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
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Jerry W. Miller
522 Fifth Avenue, New York, New York 10036
(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: 6/30/08
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, 2008.
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 6/30/2008
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) 4.98% 4.46%
10-year 1.95 -0.35
5-year 5.45 1.07
1-year -5.26 -9.08
6-month -7.18 -5.16
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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. Periods of less than one year are not annualized.
The Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index is an
unmanaged, broadbased 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, 2008
MARKET CONDITIONS
Volatility remained high throughout the six-month reporting period as a
combination of tight credit conditions and a worsening economic outlook weighed
on the market. In the first quarter of 2008, the Federal Reserve (the "Fed")
continued its aggressive efforts to boost liquidity and the economy, including
lowering the target federal funds rate by 200 basis points. The markets
continued to struggle, however, as mortgage-related writedowns by financial
institutions continued to mount and economic growth appeared to be slowing,
prompting concerns of recession. As the quarter neared a close, news that the
Fed had orchestrated the purchase of Bear Stearns by JPMorgan Chase at a
fraction of its share price just weeks earlier further roiled the markets and
led to fears that the entire financial system was in trouble. In this
environment, the high yield bond market turned in its worst quarterly
performance in history as weaker economic data, poor earnings releases, rising
defaults and poor liquidity pushed prices considerably lower, leading to a
first-quarter return of -2.97 percent (as measured by the Lehman Brothers U.S.
Corporate High Yield 2% Issuer Cap Index). As would be expected in a declining
market, lower-quality high yield bonds underperformed higher-quality issues.
Early in the second quarter, however, the Fed's efforts to enhance liquidity
began to take hold. Investors began to take on risk, and the high yield market
rebounded in April and May. In June, concerns about inflation grew, prompting
the Fed to hold the target federal funds rate steady at 2.0 percent, where it
had stood since the Fed's last rate cut in April, and the market to speculate
that its easing campaign had finally come to an end. Inflationary pressures,
coupled with new credit-related concerns caused investors to again question the
outlook for the market and the economy. As a result, the high yield market
reversed course, giving back much of the gains realized in the first two months
of the quarter. Nonetheless, the high yield bond market returned 1.95 percent,
beating equities for the second consecutive quarter. All high yield ratings
categories had positive returns in the second quarter, with lower-quality bonds
outperforming higher-quality bonds. High yield spreads tightened by 80 basis
points during the second quarter, ending the reporting period 736 basis points
over Treasuries. New high yield issuance remained low and while industry returns
varied considerably, finance companies were consistently among 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 RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2008
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LEHMAN BROTHERS
BASED ON MARKET U.S. CORPORATE HIGH YIELD 2%
BASED ON NAV PRICE ISSUER CAP INDEX
-7.18% -5.16% -1.08%
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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.
The Trust's underperformance versus the benchmark was due in part to its higher
relative credit quality. Although this defensive positioning was beneficial
early in the period when the higher quality sector of the market outperformed
the lower quality sector, it held back returns later in the period when lower
quality issues had stronger results. The Trust's holdings in mortgage securities
also held back performance as prices declined over the course of the period.
The Trust maintained an overweight relative to the benchmark in the health care
sector, which was additive to returns as the sector performed well during the
period. Additionally, the portfolio held no investments in the airline sector,
which was beneficial as the sector struggled amid rising fuel prices.
Throughout the period, 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 focused on larger companies because of their financial
flexibility, their ability to withstand less favorable financial conditions, and
their superior access to capital markets. At the end of the period, the Trust's
major sector overweights included health care, energy, and chemicals. Key sector
underweights included technology, buildings products/home builders, and
manufacturing.
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
3
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.
Although credit spreads narrowed somewhat during the second quarter, they still
remained much wider than long-term averages at the end of the period. As such,
we are seeking opportunities to increase the portfolio's risk profile to a more
neutral, rather than defensive, stance.
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.
4
RATINGS ALLOCATION AS OF 6/30/08
AAA/Aaa 3.1%
A/a 0.1
BBB/Baa 17.4
BB/Ba 32.8
B/B 45.1
CCC/Ca 1.3
CC/Ca 0.2
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 6/30/08
Health Care 11.8%
Utility 9.3
Gaming & Leisure 9.1
Energy 8.4
Transportation 5.5
Telecommunications 5.2
Cable 4.7
Food & Tobacco 4.1
Diversified Media 3.6
Wireless Communications 3.6
Financial 3.3
Information Technology 3.0
Retail 2.9
Manufacturing 2.7
Chemicals 2.6
United States Treasury Obligation 2.5
Forest Products 2.5
Food & Drug 2.4
Metals 2.2
Consumer Products 1.6
Housing 1.4
Broadcasting 1.2
Collateralized Mortgage Obligations 0.5
Services 0.5
Thrifts & Mortgage Finance 0.1
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 94.7
Total Short-Term Investments 5.3
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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.
Rating allocations based upon ratings as issued by Standard and Poor's and
Moody's, respective. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
5
PORTFOLIO MANAGEMENT CHANGE
Van Kampen High Income Trust II 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 of the Trust'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 began managing the Trust in June 2007.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
fund's second and fourth fiscal quarters. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Van Kampen
also delivers the semiannual and annual reports to fund 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 fund files a complete schedule of portfolio holdings with the
SEC for the fund'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 fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 341-2929.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 341-2929 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
6
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.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, the Trust makes portfolio holdings information
available by periodically providing the information on its public
website, www.vankampen.com. The Trust 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 Trust 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.
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 15, 2008 and May 8, 2008, 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. Finally, the Board considered materials it had received in approving a
voluntary waiver of advisory fees effective July 1, 2006. 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,
8
evaluated all of the foregoing and does not believe any single factor or group
of 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 and changes made
in the Fund's portfolio management team and the Fund's portfolio management
strategy over time. 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
9
other things, revenues for advisory services, portfolio management-related
expenses, revenue sharing arrangement costs and allocated expenses both on an
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, 2008 (UNAUDITED)
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
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CORPORATE BONDS 178.4%
BROADCASTING 2.3%
$ 420 LIN Television Corp. ........................... 6.500% 05/15/13 $ 386,400
335 LIN Television Corp., Ser B..................... 6.500 05/15/13 308,200
515 Salem Communications Corp. ..................... 7.750 12/15/10 477,663
495 Univision Communications, Inc. (a) (b).......... 9.750 03/15/15 366,300
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1,538,563
------------
CABLE 9.2%
1,175 Cablevision Systems Corp., Ser B (c)............ 7.133 04/01/09 1,180,875
495 CCH I LLC....................................... 11.000 10/01/15 369,394
350 CCH II LLC...................................... 10.250 09/15/10 340,375
340 CSC Holdings, Inc. (b).......................... 8.500 06/15/15 335,750
115 Direct TV Holdings LLC.......................... 6.375 06/15/15 108,387
980 Direct TV Holdings LLC (b)...................... 7.625 05/15/16 970,200
495 Echostar DBS Corp. ............................. 5.750 10/01/08 496,237
1,280 Echostar DBS Corp. ............................. 6.375 10/01/11 1,238,400
340 Echostar DBS Corp. ............................. 6.625 10/01/14 315,350
145 NTL Cable PLC (United Kingdom).................. 8.750 04/15/14 137,025
100 NTL Cable PLC (United Kingdom).................. 9.125 08/15/16 94,250
693 PanAmSat Corp. ................................. 9.000 08/15/14 702,529
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6,288,772
------------
CHEMICALS 5.0%
740 Innophos, Inc. ................................. 8.875 08/15/14 743,700
705 Koppers, Inc. .................................. 9.875 10/15/13 743,775
505 Nalco Co. ...................................... 7.750 11/15/11 507,525
750 Terra Capital, Inc. ............................ 7.000 02/01/17 738,750
834 Westlake Chemical Corp. ........................ 6.625 01/15/16 704,730
------------
3,438,480
------------
CONSUMER PRODUCTS 3.2%
990 Jarden Corp. ................................... 7.500 05/01/17 866,250
635 Oxford Industrials, Inc. ....................... 8.875 06/01/11 615,950
740 Steinway Musical Instruments, Inc. (b).......... 7.000 03/01/14 680,800
------------
2,163,000
------------
DIVERSIFIED MEDIA 7.1%
1,425 CanWest Media, Inc. (Canada).................... 8.000 09/15/12 1,275,375
685 Dex Media West, LLC, Ser B...................... 9.875 08/15/13 618,212
2,610 Idearc, Inc. ................................... 8.000 11/15/16 1,654,088
485 Interpublic Group of Cos., Inc. ................ 6.250 11/15/14 421,950
985 Valassis Communications, Inc. .................. 8.250 03/01/15 898,813
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4,868,438
------------
ENERGY 16.3%
1,440 CHC Helicopter Corp. (Canada)................... 7.375 05/01/14 1,501,200
1,825 Chesapeake Energy Corp. ........................ 6.625 01/15/16 1,761,125
230 Cimarex Energy Co. ............................. 7.125 05/01/17 227,125
565 Compagnie Generale de Geophysique, SA
(France)........................................ 7.500 05/15/15 566,412
1,500 Frontier Oil Corp. ............................. 6.625 10/01/11 1,485,000
See Notes to Financial Statements 11
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
$ 760 Helix Energy Solutions Group, Inc. (b).......... 9.500% 01/15/16 $ 782,800
1,610 Hilcorp Energy/Finance Corp. (b)................ 7.750 11/01/15 1,553,650
346 Kinder Morgan, Inc. ............................ 6.500 09/01/12 339,080
1,310 Massey Energy Co. .............................. 6.875 12/15/13 1,283,800
195 Newfield Exploration Co. ....................... 7.125 05/15/18 185,738
620 OPTI Canada, Inc. (Canada)...................... 8.250 12/15/14 620,000
650 Pacific Energy Partners, LP..................... 7.125 06/15/14 656,030
210 Plains Exploration & Production Co. ............ 7.625 06/01/18 211,050
------------
11,173,010
------------
FINANCIAL 6.5%
500 Alfa MTN Invest, Ltd. (Cyprus) (b).............. 9.250 06/24/13 500,625
2,535 Capmark Financial Group, Inc. .................. 5.875 05/10/12 1,789,634
85 Capmark Financial Group, Inc. .................. 6.300 05/10/17 55,027
1,795 GMAC LLC........................................ 6.750 12/01/14 1,186,878
185 ProLogis (REIT)................................. 6.625 05/15/18 182,561
240 Residential Capital LLC......................... 8.125 11/21/08 211,200
45 Residential Capital LLC (b)..................... 8.500 05/15/10 38,025
506 Residential Capital LLC (b)..................... 9.625 05/15/15 247,940
178 UCAR Finance, Inc. ............................. 10.250 02/15/12 185,120
------------
4,397,010
------------
FOOD & DRUG 4.7%
355 Axcan Intermediate Holdings, Inc. (b)........... 12.750 03/01/16 356,775
1,230 Rite Aid Corp. ................................. 8.125 05/01/10 1,248,450
1,030 Rite Aid Corp. ................................. 8.625 03/01/15 687,525
560 SUPERVALU, Inc. ................................ 7.500 05/15/12 568,574
365 SUPERVALU, Inc. ................................ 7.500 11/15/14 367,281
------------
3,228,605
------------
FOOD & TOBACCO 7.9%
465 Constellation Brands, Inc. ..................... 7.250 05/15/17 437,100
635 Michael Foods, Inc. ............................ 8.000 11/15/13 628,650
1,430 Pilgrim's Pride Corp. .......................... 7.625 05/01/15 1,183,325
1,810 Smithfield Foods, Inc., Ser B................... 8.000 10/15/09 1,810,000
1,500 Tyson Foods, Inc. .............................. 6.850 04/01/16 1,370,615
------------
5,429,690
------------
FOREST PRODUCTS 4.9%
1,270 Crown Americas LLC.............................. 7.625 11/15/13 1,273,175
850 Georgia-Pacific Corp. (b)....................... 7.125 01/15/17 803,250
1,000 Graphic Packaging International, Inc. .......... 9.500 08/15/13 960,000
320 P.H. Glatfelter Co. ............................ 7.125 05/01/16 315,200
------------
3,351,625
------------
GAMING & LEISURE 17.7%
2,595 Harrah's Operating Co., Inc. ................... 5.375 12/15/13 1,602,412
750 Host Marriott LP................................ 6.375 03/15/15 667,500
1,135 Host Marriott LP, Ser J......................... 7.125 11/01/13 1,061,225
2,475 Isle of Capri Casinos, Inc. .................... 7.000 03/01/14 1,757,250
12 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
GAMING & LEISURE (CONTINUED)
$1,740 Las Vegas Sands Corp. .......................... 6.375% 02/15/15 $ 1,487,700
2,900 MGM Mirage, Inc. ............................... 6.000 10/01/09 2,867,375
1,510 Mohegan Tribal Gaming Authority................. 7.125 08/15/14 1,260,850
1,160 Station Casinos, Inc. .......................... 6.000 04/01/12 928,000
175 Station Casinos, Inc. .......................... 6.875 03/01/16 96,469
490 Station Casinos, Inc. .......................... 7.750 08/15/16 377,300
------------
12,106,081
------------
HEALTH CARE 23.0%
725 Community Health Systems, Inc. ................. 8.875 07/15/15 733,156
1,845 DaVita, Inc. ................................... 6.625 03/15/13 1,780,425
1,485 Fisher Scientific International, Inc. .......... 6.125 07/01/15 1,474,234
1,000 FMC Finance III SA (Luxembourg)................. 6.875 07/15/17 987,500
1,290 Fresenius Medical Care Capital Trust IV......... 7.875 06/15/11 1,341,600
595 HCA, Inc. ...................................... 5.750 03/15/14 498,313
170 HCA, Inc. ...................................... 6.250 02/15/13 148,325
895 HCA, Inc. ...................................... 6.375 01/15/15 747,325
335 HCA, Inc. ...................................... 8.750 09/01/10 340,862
465 HCA, Inc. ...................................... 9.125 11/15/14 476,625
165 Invacare Corp. ................................. 9.750 02/15/15 165,825
425 LVB Acquisition (a)............................. 10.375 10/15/17 452,625
500 Medco Health Solutions, Inc. ................... 7.125 03/15/18 520,156
735 Omnicare, Inc. ................................. 6.750 12/15/13 694,575
710 Omnicare, Inc. ................................. 6.875 12/15/15 660,300
750 Res-Care, Inc. ................................. 7.750 10/15/13 718,125
1,430 Tenet Healthcare Corp. ......................... 7.375 02/01/13 1,351,350
575 Tenet Healthcare Corp. ......................... 9.875 07/01/14 580,750
1,405 Ventas Realty, LP (REIT)........................ 6.750 06/01/10 1,405,000
650 Warner Chilcott Corp. .......................... 8.750 02/01/15 663,000
------------
15,740,071
------------
HOUSING 2.8%
1,090 Interface, Inc., Ser B.......................... 9.500 02/01/14 1,133,600
80 Pulte Homes, Inc. .............................. 6.375 05/15/33 62,400
1,035 Realogy Corp. .................................. 10.500 04/15/14 724,500
------------
1,920,500
------------
INFORMATION TECHNOLOGY 5.9%
435 Expedia, Inc. (b)............................... 8.500 07/01/16 427,387
395 First Data Corp. (b)............................ 9.875 09/24/15 344,144
1,345 Freescale Semiconductor, Inc. .................. 8.875 12/15/14 1,099,537
1,340 Iron Mountain, Inc. ............................ 8.625 04/01/13 1,353,400
740 KLA Instruments Corp. .......................... 6.900 05/01/18 726,745
90 Lender Processing Services, Inc. (b) (d)........ 8.125 07/01/16 90,563
------------
4,041,776
------------
MANUFACTURING 5.2%
330 Baldor Electric Co. ............................ 8.625 02/15/17 333,300
1,200 Case New Holland, Inc. ......................... 7.125 03/01/14 1,182,000
See Notes to Financial Statements 13
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
$ 925 JohnsonDiversey, Inc., Ser B.................... 9.625% 05/15/12 $ 938,875
540 Propex Fabrics, Inc. (e) (f).................... 10.000 12/01/12 8,100
1,140 RBS Global, Inc. & Rexnord Corp. ............... 9.500 08/01/14 1,105,800
------------
3,568,075
------------
METALS 4.4%
530 Evraz Group, SA (Luxembourg) (b)................ 9.500 04/24/18 533,975
245 Foundation, PA Coal Co. ........................ 7.250 08/01/14 246,225
735 Freeport-McMoRan Copper & Gold, Inc. ........... 8.375 04/01/17 776,630
1,505 Novelis, Inc. (Canada).......................... 7.250 02/15/15 1,429,750
------------
2,986,580
------------
RETAIL 5.6%
1,045 Brown Shoe Co., Inc. ........................... 8.750 05/01/12 1,045,000
1,400 JC Penney Corp., Inc. .......................... 8.000 03/01/10 1,452,907
1,310 Phillips-Van Heusen Corp. ...................... 7.250 02/15/11 1,319,825
------------
3,817,732
------------
SERVICES 0.9%
416 Aramark Services, Inc. ......................... 5.000 06/01/12 366,080
60 Aramark Services, Inc. (c)...................... 6.372 02/01/15 56,400
215 Aramark Services, Inc. ......................... 8.500 02/01/15 211,775
------------
634,255
------------
TELECOMMUNICATIONS 10.1%
500 Axtel, SA (Mexico).............................. 11.000 12/15/13 535,000
375 Citizens Communications Co. .................... 6.250 01/15/13 349,687
500 Exodus Communications, Inc. (e) (f) (g)......... 11.250 07/01/08 0
290 Nordic Telephone Co. Holdings (Denmark) (b)..... 8.875 05/01/16 285,650
3,000 Qwest Corp. (c)................................. 6.026 06/15/13 2,880,000
1,000 Qwest Corp. .................................... 7.875 09/01/11 1,005,000
750 Sprint Capital Corp. ........................... 6.900 05/01/19 659,321
815 Wind Acquisition Finance, SA (Luxembourg) (b)... 10.750 12/01/15 859,825
345 Windstream Corp. ............................... 8.125 08/01/13 345,862
------------
6,920,345
------------
TRANSPORTATION 10.6%
1,445 ArvinMeritor, Inc. ............................. 8.750 03/01/12 1,278,825
1,535 Ford Motor Credit Co. .......................... 7.000 10/01/13 1,131,535
2,915 Ford Motor Credit Co. .......................... 7.250 10/25/11 2,260,556
2,140 General Motors Acceptance Corp. ................ 6.875 09/15/11 1,538,752
490 Sonic Automotive, Inc., Ser B................... 8.625 08/15/13 455,700
700 United Auto Group, Inc. ........................ 7.750 12/15/16 616,000
------------
7,281,368
------------
UTILITY 18.1%
1,275 AES Corp. ...................................... 7.750 03/01/14 1,263,844
615 CMS Energy Corp. ............................... 6.300 02/01/12 612,507
700 CMS Energy Corp. ............................... 8.500 04/15/11 734,248
2,178 Colorado Interstate Gas Co. .................... 6.800 11/15/15 2,235,619
795 Dynegy Holdings, Inc. .......................... 7.750 06/01/19 727,425
14 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
UTILITY (CONTINUED)
$ 405 Equitable Resources, Inc. ...................... 6.500% 04/01/18 $ 406,309
800 Intergen NV (Netherlands) (b)................... 9.000 06/30/17 832,000
405 IPALCO Enterprises, Inc. ....................... 8.625 11/14/11 423,225
740 Israel Electric Corp., Ltd. (Israel) (b)........ 7.250 01/15/19 756,748
510 Nevada Power Co., Ser A......................... 8.250 06/01/11 550,900
765 NRG Energy, Inc. ............................... 7.375 01/15/17 724,837
735 Reliant Energy, Inc. ........................... 7.875 06/15/17 722,138
315 Sierra Pacific Power Co., Ser H................. 6.250 04/15/12 324,125
690 Texas Competitive Electric Holdings Co. LLC Ser
A (b)........................................... 10.250 11/01/15 679,650
1,435 Texas Competitive Electric Holdings Co. LLC Ser
B (b)........................................... 10.250 11/01/15 1,413,475
------------
12,407,050
------------
WIRELESS COMMUNICATIONS 7.0%
240 American Tower Corp. ........................... 7.125 10/15/12 243,600
1,425 American Tower Corp. ........................... 7.500 05/01/12 1,446,375
1,775 Nextel Communications, Inc., Ser E.............. 6.875 10/31/13 1,500,933
1,000 Rural Cellular Corp. ........................... 8.250 03/15/12 1,030,000
605 VimpelCom Class B (Ireland) (b)................. 9.125 04/30/18 596,116
------------
4,817,024
------------
TOTAL CORPORATE BONDS 178.4%....................................... 122,118,050
------------
UNITED STATES TREASURY OBLIGATION 4.9%
3,400 United States Treasury Bond..................... 4.500 02/15/36 3,376,894
------------
COLLATERALIZED MORTGAGE OBLIGATIONS 1.0%
417 American Home Mortgage Assets (c)............... 2.782 06/25/47 161,823
391 American Home Mortgage Assets (c)............... 2.792 10/25/46 158,417
438 Countrywide Alternative Loan Trust (c).......... 2.761 03/20/47 170,934
450 Countrywide Alternative Loan Trust (c).......... 3.002 10/25/46 19,969
375 Countrywide Alternative Loan Trust (c).......... 3.302 01/25/36 26,250
275 Greenpoint Mortgage Funding Trust (c)........... 2.892 09/25/46 21,545
375 Harborview Mortgage Loan Trust (c).............. 3.031 08/21/36 20,391
700 Lehman XS Trust (c)............................. 3.482 03/25/47 24,500
548 Luminent Mortgage Trust (c)..................... 2.842 07/25/36 32,523
325 Structured Asset Mortgage Investments, Inc.
(c)............................................. 2.852 08/25/36 16,250
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS........................... 652,602
------------
See Notes to Financial Statements 15
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
DESCRIPTION VALUE
--------------------------------------------------------------------------------------------
EQUITIES 0.2%
DecisionOne Corp. (5,483 Common Shares) (g) (h).............................. $ 0
Federal National Mortgage Association
(8.750%, 3,580 Convertible Preferred Shares)............................... 137,114
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).................................... 279
XO Holdings, Inc., Ser A (1,364 Common Stock Warrants, expiring 01/16/10)
(h)........................................................................ 41
XO Holdings, Inc., Ser B (1,022 Common Stock Warrants, expiring 01/16/10)
(h)........................................................................ 10
XO Holdings, Inc., Ser C (1,022 Common Stock Warrants, expiring 01/16/10)
(h)........................................................................ 31
------------
TOTAL EQUITIES............................................................... 137,475
------------
TOTAL LONG-TERM INVESTMENTS 184.5%
(Cost $139,649,066)........................................................ 126,285,021
------------
SHORT-TERM INVESTMENTS 10.3%
REPURCHASE AGREEMENTS 7.4%
Banc of America Securities ($1,530,615 par collateralized by U.S. Government
obligations in a pooled cash account, interest rate of 2.50%, dated
06/30/08, to be sold on 07/01/08 at $1,530,721)............................ 1,530,615
Citigroup Global Markets, Inc. ($1,530,615 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 2.50%,
dated 06/30/08, to be sold on 07/01/08 at $1,530,721)...................... 1,530,615
JPMorgan Chase & Co. ($459,184 par collateralized by U.S. Government
obligations in a pooled cash account, interest rate of 2.60%, dated
06/30/08, to be sold on 07/01/08 at $459,218).............................. 459,184
State Street Bank & Trust Co. ($1,512,586 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 1.85%,
dated 06/30/08, to be sold on 07/01/08 at $1,512,664)...................... 1,512,586
------------
TOTAL REPURCHASE AGREEMENTS.................................................. 5,033,000
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATION 2.9%
United States Treasury Bill
($2,000,000 par, yielding 1.583%, 10/09/08 maturity) (i)................... 1,991,392
------------
TOTAL SHORT-TERM INVESTMENTS 10.3%
(Cost $7,024,392).......................................................... 7,024,392
------------
TOTAL INVESTMENTS 194.8%
(Cost $146,673,458)........................................................ 133,309,413
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................. 626,372
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (95.7%).................. (65,500,329)
------------
NET ASSETS 100.0%........................................................... $ 68,435,456
============
16 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
REIT--Real Estate Investment Trust
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.
(i) All or a portion of this security has been physically segregated in
connection with open futures contracts or swap contracts.
FUTURES CONTRACTS OUTSTANDING AS OF JUNE 30, 2008:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
LONG CONTRACTS:
U.S. Treasury Notes 2-Year Futures, September 2008
(Current Notional Value of $211,203 per contract)......... 26 $(5,869)
U.S. Treasury Notes 5-Year Futures, September 2008
(Current Notional Value of $110,555 per contract)......... 4 647
SHORT CONTRACTS:
U.S. Treasury Bond Futures, September 2008
(Current Notional Value of $115,594 per contract)......... 23 3,414
U.S. Treasury Notes 10-Year Futures, September 2008
(Current Notional Value of $113,922 per contract)......... 213 (808)
--- -------
TOTAL FUTURES CONTRACTS................................... 266 $(2,616)
=== =======
See Notes to Financial Statements 17
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
SWAP AGREEMENTS OUTSTANDING AS OF JUNE 30, 2008:
CREDIT DEFAULT SWAPS
PAY/
RECEIVE NOTIONAL
BUY/SELL FIXED EXPIRATION AMOUNT UPFRONT
COUNTERPARTY REFERENCE ENTITY PROTECTION RATE DATE (000) PAYMENTS VALUE
Bank of America,
N.A. ............... Carnival Corp. Buy 1.57% 03/20/18 $ 810 $ 0 $ (2,683)
Bank of America,
N.A. ............... Goodrich Corp. Buy 0.70 03/20/13 565 0 (4,776)
Bank of America,
N.A. ............... Goodrich Corp. Buy 0.82 03/20/18 395 0 (6,233)
Bank of America,
N.A. ............... Nordstrom, Inc. Buy 1.03 03/20/18 545 0 6,639
Bank of America,
N.A. ............... Pactiv Corp. Buy 1.38 03/20/13 1,195 0 (14,885)
Bank of America,
N.A. ............... Sealed Air Corp. Buy 1.08 03/20/18 245 0 11,200
Bank of America,
N.A. ............... Sealed Air Corp. Buy 1.12 03/20/18 350 0 15,000
Bank of America,
N.A. ............... Textron
Financial Corp. Buy 0.80 03/20/18 640 0 19,797
Bank of America,
N.A. ............... Toll Brothers,
Inc. Buy 2.25 03/20/18 345 0 6,445
Bank of America,
N.A. ............... Toll Brothers,
Inc. Buy 2.90 03/20/13 685 0 434
Citibank, N.A., New
York................ Eaton Corp. Buy 0.82 03/20/18 1,045 0 3,601
Credit Suisse
International....... ABX.HE.AAA.06-1 Buy 0.18 07/25/45 730 116,734 58,009
Credit Suisse
International....... ABX.HE.AAA.06-1 Buy 0.18 07/25/45 730 109,438 58,009
Credit Suisse
International....... Arrow
Electronics,
Inc. Buy 1.00 03/20/15 855 0 (6,586)
Credit Suisse
International....... Arrow
Electronics,
Inc. Buy 1.11 03/20/13 1,105 0 (15,094)
Credit Suisse
International....... Pactiv Corp. Buy 1.35 03/20/13 1,195 0 (13,619)
Deutsche Bank AG..... Washington
Mutual, Inc. Buy 5.00 06/20/13 720 0 25,692
Goldman Sachs
International....... AvalonBay
Communities,
Inc. Buy 2.20 06/20/13 1,220 0 (28,785)
Goldman Sachs
International....... AvalonBay
Communities,
Inc. Buy 3.05 03/20/13 1,330 0 (78,268)
Goldman Sachs
International....... Carnival Corp. Buy 1.60 03/20/18 70 0 (569)
18 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAY/
RECEIVE NOTIONAL
BUY/SELL FIXED EXPIRATION AMOUNT UPFRONT
COUNTERPARTY REFERENCE ENTITY PROTECTION RATE DATE (000) PAYMENTS VALUE
Goldman Sachs
International....... Coca-Cola
Enterprises,
Inc. Buy 0.59% 03/20/13 $1,370 $ 0 $ (9,756)
Goldman Sachs
International....... Eaton Corp. Buy 0.97 03/20/18 450 0 (3,580)
Goldman Sachs
International....... FirstEnergy
Corp. Buy 1.25 03/20/13 1,315 0 (23,535)
Goldman Sachs
International....... Goodrich Corp. Buy 0.47 03/20/18 365 0 4,099
Goldman Sachs
International....... Merrill Lynch &
Co., Inc. Buy 2.45 03/20/13 735 0 3,187
Goldman Sachs
International....... ProLogis Buy 2.97 06/20/13 770 0 (21,733)
Goldman Sachs
International....... ProLogis Buy 3.33 03/20/13 585 0 (24,625)
Goldman Sachs
International....... Sealed Air Corp. Buy 1.08 03/20/18 480 0 21,942
Goldman Sachs
International....... Sealed Air Corp. Buy 1.24 03/20/18 235 0 8,058
Goldman Sachs
International....... Textron
Financial Corp. Buy 1.05 03/20/13 1,110 0 7,629
Goldman Sachs
International....... Trane, Inc. Buy 0.50 03/20/13 250 0 (103)
Goldman Sachs
International....... Trane, Inc. Buy 0.60 03/20/18 105 0 403
JP Morgan Chase Bank,
N.A. ............... Merrill Lynch &
Co., Inc. Buy 2.30 03/20/13 700 0 7,188
JP Morgan Chase Bank,
N.A. ............... Nordstrom, Inc. Buy 1.07 03/20/18 430 0 3,962
JP Morgan Chase Bank,
N.A. ............... Nordstrom, Inc. Buy 1.15 03/20/18 430 0 1,411
JP Morgan Chase Bank,
N.A. ............... The Pepsi
Bottling Group,
Inc. Buy 0.58 03/20/13 340 0 (2,018)
JP Morgan Chase Bank,
N.A. ............... The Pepsi
Bottling Group,
Inc. Buy 0.63 03/20/13 470 0 (3,806)
Lehman Brothers
Special Financing,
Inc. ............... Arrow
Electronics,
Inc. Buy 1.04 03/20/18 145 0 (1,277)
Lehman Brothers
Special Financing,
Inc. ............... Arrow
Electronics,
Inc. Buy 1.40 03/20/13 2,025 0 (52,820)
See Notes to Financial Statements 19
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAY/
RECEIVE NOTIONAL
BUY/SELL FIXED EXPIRATION AMOUNT UPFRONT
COUNTERPARTY REFERENCE ENTITY PROTECTION RATE DATE (000) PAYMENTS VALUE
Lehman Brothers
Special Financing,
Inc. ............... Coca-Cola
Enterprises,
Inc. Buy 0.64% 03/20/13 $1,235 $ 0 $ (11,604)
Lehman Brothers
Special Financing,
Inc. ............... Goodrich Corp. Buy 0.45 03/20/18 450 0 5,748
Lehman Brothers
Special Financing,
Inc. ............... Goodrich Corp. Buy 0.46 03/20/18 320 0 3,841
Lehman Brothers
Special Financing,
Inc. ............... MetLife, Inc. Buy 2.15 03/20/13 785 0 (30,074)
Merrill Lynch
International....... Carnival Corp. Buy 1.50 03/20/18 795 0 (3,123)
Merrill Lynch
International....... Carnival Corp. Buy 1.57 03/20/18 670 0 (2,219)
Merrill Lynch
International....... Carnival Corp. Buy 1.60 03/20/18 445 0 (3,617)
Merrill Lynch
International....... Eaton Corp. Buy 0.92 03/20/18 490 0 (2,036)
Merrill Lynch
International....... The Walt Disney
Co. Buy 0.77 03/20/13 2,025 0 (31,446)
UBS AG............... Martin Marietta
Materials, Inc. Buy 1.73 03/20/18 320 0 (4,401)
UBS AG............... Martin Marietta
Materials, Inc. Buy 1.78 03/20/13 320 0 (3,861)
UBS AG............... Textron
Financial Corp. Buy 1.00 03/20/13 660 0 6,160
UBS AG............... Textron
Financial Corp. Buy 1.01 03/20/13 450 0 4,199
UBS AG............... Textron
Financial Corp. Buy 1.06 03/20/13 1,100 0 (12,640)
UBS AG............... Toll Brothers,
Inc. Buy 2.90 03/20/13 1,060 0 672
UBS AG............... Trane, Inc. Buy 0.50 03/20/13 755 0 (312)
UBS AG............... Trane, Inc. Buy 0.60 03/20/18 790 0 3,030
Goldman Sachs
International....... CDX.NA.HY.10 Sell 5.00 06/20/13 3,645 (218,700) (215,176)
Goldman Sachs
International....... CDX.NA.IG.HVOL.9 Sell 1.40 12/20/12 800 (69,210) (63,246)
JP Morgan Chase Bank,
N.A. ............... SLM Corp. Sell 4.95 03/20/13 385 0 7,599
Lehman Brothers
Special Financing,
Inc. ............... CDX.NA.HY.9 Sell 3.75 12/20/12 4,554 (293,164) (449,130)
Merrill Lynch
International....... CDX.NA.IG.HVOL.9 Sell 1.40 12/20/12 815 (86,083) (64,432)
20 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2008 (UNAUDITED) continued
PAY/
RECEIVE NOTIONAL
BUY/SELL FIXED EXPIRATION AMOUNT UPFRONT
COUNTERPARTY REFERENCE ENTITY PROTECTION RATE DATE (000) PAYMENTS VALUE
Merrill Lynch
International....... SLM Corp. Sell 5.00% 03/20/13 $ 385 $ 0 $ 8,303
UBS AG............... CDX.NA.HY.10 Sell 5.00 06/20/13 2,060 (66,950) (121,608)
--------- -----------
TOTAL CREDIT DEFAULT SWAPS........................................................... $(507,935) $(1,031,419)
========= ===========
INTEREST RATE SWAPS
PAY/
RECEIVE NOTIONAL
FLOATING FIXED EXPIRATION AMOUNT
COUNTERPARTY FLOATING RATE INDEX RATE RATE DATE (000) VALUE
Bank of America, N.A. ........ USD-LIBOR BBA Pay 5.550% 02/22/18 $ 2,618 $ 34,898
Bank of America, N.A. ........ USD-LIBOR BBA Pay 5.070 04/14/18 2,680 (11,578)
Bank of America, N.A. ........ USD-LIBOR BBA Pay 5.638 03/07/18 9,260 150,845
Bank of America, N.A. ........ USD-LIBOR BBA Pay 4.983 04/15/18 2,315 (17,200)
Bank of America, N.A. ........ USD-LIBOR BBA Receive 5.380 04/15/23 2,805 (954)
Bank of America, N.A. ........ USD-LIBOR BBA Receive 5.470 04/14/23 3,430 (9,638)
Bank of America, N.A. ........ USD-LIBOR BBA Receive 5.958 02/22/23 3,266 (53,464)
Bank of America, N.A. ........ USD-LIBOR BBA Receive 6.040 03/07/23 11,905 (220,957)
Deutsche Bank AG.............. EUR-EURIBOR Reuters Receive 4.934 07/01/18 10,695 (9,093)
Deutsche Bank AG.............. EUR-EURIBOR Reuters Pay 5.268 07/02/23 13,400 (32,490)
Deutsche Bank AG.............. USD-LIBOR BBA Pay 5.031 10/25/17 20,700 684,125
JP Morgan Chase Bank, N.A. ... USD-LIBOR BBA Pay 5.361 08/24/17 8,200 578,288
JP Morgan Chase Bank, N.A. ... USD-LIBOR BBA Pay 5.428 08/20/17 9,700 737,085
JP Morgan Chase Bank, N.A. ... USD-LIBOR BBA Receive 3.966 03/25/18 2,200 98,399
JP Morgan Chase Bank, N.A. ... USD-LIBOR BBA Receive 3.966 03/25/18 3,300 147,599
Merrill Lynch Capital
Services, Inc. .............. USD-LIBOR BBA Pay 5.000 04/15/18 3,085 (21,009)
Merrill Lynch Capital
Services, Inc. .............. USD-LIBOR BBA Receive 5.395 04/16/23 3,945 (2,959)
-----------
TOTAL INTEREST RATE SWAPS..................................................................... 2,051,897
-----------
SWAP COLLATERAL RECEIVED FROM COUNTERPARTY
JP Morgan Chase Bank, N.A. .................................................................. (1,350,000)
Deutsche Bank AG............................................................................. (590,000)
-----------
TOTAL SWAP COLLATERAL RECEIVED................................................................ $(1,940,000)
-----------
TOTAL SWAP AGREEMENTS......................................................................... $ (919,522)
===========
See Notes to Financial Statements 21
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2008 (Unaudited)
ASSETS:
Total Investments (Cost $146,673,458)....................... $133,309,413
Cash........................................................ 708
Swap Contracts.............................................. 388,263
Receivables:
Investments Sold.......................................... 38,043,616
Interest.................................................. 2,428,037
------------
Total Assets............................................ 174,170,037
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 38,133,616
Investment Advisory Fee................................... 72,765
Income Distributions--Common Shares....................... 36,859
Variation Margin on Futures............................... 15,219
Other Affiliates.......................................... 11,718
Swap Contracts.............................................. 1,307,785
Trustees' Deferred Compensation and Retirement Plans........ 574,882
Accrued Expenses............................................ 81,408
------------
Total Liabilities....................................... 40,234,252
Preferred Shares (including accrued distributions).......... 65,500,329
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 68,435,456
============
NET ASSET VALUE PER COMMON SHARE ($68,435,456 divided by
18,851,327 shares outstanding)............................ $ 3.63
============
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............................................. 139,578,548
Net Unrealized Depreciation................................. (11,838,248)
Accumulated Undistributed Net Investment Income............. (1,336,660)
Accumulated Net Realized Loss............................... (58,156,697)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 68,435,456
============
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....................... $133,835,456
============
22 See Notes to Financial Statements
VAN KAMPEN HIGH INCOME TRUST II
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended June 30, 2008 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 5,431,688
Other....................................................... 56,220
------------
Total Income............................................ 5,487,908
------------
EXPENSES:
Investment Advisory Fee..................................... 483,077
Preferred Share Maintenance................................. 89,468
Professional Fees........................................... 44,559
Accounting and Administrative Expenses...................... 24,855
Reports to Shareholders..................................... 19,221
Transfer Agent Fees......................................... 18,843
Custody..................................................... 18,787
Registration Fees........................................... 9,925
Trustees' Fees and Related Expenses......................... 7,583
Depreciation in Trustees' Deferred Compensation Accounts.... (25,356)
Other....................................................... 6,730
------------
Total Expenses.......................................... 697,692
Investment Advisory Fee Reduction....................... 34,505
------------
Net Expenses............................................ 663,187
------------
NET INVESTMENT INCOME....................................... $ 4,824,721
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (48,234)
Futures................................................... (364,503)
Swap Contracts............................................ (110,811)
------------
Net Realized Loss......................................... (523,548)
------------
UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (3,891,900)
------------
End of the Period:
Investments............................................. (13,364,045)
Futures................................................. (2,616)
Swap Contracts.......................................... 1,528,413
------------
(11,838,248)
------------
Net Unrealized Depreciation During the Period............... (7,946,348)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (8,469,896)
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (1,995,453)
============
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ (5,640,628)
============
See Notes to Financial Statements 23
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, 2008 DECEMBER 31, 2007
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 4,824,721 $ 9,584,360
Net Realized Loss.................................... (523,548) (406,871)
Net Unrealized Depreciation During the Period........ (7,946,348) (3,331,551)
Distributions to Preferred Shareholders:
Net Investment Income.............................. (1,995,453) (3,530,876)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations......................................... (5,640,628) 2,315,062
Distributions to Common Shareholders:
Net Investment Income.............................. (2,921,964) (6,224,682)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES......................... (8,562,592) (3,909,620)
FROM CAPITAL TRANSACTIONS:
Repurchase of Shares................................. -0- (173,301)
----------- -----------
TOTAL DECREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES............................................. (8,562,592) (4,082,921)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.............................. 76,998,048 81,080,969
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $(1,336,660)
and $(1,243,964), respectively).................... $68,435,456 $76,998,048
=========== ===========
24 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, --------------------------------------------------------
2008 2007 2006 2005 2004 2003
---------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $ 4.08 $ 4.29 $ 4.28 $ 4.76 $ 4.57 $ 3.79
------- ------- ------- ------- ------- -------
Net Investment Income...................... 0.26(a) 0.51(a) 0.49(a) 0.52 0.52 0.52
Net Realized and Unrealized Gain/Loss...... (0.44) (0.20) 0.05 (0.45) 0.16 0.75
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................... (0.11) (0.19) (0.17) (0.11) (0.05) (0.04)
Return of Capital Distributions.......... -0- -0- -0- -0- -0- -0-(f)
------- ------- ------- ------- ------- -------
Total from Investment Operations............ (0.29) 0.12 0.37 (0.04) 0.63 1.23
Distributions Paid to Common Shareholders:
Net Investment Income.................... (0.16) (0.33) (0.36) (0.44) (0.44) (0.44)
Return of Capital Distributions.......... -0- -0- -0- -0- -0- (0.01)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......... $ 3.63 $ 4.08 $ 4.29 $ 4.28 $ 4.76 $ 4.57
======= ======= ======= ======= ======= =======
Common Share Market Price at End of the
Period..................................... $ 3.30 $ 3.63 $ 4.02 $ 4.14 $ 5.14 $ 5.08
Total Return* (b)........................... -5.16%** -1.71% 6.02% -11.46% 10.83% 37.20%
Net Assets Applicable to Common Shares at
End of the Period (In millions)............ $ 68.4 $ 77.0 $ 81.1 $ 80.8 $ 38.6 $ 37.1
Ratio of Expenses to Average Net Assets
Applicable to Common Shares* (c)........... 1.82% 1.84% 2.00% 2.43% 2.12% 2.25%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares*
(c)........................................ 13.22% 12.06% 11.69% 11.89% 11.51% 12.29%
Portfolio Turnover.......................... 21%** 37% 48% 62% 86% 74%
* 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)......... 1.92% 1.93% 2.05% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(c)..................................... 13.12% 11.97% 11.64% N/A N/A N/A
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (c)............. 0.96% 1.01% 1.10% 1.37% 1.21% 1.24%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(d)........................................ 7.75% 7.61% 7.70% 9.24% 10.40% 11.34%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......... 2,616 2,616 2,616 2,616 1,112 1,112
Asset Coverage Per Preferred Share (e)...... $51,199 $54,487 $56,040 $55,933 $59,715 $58,320
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 25
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (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, as amended (the "1940 Act"). 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 income
producing, 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. Swaps are valued
using market quotations obtained from brokers. Short-term securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value.
The Trust adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"),
effective January 1, 2008. In accordance with FAS 157, fair value is defined as
the price that the Trust would receive to sell an investment or pay to transfer
a liability in an orderly transaction with an independent buyer in the principal
market, or in the absence of a principal market the most advantageous market for
the investment or liability. FAS 157 establishes a three-tier hierarchy to
distinguish between (1) inputs that reflect the assumptions market participants
would use in pricing an asset or liability developed based on market data
obtained from sources independent of the reporting entity (observable inputs)
and (2) inputs that reflect the reporting entity's own assumptions about the
assumptions market participants would use in pricing an asset or liability
developed based on the best information available in the circumstances
(unobservable inputs) and to establish classification of fair value measurements
for disclosure purposes. Various inputs are used in determining the value of the
Trust's investments. The inputs are summarized in the three broad levels listed
below.
- Level 1--quoted prices in active markets for identical investments
- Level 2--other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayment speeds, credit risk, etc.)
- Level 3--significant unobservable inputs (including the Trust's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
26
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
The following is a summary of the inputs used as of June 30, 2008 in valuing
the Trust's investments carried at value:
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
Level 1--Quoted Prices..................................... $ 137,475 $ (2,616)
Level 2--Other Significant Observable Inputs............... 133,171,938 1,020,478
Level 3--Significant Unobservable Inputs................... -0- -0-
------------ ----------
Total...................................................... $133,309,413 $1,017,862
============ ==========
* Other financial instruments include futures, forwards and swap contracts.
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, 2008, the Trust had $90,000 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 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 adopted the provisions of the Financial Accounting Standards Board
("FASB") Interpretation No. 48 ("FIN 48") Accounting for Uncertainty in Income
Taxes on June 30, 2007. FIN 48 sets forth a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return. The implementation of FIN 48 did not result in any
unrecognized tax benefits in the accompanying financial statements. If
applicable, the Trust recognizes interest accrued related to unrecognized tax
benefits in "Interest Expense" and penalties in "Other"
27
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
expenses on the Statement of Operations. The Trust files tax returns with the
U.S. Internal Revenue Service and New York. Generally, each of the tax years in
the four year period ended December 31, 2007, remains subject to examination by
taxing authorities.
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, 2007, the Trust had an accumulated capital loss carry
forward for tax purposes of $56,962,475 which will expire according to the
following schedule.
AMOUNT EXPIRATION
$ 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
47,559 ........................................................... December 31, 2015
Due to a merger with another regulated investment company, a portion of the
capital loss carry forward referred to above may be limited under Internal
Revenue Code Section 382.
At June 30, 2008, the cost and related gross unrealized appreciation and
depreciation were as follows:
Cost of investments for tax purposes........................ $147,238,883
============
Gross tax unrealized appreciation........................... $ 794,812
Gross tax unrealized depreciation........................... (14,724,282)
------------
Net tax unrealized depreciation on investments.............. $(13,929,470)
============
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 and a portion of futures gains, which are
included in ordinary income for tax purposes.
The tax character of distributions paid during the year ended December 31,
2007 was as follows:
Distributions paid from:
Ordinary income........................................... $9,733,991
Return of Capital......................................... -0-
----------
$9,733,991
==========
28
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... $15,356
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of gains or losses recognized on securities for
tax purposes but not for book purposes and 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, 2008, the Adviser voluntarily
waived $34,505 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, 2008, the Trust recognized expenses of
approximately $4,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each trust. For the six months ended June 30,
2008, the Trust recognized expenses of approximately $23,300 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.
29
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
3. CAPITAL TRANSACTIONS
For the six months ended June 30, 2008 and the year ended December 31, 2007,
transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31, 2007
Beginning Shares...................................... 18,851,327 18,893,621
Shares Repurchased*................................... -0- (42,294)
---------- ----------
Ending Shares......................................... 18,851,327 18,851,327
========== ==========
* For the period ended December 31, 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 and U.S. Government securities, were
$27,889,815 and $27,604,983, respectively. The cost of purchases and proceeds
from sales of long-term U.S. Government securities, including paydowns on
mortgage-backed securities, for the period were $0 and $54,934, 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 these instances,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract. Risks may arise as a result of the potential
inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. FUTURES CONTRACTS 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, 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.
30
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
Transactions in futures contracts for the six months ended June 30, 2008
were as follows:
CONTRACTS
Outstanding at December 31, 2007............................ 290
Futures Opened.............................................. 929
Futures Closed.............................................. (953)
----
Outstanding at June 30, 2008................................ 266
====
B. SWAP CONTRACTS The Trust may enter into credit default swap contracts for
hedging purposes or to gain exposure to a credit in which the Trust may
otherwise invest. A credit default swap is an agreement between two parties to
exchange the credit risk of an issuer. A buyer of a credit default swap is said
to buy protection by paying periodic fees in return for a contingent payment
from the seller if the issuer has a credit event such as bankruptcy, a failure
to pay outstanding obligations or deteriorating credit while the swap is
outstanding. A seller of a credit default swap is said to sell protection and
thus collects the periodic fees and profits if the credit of the issuer remains
stable or improves while the swap is outstanding but the seller in a credit
default swap contract would be required to pay an agreed-upon amount, which
approximates the notional amount of the swap as disclosed in the table following
the Portfolio of Investments, to the buyer in the event of an adverse credit
event of the issuer. The Trust accrues for the periodic fees on credit default
swaps on a daily basis with the net amount accrued recorded within unrealized
appreciation/depreciation of swap contracts. Upon cash settlement of the
periodic fees, the net amount is recorded as realized gain/loss on swap
contracts on the Statement of Operations. Net unrealized gains are recorded as
an asset or net unrealized losses are reported as a liability on the Statement
of Assets and Liabilities. The change in value of the swap contracts is reported
as unrealized gains or losses on the Statement of Operations. Payments received
or made upon entering into a credit default swap contract, if any, are recorded
as realized gain or loss on the Statement of Operations upon termination or
maturity of the swap. Credit default swaps may involve greater risks than if a
Trust had invested in the issuer directly. Credit default swaps are subject to
general market risk, counterparty risk and credit risk.
The Trust may also enter into interest rate swaps primarily to preserve a
return or spread on a particular investment or portion of its portfolio, as a
duration management technique or to protect against any increase in the price of
securities the Trust anticipates purchasing at a later date. Interest rate swaps
are contractual agreements to exchange periodic interest payment streams
calculated on a predetermined notional principal amount. Interest rate swaps
generally involve one party paying a fixed interest rate and the other party
paying a variable rate. The Trust will usually enter into interest rate swaps on
a net basis, i.e., the two payment streams are netted out in a cash settlement
on the payment date or dates specified in the instrument, with the Trust
receiving or paying, as the case may be, only the net amount of the two
payments. The Trust accrues the net amount with respect to each interest rate
swap on a daily basis. This net amount is recorded within unrealized
appreciation/depreciation on swap contracts. Upon cash settlement of the
periodic payments, the net amount is recorded as realized gain/loss on swap
contracts on the Statement of Operations. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
31
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
If there is a default by the counterparty to a swap agreement, the Trust
will have contractual remedies pursuant to the agreements related to the
transaction. Counterparties are required to pledge collateral daily (based on
the valuation of each swap) on behalf of the Trust with a value approximately
equal to the amount of any unrealized gain. Reciprocally, when the Trust has an
unrealized loss on a swap contract, the Trust has instructed the custodian to
pledge cash or liquid securities as collateral with a value approximately equal
to the amount of the unrealized loss. Collateral pledges are monitored and
subsequently adjusted if and when the swap valuations fluctuate. Cash collateral
is disclosed in the table following the Portfolio of Investments. Cash
collateral has been offset against open swap contracts under the provisions of
FASB Interpretation No. 39: Offsetting of Amounts Related to Certain Contracts
an interpretation of APB Opinion No. 10 and FASB Statement No. 105 and are
included within "Swap Contracts" on the Statement of Assets and Liabilities. For
cash collateral received, the Trust pays a monthly fee to the counterparty based
on the effective rate for Federal Funds. This fee, when paid, is included within
realized loss on swap contracts on the Statement of Operations.
6. MORTGAGE BACKED SECURITIES
The Trust may invest in various types of Mortgage Backed Securities. A Mortgage
Backed Security (MBS) is a pass-through security created by pooling mortgages
and selling participations in the principal and interest payments received from
borrowers. Most of these securities are guaranteed by federally sponsored
agencies--Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). A
Collateralized Mortgage Obligation (CMO) is a bond which is collateralized by a
pool of MBS's.
These securities derive their value from or represent interests in a pool of
mortgages, or mortgage securities.
Mortgage securities are subject to prepayment risk--the risk that, as
mortgage interest rates fall, borrowers will refinance and "prepay" principal. A
fund holding mortgage securities that are experiencing prepayments will have to
reinvest these payments at lower prevailing interest rates. On the other hand,
when interest rates rise, borrowers are less likely to refinance resulting in
lower prepayments. This can effectively extend the maturity of a fund's mortgage
securities resulting in greater price volatility. It can be difficult to measure
precisely the remaining life of a mortgage security or the average life of a
portfolio of such securities.
To the extent a fund invests in mortgage securities offered by
non-governmental issuers, such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers, the Trust may be subject to additional risks. Timely
payment of interest and principal of non-governmental issuers are supported by
various forms of private insurance or guarantees, including individual loan,
title, pool and hazard insurance purchased by the issuer. There can be no
assurance that the private insurers can meet their obligations under the
policies.
An unexpectedly high rate of defaults on the mortgages held by a mortgage
pool may adversely affect the value of a mortgage backed security and could
result in losses to a Trust. The risk of such defaults is generally higher in
the case of mortgage pools that include subprime mortgages. Subprime mortgages
refer to loans made to borrowers with weakened credit histories or with a lower
capacity to make timely payment on their mortgages.
32
VAN KAMPEN HIGH INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2008 (UNAUDITED) continued
7. PREFERRED SHARES
The Trust has outstanding 2,616 Auction Preferred Shares (APS). Series A
contains 1,112 shares and Series B contains 1,504 shares. Dividends are
cumulative and the dividend rate on each series is currently reset every 28 days
through an auction process. Beginning on February 20, 2008 and continuing
through June 30, 2008, all series of preferred shares of the Trust were not
successfully remarketed. As a result, the dividend rates of these preferred
shares were reset to the maximum applicable rate on APS. If the preferred shares
are unable to be remarketed on a remarketing date, the Trust would be required
to pay the maximum applicable rate on APS to holders of such shares for
successive dividend periods until such time when the shares are successfully
remarketed. The maximum rate on APS is equal to 150% of the applicable
commercial paper rate on the date. The average rate in effect on June 30, 2008
was 7.078%. During the six months ended June 30, 2008, the rates ranged from
4.400% to 7.103%.
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.
8. 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.
9. ACCOUNTING PRONOUNCEMENT
On March 19, 2008, Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative Instruments
and Hedging Activities (FAS 161). FAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. The application of FAS 161 is required for fiscal years and interim
periods beginning after November 15, 2008. At this time, management is
evaluating the implications of FAS 161 and its impact on the financial
statements has not yet been determined.
33
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
JERRY W. MILLER
President and Principal Executive Officer
DENNIS SHEA
Vice President
KEVIN KLINGERT
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 43078
Providence, Rhode Island 02940-3078
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.
34
VAN KAMPEN HIGH INCOME TRUST II
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 18, 2008,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by common and preferred
shareholders of the Trust:
# OF SHARES
------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
David C. Arch............................................. 14,721,570 741,480
Jerry D. Choate........................................... 14,656,575 806,475
Howard J. Kerr............................................ 14,656,029 807,021
Suzanne H. Woolsey........................................ 14,660,451 802,599
The other trustees of the Trust whose terms did not expire in 2008 are Rod
Dammeyer, Linda Hutton Heagy, R. Craig Kennedy, Jack E. Nelson, Hugo F.
Sonnenschein, and Wayne W. Whalen.
35
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.
522 Fifth Avenue
New York, New York 10036
www.vankampen.com
Copyright (C)2008 Van Kampen Funds Inc.
All rights reserved. Member FINRA/SIPC.
902, 911, 104
VLTSAN 8/08
(VAN KAMPEN INVESTMENTS LOGO) IU08-04214P-Y06/08
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.
(a) Please refer to Item #1.
(b) Not applicable.
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/ Jerry W. Miller
---------------------------------
Name: Jerry W. Miller
Title: Principal Executive Officer
Date: August 15, 2008
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/ Jerry W. Miller
---------------------------------
Name: Jerry W. Miller
Title: Principal Executive Officer
Date: August 15, 2008
By: /s/ Stuart N. Schuldt
---------------------------------
Name: Stuart N. Schuldt
Title: Principal Financial Officer
Date: August 15, 2008