONTRACTS:
U.S. Treasury Notes 10-Year Futures, September 2007 (Current
Notional Value of $105,703 per contract).................. 181 $(163,806)
U.S. Treasury Notes 5-Year Futures, September 2007 (Current
Notional Value of $104,078 per contract).................. 158 (95,428)
--- ---------
339 $(259,234)
--- ---------
SHORT CONTRACTS:
U.S. Treasury Bond Futures, September 2007 (Current Notional
Value of $107,750 per contract)........................... 102 92,301
U.S. Treasury Notes 2-Year Futures, September 2007 (Current
Notional Value of $203,781 per contract).................. 18 (2,909)
--- ---------
120 $ 89,392
--- ---------
TOTAL FUTURES CONTRACTS..................................... 459 $(169,842)
--- ---------
See Notes to Financial Statements 17
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2007 (Unaudited)
ASSETS:
Total Investments (Cost $146,066,154)....................... $143,896,321
Cash........................................................ 614,468
Receivables:
Interest.................................................. 2,714,854
Variation Margin on Futures............................... 35,719
Other....................................................... 1,714
------------
Total Assets............................................ 147,263,076
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,187,587
Investment Advisory Fee................................... 77,715
Income Distributions--Common Shares....................... 41,950
Other Affiliates.......................................... 10,943
Trustees' Deferred Compensation and Retirement Plans........ 620,628
Accrued Expenses............................................ 71,892
------------
Total Liabilities....................................... 3,010,715
Preferred Shares (including accrued distributions).......... 65,489,272
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 78,763,089
============
NET ASSET VALUE PER COMMON SHARE ($78,763,089 divided by
18,851,327 shares outstanding)............................ $ 4.18
============
NET ASSETS CONSIST OF:
Common Shares ($0.01 par value with an unlimited number of
shares authorized, 18,851,327 shares issued and
outstanding).............................................. $ 188,513
Paid in Surplus............................................. 145,587,099
Accumulated Undistributed Net Investment Income............. (1,479,074)
Net Unrealized Depreciation................................. (2,339,675)
Accumulated Net Realized Loss............................... (63,193,774)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 78,763,089
============
PREFERRED SHARES ($0.01 par value, authorized 100,000,000
shares, 2,616 issued with liquidation preference of
$25,000 per share)........................................ $ 65,400,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $144,163,089
============
18 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended June 30, 2007 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 5,359,235
Other....................................................... 116,690
-----------
Total Income............................................ 5,475,925
-----------
EXPENSES:
Investment Advisory Fee..................................... 509,787
Preferred Share Maintenance................................. 89,350
Professional Fees........................................... 49,709
Trustees' Fees and Related Expenses......................... 47,501
Accounting and Administrative Expenses...................... 25,365
Reports to Shareholders..................................... 24,464
Transfer Agent Fees......................................... 21,914
Registration Fees........................................... 19,621
Custody..................................................... 9,296
Other....................................................... 4,145
-----------
Total Expenses.......................................... 801,152
Investment Advisory Fee Reduction....................... 36,414
-----------
Net Expenses............................................ 764,738
-----------
NET INVESTMENT INCOME....................................... $ 4,711,187
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (42,563)
Futures................................................... (225,388)
-----------
Net Realized Loss........................................... (267,951)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (560,349)
-----------
End of the Period:
Investments............................................. (2,169,833)
Futures................................................. (169,842)
-----------
(2,339,675)
-----------
Net Unrealized Depreciation During the Period............... (1,779,326)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,047,277)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,694,283)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 969,627
===========
See Notes to Financial Statements 19
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, 2006
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 4,711,187 $ 9,303,612
Net Realized Loss..................................... (267,951) (4,351,903)
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (1,779,326) 5,254,604
Distributions to Preferred Shareholders:
Net Investment Income............................... (1,694,283) (3,173,370)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations.......................................... 969,627 7,032,943
Distributions to Common Shareholders:
Net Investment Income............................... (3,114,206) (6,782,767)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES.......................... (2,144,579) 250,176
FROM CAPITAL TRANSACTIONS:
Repurchase of Shares.................................. (173,301) -0-
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS APPLICABLE TO
COMMON SHARES....................................... (2,317,880) 250,176
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................... 81,080,969 80,830,793
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $(1,479,074) and
$(1,381,772), respectively)......................... $78,763,089 $81,080,969
=========== ===========
20 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------
2007 2006 2005 2004 2003 2002
----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $ 4.29 $ 4.28 $ 4.76 $ 4.57 $ 3.79 $ 4.77
------- ------- ------- ------- ------- -------
Net Investment Income....................... 0.25(a) 0.49(a) 0.52 0.52 0.52 0.60
Net Realized and Unrealized
Gain/Loss................................. (0.10) 0.05 (0.45) 0.16 0.75 (0.89)
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income..................... (0.09) (0.17) (0.11) (0.05) (0.04) (0.07)
Return of Capital Distributions........... -0- -0- -0- -0- -0-(f) -0-(f)
------- ------- ------- ------- ------- -------
Total from Investment Operations............. 0.06 0.37 (0.04) 0.63 1.23 (0.36)
Distributions Paid to Common Shareholders:
Net Investment Income..................... (0.17) (0.36) (0.44) (0.44) (0.44) (0.58)
Return of Capital Distributions........... -0- -0- -0- -0- (0.01) (0.04)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD........... $ 4.18 $ 4.29 $ 4.28 $ 4.76 $ 4.57 $ 3.79
======= ======= ======= ======= ======= =======
Common Share Market Price at End of the
Period...................................... $ 3.96 $ 4.02 $ 4.14 $ 5.14 $ 5.08 $ 4.07
Total Return* (b)............................ 2.53%** 6.02% -11.46% 10.83% 37.20% -19.86%
Net Assets Applicable to Common Shares at End
of the Period (In millions)................. $ 78.8 $ 81.1 $ 80.8 $ 38.6 $ 37.1 $ 30.7
Ratio of Expenses to Average Net Assets
Applicable to Common Shares* (c)............ 1.89% 2.00% 2.43% 2.12% 2.25% 2.28%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares* (c)..... 11.66% 11.69% 11.89% 11.51% 12.29% 14.50%
Portfolio Turnover........................... 20%** 48% 62% 86% 74% 81%
*If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (c).......... 1.98% 2.05% N/A N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(c)...................................... 11.57% 11.64% N/A N/A N/A N/A
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (c).............. 1.05% 1.10% 1.37% 1.21% 1.24% 1.18%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)...... 7.47% 7.70% 9.24% 10.40% 11.34% 12.93%
SENIOR SECURITIES:
Total Preferred Shares Outstanding........... 2,616 2,616 2,616 1,112 1,112 1,112
Asset Coverage Per Preferred Share (e)....... $55,142 $56,040 $55,933 $59,715 $58,320 $52,652
Involuntary Liquidating Preference Per
Preferred Share............................. $25,000 $25,000 $25,000 $25,000 $25,000 $25,000
Average Market Value Per Preferred Share..... $25,000 $25,000 $25,000 $25,000 $25,000 $25,000
** Non-Annualized
(a)Based on average shares outstanding.
(b)Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale of
all shares at the closing common share market price at the end of the period
indicated.
(c)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d)Ratios reflect the effect of dividend payments to preferred shareholders.
(e)Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(f)Amount is less than $0.01 per share.
N/A=Not Applicable
See Notes to Financial Statements 21
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Trust II (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940 (the "1940 Act"), as amended. The Trust's investment objective is to
provide high current income, while seeking to preserve shareholders' capital
through investment in a professionally managed diversified portfolio of high
yield, fixed income securities. The Trust commenced investment operations on
April 28, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not readily available, valuations are
obtained from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Futures contracts are valued at the settlement price
established each day on the exchange on which they are traded. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
segregate assets with the custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
after payment is made. At June 30, 2007, the Trust had $402,141 of when-issued
or delayed delivery purchase commitments.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Trust may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
discount is accreted and premium is amortized over the expected life of each
applicable security. Other
22
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 (UNAUDITED) continued
income is comprised primarily of consent fees. Consent fees are earned as
compensation for agreeing to changes in the terms of debt instruments.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required. The
Trust files tax returns with the U.S. Internal Revenue Service and various
states. Generally, the tax authorities can examine all tax returns filed for the
last three years. If applicable, the Trust recognizes interest accrued related
to unrecognized tax benefits in interest expense and penalties in "Other"
expenses on the Statement of Operations. The Trust adopted the provisions of the
Financial Accounting Standards Board's (FASB) Interpretation number 48
Accounting for Uncertainty in Income Taxes, on June 30, 2007. As of June 30,
2007, this did not result in an impact to the Fund's financial statements.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 2006, the Trust had an accumulated capital loss
carryforward for tax purposes of $62,923,467 which will expire according to the
following schedule.
AMOUNT EXPIRATION
$ 6,008,551................................................. December 31, 2007
9,851,557................................................. December 31, 2008
17,412,110................................................. December 31, 2009
17,027,138................................................. December 31, 2010
6,782,916................................................. December 31, 2011
875,105................................................. December 31, 2012
565,263................................................. December 31, 2013
4,400,827................................................. December 31, 2014
Due to a merger with another regulated investment company, a portion of the
capital loss carryforward referred to above may be limited under Internal
Revenue Code Section 382.
At June 30, 2007, the cost and related gross unrealized appreciation and
depreciation were as follows:
Cost of investments for tax purposes........................ $146,676,080
============
Gross tax unrealized appreciation........................... $ 2,089,410
Gross tax unrealized depreciation........................... (4,869,169)
------------
Net tax unrealized depreciation on investments.............. $ (2,779,759)
============
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed at least annually on a pro rata basis to common and
preferred shareholders. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included in ordinary income for
tax purposes.
23
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 (UNAUDITED) continued
The tax character of distributions paid during the year ended December 31,
2006 was as follows:
Distributions paid from:
Ordinary income........................................... $9,909,458
Long-term capital gain.................................... -0-
----------
$9,909,458
==========
As of December 31, 2006, there were no components of distributable earnings
on a tax basis.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average daily net assets including preferred shares of
the Trust. For the six months ended June 30, 2007, the Adviser voluntarily
waived $36,414 of its investment advisory fees. This represents .05% of the
average daily net assets including preferred shares of the Trust. This waiver is
voluntary and can be discontinued at any time.
For the six months ended June 30, 2007, the Trust recognized expenses of
approximately $7,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each trust. For the six months ended June 30,
2007, the Trust recognized expenses of approximately $21,400 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, as well as the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Professional Fees" on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Accounting and Administrative Expenses" on the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
24
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 (UNAUDITED) continued
3. CAPITAL TRANSACTIONS
For the six months ended June 30, 2007 and the year ended December 31, 2006,
transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, 2006
Beginning Shares...................................... 18,893,621 18,893,621
Shares Repurchased*................................... (42,294) -0-
---------- ----------
Ending Shares......................................... 18,851,327 18,893,621
========== ==========
* For the period ended June 30, 2007, the Trust repurchased 42,294 of its
shares at an average discount of 6.269% from net asset value per share.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $28,587,591 and $27,924,726,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust may use derivative instruments for a variety of reasons, such as
to attempt to protect the Trust against possible changes in the market value of
its portfolio or to generate potential gain. All of the Trust's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract. Risk may arise as a result of the potential
inability of the counterparties to meet the terms of their contracts.
During the period the Trust invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Trust
generally invests in futures on U.S. Treasury Bonds or Notes. Upon entering into
futures contracts, the Trust maintains an amount of cash or liquid securities
with a value equal to a percentage of the contract amount with either a futures
commission merchant pursuant to rules and regulations promulgated under the 1940
Act, as amended, or with its custodian in an account in the broker's name. This
amount is known as initial margin. During the period the futures contract is
open, payments are received from or made to the broker based upon changes in the
value of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
25
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 (UNAUDITED) continued
Transactions in futures contracts for the six months ended June 30, 2007
were as follows:
CONTRACTS
Outstanding at December 31, 2006............................ 0
Futures Opened.............................................. 1,057
Futures Closed.............................................. (598)
-----
Outstanding at June 30, 2007................................ 459
=====
6. PREFERRED SHARES
The Trust has outstanding 2,616 APS. Series A contains 1,112 shares and Series B
contains 1,504 shares. Dividends are cumulative and the dividend rate on each
series is currently reset every 28 days through an auction process. The average
rate in effect on June 30, 2007 was 5.261%. During the six months ended June 30,
2007, the rates ranged from 5.000% to 5.300%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of "Preferred Share
Maintenance" expense on the Statement of Operations.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
7. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
8. ACCOUNTING PRONOUNCEMENT
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Trust's financial statement disclosures.
26
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
DENNIS SHEA
Vice President
J. DAVID GERMANY
Vice President
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
STUART N. SCHULDT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
522 Fifth Avenue
New York, New York 10036
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
c/o Computershare Investor Services
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606-4301
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
27
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors
Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van
Kampen Exchange Corp., as well as current and former individual investors in
Van Kampen mutual funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised
by us. This Policy is, however, applicable to individuals who select us to
be a custodian of securities or assets in individual retirement accounts,
401(k) accounts, 529 Educational Savings Accounts, accounts subject to the
Uniform Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we
help you achieve your financial objectives. This Policy describes what
non-public personal information we collect about you, why we collect it, and
when we may share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies
you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information
from applications and other forms you submit to us, from your dealings with
us, from consumer reporting agencies, from our Web sites and from third
parties and other sources.
(continued on next page)
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you
better and to manage our business, we may disclose personal information we
collect about you to our affiliated companies and to non-affiliated third
parties as required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise
required or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except
to enable them to provide services on our behalf, to perform joint marketing
agreements with
(continued on back)
Van Kampen High Income Trust II
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, Suite 100
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2007 Van Kampen Funds Inc.
All rights reserved. Member NASD/SIPC.
902, 911, 104
VLTSAR 8/07
(VAN KAMPEN INVESTMENTS LOGO) IU07-02863P-Y06/07
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form
N-CSRS was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(1) Code of Ethics -- Not applicable for semi-annual reports.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen High Income Trust II
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 9, 2007
By: /s/ Stuart N. Schuldt
---------------------
Name: Stuart N. Schuldt
Title: Principal Financial Officer
Date: August 9, 2007