Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
TWELVE-MONTH DIVIDEND HISTORY 6
TOP FIVE SECTORS 7
NET ASSET VALUE AND COMMON SHARE MARKET PRICE 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 24
REPORT OF INDEPENDENT AUDITORS 28
DIVIDEND REINVESTMENT PLAN 29
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 31
TRUSTEE AND OFFICER INFORMATION 32
Regardless of the market environment, your investment goals don't go away.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
January 17, 2003
Dear Shareholder,
During the bull market of the 1990s, many investors ignored what investment risk
really means: the possibility of losing money. Instead, investors came to define
risk as "more reward."
Today, it's clear that for many people, the pendulum has swung to the opposite
extreme. Many are reluctant to enter the market, stick with their long-term
plans, or assume prudent levels of risk. Not knowing what action to take, many
investors are taking none.
Regardless of how you define risk and regardless of the market environment, your
investment goals don't go away. Parents will want to send children to college,
retirees will want to enjoy their golden years, and families will want to
purchase homes. And history bears out that a prudent investment may be one of
the best ways to get there.
How can you reconcile the reality of market risk with the
pursuit of your long-term investment goals? At Van Kampen, we
believe that diversification and asset allocation are the best
strategies for managing the market's ups and downs. That's why
Van Kampen offers a full range of fund choices. We encourage you to work with
your advisor to make sure that you have an asset allocation that's suitable for
you.
As we enter a new year, all of us at Van Kampen remain grateful for the trust
you have placed in us and for the opportunity to help you enjoy life's true
wealth.
Sincerely,
[SIG]
David M. Swanson
Chief Operating Officer
Van Kampen Investment Advisory Corp.
1
ECONOMIC SNAPSHOT
THE ECONOMY
ECONOMIC DATA RELEASED IN DECEMBER 2002 SEEMED TO SUGGEST THE ECONOMY WAS
EMERGING FROM ITS AUTUMN SOFT SPOT. RETAIL SALES AND INDUSTRIAL PRODUCTION
RECORDED GAINS THAT SURPASSED EXPECTATIONS. BOTH NEW AND EXISTING HOME SALES
CONTINUED TO REMAIN AT HISTORICALLY HIGH LEVELS. EVEN THE BELEAGUERED
MANUFACTURING SECTOR ENJOYED SOME GOOD NEWS: THE INSTITUTE OF SUPPLY MANAGEMENT
REPORTED THAT NEW ORDERS WERE SO ROBUST, THEY REGISTERED THE LARGEST MONTHLY
INCREASE SINCE 1980. EQUALLY ENCOURAGING, INFLATION PRESSURES REMAINED STABLE
THROUGHOUT THE REPORTING PERIOD--DESPITE RISING OIL PRICES.
AGAINST THIS BACKDROP, THE FEDERAL RESERVE MAINTAINED ITS ACCOMMODATIVE MONETARY
POLICY WHICH, AS A RESULT, ALLOWED INTEREST RATES TO CONTINUE HOVERING AT THE
LOWEST LEVELS IN DECADES.
YET, POCKETS OF WEAKNESS PERSISTED. DECEMBER'S JOB LOSSES WERE THE STRONGEST
RECORDED IN RECENT MONTHS, CAUSING INVESTORS TO QUESTION THE SUSTAINABILITY OF
ECONOMIC ACTIVITY MOVING FORWARD.
FURTHER CLOUDING THE ECONOMIC HORIZON, THE DOLLAR MOVED LOWER AS TRADERS AND
INVESTORS QUESTIONED THE NEWLY APPOINTED TREASURY SECRETARY'S COMMITMENT TO A
STRONG DOLLAR. WHILE THE DECLINING DOLLAR SEEMED LIKE ANOTHER DARK CLOUD, A
POSSIBLE SILVER LINING REMAINS: DOLLAR WEAKNESS COULD TRANSLATE INTO IMPROVED
EXPORTS IN 2003, FURTHER SUPPORTING ECONOMIC GROWTH.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 2000--December 31, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 00 1.1%
Mar 01 -0.6%
Jun 01 -1.6%
Sep 01 -0.3%
Dec 01 2.7%
Mar 02 5.0%
Jun 02 1.3%
Sep 02 4.0%
Dec 02 0.7%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(December 31, 2000--December 31, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Dec 00 6.50% 3.40%
5.50% 3.70%
5.50% 3.50%
Mar 01 5.00% 2.90%
4.50% 3.30%
4.00% 3.60%
Jun 01 3.75% 3.20%
3.75% 2.70%
3.50% 2.70%
Sep 01 3.00% 2.60%
2.50% 2.10%
2.00% 1.90%
Dec 01 1.75% 1.60%
1.75% 1.10%
1.75% 1.10%
Mar 02 1.75% 1.50%
1.75% 1.60%
1.75% 1.20%
Jun 02 1.75% 1.10%
1.75% 1.50%
1.75% 1.80%
Sep 02 1.75% 1.50%
1.75% 2.00%
1.25% 2.20%
Dec 02 1.25% 2.40%
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of December 31, 2002)
-----------------------------
NYSE Ticker Symbol - VLT
-----------------------------
-----------------------------------------------------------------------
One-year total return(1) -19.86%
-----------------------------------------------------------------------
Five-year average annual total return(1) -5.80%
-----------------------------------------------------------------------
Ten-year average annual total return(1) 3.05%
-----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 4.11%
-----------------------------------------------------------------------
Commencement date 04/28/89
-----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 12.38%
-----------------------------------------------------------------------
Net asset value $3.79
-----------------------------------------------------------------------
Closing common share market price $4.07
-----------------------------------------------------------------------
One-year high common share market price (05/07/02) $6.14
-----------------------------------------------------------------------
One-year low common share market price (10/22/02) $3.61
-----------------------------------------------------------------------
Preferred share rate(3) 1.600%
-----------------------------------------------------------------------
4
(1) 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.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
Past performance is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term debt investments)
As of December 31, 2002
- A/A................ 5.5% [PIE CHART]
- BBB/Baa............ 19.3%
- BB/Ba.............. 42.8%
- B/B................ 29.9%
- CCC/Caa & below.... 2.3%
- Non-Rated.......... 0.2%
As of December 31, 2001
- A/A................ 3.8% [PIE CHART]
- BBB/Baa............ 12.5%
- BB/Ba.............. 38.1%
- B/B................ 37.2%
- CCC/Caa & below.... 8.3%
- Non-Rated.......... 0.1%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
TWELVE-MONTH DIVIDEND HISTORY
(for the year ended December 31, 2002, for common shares)
[BAR GRAPH]
DIVIDENDS
---------
1/02 $0.0615
2/02 $0.0575
3/02 $0.0575
4/02 $0.0575
5/02 $0.0575
6/02 $0.0505
7/02 $0.0505
8/02 $0.0505
9/02 $0.0450
10/02 $0.0450
11/02 $0.0450
12/02 $0.0420
The dividend history represents dividends that were paid on the trust and is no
guarantee of the trust's future dividends.
6
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Gaming & Leisure 14.2% 9.1%
Energy 11.8% 9.6%
Forest Products 8.0% 8.1%
Transportation 7.0% 5.8%
Housing 6.5% 4.6%
Subject to change daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--December 1992 through December 2002)
[LINE GRAPH]
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
12/92 7.9200 9.3750
8.6100 9.7500
8.8400 10.1250
8.7400 10.2500
12/93 8.9800 9.7500
8.4900 9.8750
8.1200 9.7500
7.7500 8.8750
12/94 7.3200 7.5000
7.6700 8.2500
7.9700 8.6250
8.0300 8.6250
12/95 8.1200 8.7500
8.0900 8.8750
7.9400 8.7500
8.1200 9.1250
12/96 8.3100 9.3750
8.1300 9.3750
8.3200 9.8125
8.4700 10.0625
12/97 8.4400 9.8125
8.5000 10.0000
8.3800 9.5625
7.6400 8.5000
12/98 7.5900 8.6250
7.3700 8.4375
7.0900 8.3125
6.6500 7.1875
12/99 6.5600 5.7500
6.2100 6.3750
6.0900 6.8125
5.9900 6.4375
12/00 5.4000 5.6900
5.7400 6.4000
5.4000 6.4000
4.7600 5.9900
12/01 4.7700 5.7500
4.5600 5.8700
4.0500 5.0500
3.6100 4.1100
12/02 3.7900 4.0700
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates 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.
7
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM FOR THE VAN KAMPEN HIGH
INCOME TRUST II ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE TRUST'S RETURN DURING THE 12-MONTH PERIOD ENDED DECEMBER 31,
2002. THE TRUST IS MANAGED BY THE ADVISER'S HIGH YIELD TEAM. CURRENT MEMBERS(1)
OF THE TEAM INCLUDE STEPHEN ESSER, MANAGING DIRECTOR; GORDON LOERY, EXECUTIVE
DIRECTOR; AND DEANNA LOUGHNANE, EXECUTIVE DIRECTOR. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE TRUST'S PERFORMANCE.
(1) Team members may change without notice at any time.
Q WHAT WAS THE MARKET
ENVIRONMENT OF THE PAST 12 MONTHS?
A The 12-month period ended
December 31, 2002, was a highly volatile time in the high-yield market. The year
got off to a strong start, with the credit markets well supported by strong
economic activity in the first quarter of the year. At that point, the market
consensus appeared to coalesce around expectations of continued economic
strength.
The market took a decided turn for the worse for the next six months. The
primary culprit, at least initially, was the growing number and severity of
corporate-governance scandals, including the bankruptcies of Adelphia and
WorldCom. The latter had a particularly strong effect on the high-yield markets
because of the large amount of bonds originating in the telecommunications
sector. Economic fears also resurfaced when it became clear that a recovery in
the second half was increasingly unlikely. Finally, continued weakness in
corporate profits served to undermine both the credit and equity markets. These
factors combined to make June and July two of the worst back-to-back months in
the history of the high-yield market.
As in the final months of 2001, the last two months of 2002 were somewhat
more positive for high-yield bonds. While the corporate credit spreads over U.S.
Treasuries remained fairly wide by historical standards, the high-yield market
on the whole experienced a reversal of some of its previous losses as money
began to flow back into the asset class.
Issuance during the period was generally moderate. While it was off from the
record highs of the late 1990s, corporations still managed to bring roughly $60
to $70 billion in new bonds to market. This supply of debt was relatively well
balanced against demand over the course of the year; in fact, the level of
issuance tended to vary with market demand. Economic uncertainty also led
investors to favor
8
bonds of higher credit quality. This was a continuation of a two-year trend, and
stood in marked contrast to the period of 1997 through 1999 when lower-rated
companies (many of them in the telecommunications sector) brought record amounts
of bonds to market.
That last wave of issuance of lower-quality bonds proved to be a major
factor in the rising rate of defaults from 2000 through 2001. While defaults
remained well above historical averages in 2002, they did appear to taper off
and decline in the last months of the year.
Q HOW DID THE TRUST PERFORM IN
THIS ENVIRONMENT?
A The trust continued to provide
shareholders with what we believe is an attractive level of income, as its
monthly dividend of $0.042 per share translates to a distribution rate of 12.38
percent based on the trust's common share market price as of December 31, 2002.
For the 12-month period ended December 31, 2002, the trust generated a total
return of -19.86 percent. This reflects a decrease in common share market price
from $5.75 per share on December 31, 2001, to $4.07 per share on December 31,
2002.
Of course, past performance is no guarantee of future results. As a result
of recent market activity, current performance may vary from the figures shown.
Investment return, share price and net asset value will fluctuate and trust
shares, when sold, may be worth more or less than their original cost. For more
up-to-date information, please visit vankampen.com or speak with your financial
advisor.
By comparison, the Chase High Yield Index posted a total return of 2.17
percent for the same period. The Chase High Yield Index is a broad-based,
unmanaged statistical composite of high yield securities. Index returns do not
include any sales charges or fees that would be paid by an investor purchasing
the securities it represents, such costs would lower performance. It is not
possible to invest directly in an index. For additional performance results,
please refer to the chart and footnotes on page 4.
Q WHAT WERE THE KEY DRIVERS OF
THE TRUST'S RELATIVE PERFORMANCE?
A The trust's exposure to the cable
and telecom industries had the greatest impact on performance. These were two of
the market's worst-performing sectors because of a combination of deteriorating
industry fundamentals and high default rates. The trust also experienced the
effects of poor security selection in a few select industries. On the positive
side, our underweighted positions in utilities and airlines helped relative
performance, as did good security selection in broadcasting.
Q WHAT STRATEGIES DID YOU USE
IN MANAGING THE TRUST?
A At the portfolio level, we
continued to follow our strategy of rigorous bottom-up security analysis and
selection. Our purchases were generally made with an eye to capitalizing on
securities that had become oversold and as a result offered compelling value.
Our analysts were able to identify attractive opportunities
9
across a wide range of sectors including chemicals, forest products,
transportation, manufacturing and general industrial issues. These securities
offered the additional benefit of giving the portfolio exposure to economically
sensitive sectors that we anticipate should perform strongly when the economy
turns the corner.
In keeping with our bottom-up focus, we sold some of the portfolio's
positions that no longer met our investment criteria. Some of these bonds had
met their performance targets, while others experienced deteriorating
fundamentals. Many of our sales were from the portfolio's holdings of
telecommunications, cable and wireless securities. We also allowed market forces
to reduce the portfolio's weightings in these sectors. By the end of the period,
the trust was underweighted in these troubled sectors relative to its benchmark.
Q WHAT IS YOUR OUTLOOK FOR THE
HIGH-YIELD MARKET?
A In spite of the strong upturn at
the end of the year, high-yield spreads remain at historically wide levels.
These spreads are especially attractive considering that the default rate in the
market appears to be declining and could very well fall further in the coming
year. In our view, the relatively high quality of most of the issuance over the
past few years bodes especially well for a continued decrease in default rates.
Our economic research also indicates that the economy is likely to grow
moderately in the coming year, perhaps somewhere in the range of 2 percent to 3
percent, which should also be supportive of the high-yield market.
10
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, Moody's from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread; the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality ones.
Normally, lower-quality issues provide higher yields to compensate investors for
their additional credit risk.
DEFAULT: The failure to make required debt payments on time.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent, large swings in price.
11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
December 31, 2002
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 178.3%
AEROSPACE 2.3%
$ 735 Sequa Corp. ................................. 9.000% 08/01/09 $ 709,275
-----------
BROADCASTING 3.8%
555 Nextmedia Operating, Inc. ................... 10.750 07/01/11 586,219
635 TV Azteca S.A. (Mexico)...................... 10.500 02/15/07 575,469
-----------
1,161,688
-----------
CABLE 8.5%
1,075 British Sky Broadcasting (United Kingdom).... 7.300 10/15/06 1,119,101
755 Charter Communication Holdings LLC........... 8.250 04/01/07 339,750
725 EchoStar Communications Corp. ............... 9.250 02/01/06 761,250
260 Quebecor Media, Inc. (Canada)................ 11.125 07/15/11 240,825
860 Telewest PLC (United Kingdom) (a)............ 9.625 10/01/06 159,100
-----------
2,620,026
-----------
CHEMICALS 8.8%
250 Acetex Corp. (Canada)........................ 10.875 08/01/09 266,250
650 Equistar Chemicals L.P. ..................... 8.500 02/15/04 643,705
180 FMC Corp., 144A--Private Placement (b)....... 10.250 11/01/09 195,300
145 ISP Chemco, Inc. ............................ 10.250 07/01/11 150,800
675 ISP Holdings, Inc. .......................... 10.625 12/15/09 590,625
195 Lyondell Chemical Co. ....................... 9.875 05/01/07 188,175
195 Lyondell Chemical Co. ....................... 9.500 12/15/08 182,325
175 Millennium America, Inc. .................... 7.000 11/15/06 169,969
250 Millennium America, Inc. .................... 9.250 06/15/08 261,875
57 PCI Chemicals Canada, Inc. (Canada).......... 10.000 12/31/08 40,067
19 Pioneer Cos., Inc. .......................... 5.298 12/31/06 13,190
-----------
2,702,281
-----------
CONSUMER PRODUCTS 0.7%
200 Elizabeth Arden, Inc. ....................... 11.750 02/01/11 207,000
-----------
DIVERSIFIED MEDIA 9.8%
525 Alliance Atlantis Communications, Inc.
(Canada)..................................... 13.000 12/15/09 574,875
335 AOL Time Warner, Inc. ....................... 6.125 04/15/06 346,184
470 K-III Communications Corp. .................. 10.250 06/01/04 463,537
460 Mail Well I Corp. ........................... 9.625 03/15/12 411,700
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DIVERSIFIED MEDIA (CONTINUED)
$ 381 MDC Corp., Inc. (Canada)..................... 10.500% 12/01/06 $ 342,900
40 Primedia, Inc. .............................. 8.875 05/15/11 36,400
85 RH Donnelley Fin Corp. I, 144A--Private
Placement (b)................................ 8.875 12/15/10 91,375
210 RH Donnelley Fin Corp. I, 144A--Private
Placement (b)................................ 10.875 12/15/12 229,950
235 Salem Communications Corp. .................. 7.750 12/15/10 235,587
295 Six Flags, Inc. ............................. 8.875 02/01/10 278,775
-----------
3,011,283
-----------
ENERGY 21.6%
685 BRL Universal Equipment...................... 8.875 02/15/08 715,825
430 Chesapeake Energy Corp. ..................... 7.875 03/15/04 449,350
395 Chesapeake Energy Corp. ..................... 8.125 04/01/11 408,825
270 El Paso Energy Partners LP, 144A--Private
Placement (b)................................ 10.625 12/01/12 277,425
910 Frontier Oil Corp. .......................... 11.750 11/15/09 941,850
535 Hanover Equipment Trust, 144A--Private
Placement (b)................................ 9.487 09/01/08 524,300
160 Hanover Equipment Trust, 144A--Private
Placement (b)................................ 9.737 09/01/11 155,200
205 Magnum Hunter Resources, Inc. ............... 9.600 03/15/12 218,837
472 Port Arthur Finance Corp. ................... 12.500 01/15/09 521,383
240 Stone Energy Corp. .......................... 8.250 12/15/11 250,800
615 Tesoro Petroleum Corp. ...................... 9.625 04/01/12 402,825
430 Transocean, Inc. ............................ 6.500 04/15/03 434,408
515 Transocean, Inc. ............................ 9.500 12/15/08 652,183
605 Vintage Petroleum, Inc. ..................... 7.875 05/15/11 592,900
85 Westport Resources Corp., 144A--Private
Placement (b)................................ 8.250 11/01/11 89,675
-----------
6,635,786
-----------
FINANCIAL 3.5%
240 Banco Nacional de Comercio Exterior
(Mexico)..................................... 7.250 02/02/04 252,257
320 Health Net, Inc. ............................ 8.375 04/15/11 369,521
435 Istar Financial, Inc. ....................... 8.750 08/15/08 463,452
-----------
1,085,230
-----------
FOOD & DRUG 0.0%
1,180 Jitney-Jungle Stores America, Inc. (a) (c)
(d).......................................... 12.000 03/01/06 118
-----------
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOOD & TOBACCO 11.4%
$ 900 Coca Cola Femsa S.A. (Mexico)................ 8.950% 11/01/06 $ 1,019,250
850 Pepsi Gemex S.A. (Mexico).................... 9.750 03/30/04 924,375
805 Smithfield Foods, Inc. ...................... 7.625 02/15/08 788,900
760 Smithfield Foods, Inc. ...................... 8.000 10/15/09 779,000
-----------
3,511,525
-----------
FOREST PRODUCTS 14.7%
305 Abitibi-Consolidated, Inc. (Canada).......... 8.550 08/01/10 339,084
435 MDP Acquisitions PLC, 144A--Private Placement
(Ireland) (b)................................ 9.625 10/01/12 454,575
460 Norske Skog Canada Ltd. (Canada)............. 8.625 06/15/11 465,750
1,020 Owens-Brockway Glass Container, Inc. ........ 8.875 02/15/09 1,055,700
495 Pacifica Papers, Inc. (Canada)............... 10.000 03/15/09 525,937
425 Radnor Holdings Corp. ....................... 10.000 12/01/03 363,375
1,340 Tembec Industries, Inc. (Canada)............. 7.750 03/15/12 1,306,500
-----------
4,510,921
-----------
GAMING & LEISURE 26.0%
690 Harrahs Operating Co., Inc. ................. 7.875 12/15/05 733,125
80 Harrahs Operating Co., Inc. ................. 8.000 02/01/11 92,408
345 Hilton Hotels Corp. ......................... 7.950 04/15/07 358,739
875 HMH Properties, Inc. ........................ 7.875 08/01/05 866,250
635 Horseshoe Gaming LLC......................... 8.625 05/15/09 677,862
1,075 International Game Technology................ 7.875 05/15/04 1,123,375
1,100 Mohegan Tribal Gaming Authority.............. 8.125 01/01/06 1,163,250
380 Park Place Entertainment Corp. .............. 7.875 12/15/05 387,600
325 Park Place Entertainment Corp. .............. 8.875 09/15/08 346,151
440 Prime Hospitality Corp. ..................... 8.375 05/01/12 429,000
800 Starwood Hotels & Resorts, 144A-Private
Placement (b)................................ 7.375 05/01/07 790,000
595 Station Casinos, Inc. ....................... 8.375 02/15/08 635,162
350 Station Casinos, Inc. ....................... 9.875 07/01/10 381,500
-----------
7,984,422
-----------
HEALTHCARE 11.0%
470 Amerisourcebergen Corp. ..................... 8.125 09/01/08 502,900
450 Fisher Scientific International, Inc. ....... 7.125 12/15/05 459,000
505 Fresenius Medical Care Capital Trust II...... 7.875 02/01/08 498,687
180 Fresenius Medical Care Capital Trust IV...... 7.875 06/15/11 175,500
800 HCA, Inc. ................................... 6.910 06/15/05 841,076
115 Manor Care, Inc. ............................ 8.000 03/01/08 121,900
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
HEALTHCARE (CONTINUED)
$ 340 Omnicare, Inc. .............................. 8.125% 03/15/11 $ 365,500
470 Tenet Healthcare Corp. ...................... 6.500 06/01/12 426,217
-----------
3,390,780
-----------
HOUSING 11.9%
405 CB Richard Ellis Service, Inc. .............. 11.250 06/15/11 374,625
585 Louisiana Pacific Corp. ..................... 10.875 11/15/08 631,800
80 Nortek Holdings, Inc. ....................... 9.250 03/15/07 82,600
410 Schuler Homes, Inc. ......................... 9.375 07/15/09 420,250
310 Tech Olympic USA, Inc. ...................... 9.000 07/01/10 302,250
270 Tech Olympic USA, Inc., 144A--Private
Placement (b)................................ 10.375 07/01/12 256,500
825 Toll Corp. .................................. 8.250 02/01/11 833,250
675 Webb (Del E.) Corp. ......................... 10.250 02/15/10 739,125
-----------
3,640,400
-----------
INFORMATION TECHNOLOGY 3.3%
325 Fairchild Semiconductor Corp. ............... 10.500 02/01/09 352,625
650 Flextronics International Ltd. (Singapore)... 8.750 10/15/07 671,125
-----------
1,023,750
-----------
MANUFACTURING 7.0%
190 Case Corp. .................................. 6.250 12/01/03 184,349
195 Case Credit Corp. ........................... 6.125 02/15/03 193,745
555 Communications & Power Industries, Inc. ..... 12.000 08/01/05 468,975
265 Johnsondiversey, Inc., 144A--Private
Placement (b)................................ 9.625 05/15/12 280,237
430 Manitowoc, Inc., 144A--Private Placement
(b).......................................... 10.500 08/01/12 448,275
390 Trimas Corp., 144A--Private Placement (b).... 9.875 06/15/12 388,050
200 Tyco Intl Group S.A. (Luxembourg)............ 6.375 02/15/06 194,161
-----------
2,157,792
-----------
METALS 3.2%
220 Doe Run Resources Corp., Ser B (a)........... 11.250 03/15/05 45,100
900 GS Technologies Operating, Inc. (a) (c)
(d).......................................... 12.250 10/01/05 40,500
275 Oregon Steel Mills, Inc., 144A--Private
Placement (b)................................ 10.000 07/15/09 280,500
365 UCAR Finance, Inc. .......................... 10.250 02/15/12 292,000
1,210 WCI Steel, Inc. ............................. 10.000 12/01/04 326,700
-----------
984,800
-----------
RETAIL 2.3%
205 Big 5 Corp. ................................. 10.875 11/15/07 214,225
180 Gap, Inc. ................................... 10.550 12/15/08 197,100
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
RETAIL (CONTINUED)
$ 60 Penney JC Co., Inc. ......................... 7.600% 04/01/07 $ 61,050
215 Penney JC Co., Inc., 144A--Private Placement
(b).......................................... 9.000 08/01/12 220,375
-----------
692,750
-----------
SERVICES 7.1%
1,010 Allied Waste North America, Inc. ............ 8.875 04/01/08 1,030,200
1,050 Waste Management, Inc. ...................... 7.125 10/01/07 1,147,343
-----------
2,177,543
-----------
TELECOMMUNICATIONS 1.4%
120 Asia Global Crossing (Bermuda) (a) (c)....... 13.375 10/15/10 13,650
192 Exodus Communications, Inc. (a) (c) (d)...... 11.250 07/01/08 11,545
283 Focal Communications Corp. (a) (c)........... 11.875 01/15/10 7,075
650 Frontier Corp. (a) (c)....................... 6.000 10/15/03 35,750
730 Global Crossing Holdings Ltd. (Bermuda) (a)
(c).......................................... 9.125 11/15/06 25,550
77 Globix Corp., 144A--Private Placement (b)
(f).......................................... 11.000 05/01/08 55,623
875 Metromedia Fiber Network, Inc. (a) (c) (d)... 10.000 12/15/09 2,188
430 Nextlink Communications, Inc. (a) (c)........ 9.625 10/01/07 2,688
420 Nextlink Communications, Inc. (a) (c)........ 10.500 12/01/09 2,625
495 PSINet, Inc. (a) (c)......................... 10.500 12/01/06 17,325
1,045 WorldCom, Inc. (a) (c)....................... 7.750 04/01/07 250,800
-----------
424,819
-----------
TRANSPORTATION 12.8%
1,150 Aetna Industries, Inc. (a) (c) (d)........... 11.875 10/01/06 184,000
300 Autonation, Inc. ............................ 9.000 08/01/08 304,500
165 Collins & Aikman Products Co. ............... 11.500 04/15/06 139,425
430 Collins & Aikman Products Co. ............... 10.750 12/31/11 411,725
425 Dana Corp. .................................. 9.000 08/15/11 412,250
340 Dura Operating Corp. ........................ 8.625 04/15/12 343,400
710 Ford Motor Credit Co. ....................... 6.500 01/25/07 701,895
345 General Motors Acceptance Corp. ............. 7.500 07/15/05 363,523
375 Intermet Corp. .............................. 9.750 06/15/09 339,375
430 Lear Corp. .................................. 8.110 05/15/09 456,875
320 Metaldyne Corp. ............................. 11.000 06/15/12 264,000
-----------
3,920,968
-----------
UTILITY 4.1%
430 Calpine Corp. ............................... 8.625 08/15/10 184,900
405 Dynegy Holdings, Inc. ....................... 6.875 04/01/11 139,725
340 Monongahela Power Co. ....................... 5.000 10/01/06 328,565
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
UTILITY (CONTINUED)
$ 475 PSEG Energy Holdings, Inc. .................. 9.125% 02/10/04 $ 470,397
165 PSEG Energy Holdings, Inc. .................. 8.625 02/15/08 137,937
-----------
1,261,524
-----------
WIRELESS COMMUNICATIONS 3.1%
215 American Cellular Corp. ..................... 9.500 10/15/09 41,925
845 Nextel Communications, Inc. ................. 9.375 11/15/09 768,950
143 Telecorp PCS, Inc. .......................... 10.625 07/15/10 154,440
-----------
965,315
-----------
TOTAL CORPORATE BONDS 178.3%.............................................. 54,779,996
-----------
GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 3.5%
405 Federal Republic of Brazil (Brazil).......... 11.250 07/26/07 310,838
110 United Mexican States (Mexico)............... 8.375 01/14/11 124,575
550 United Mexican States (Mexico)............... 8.625 03/12/08 633,325
-----------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS........................ 1,068,738
-----------
DESCRIPTION
EQUITIES 0.9%
DecisionOne Corp. (2,450 common shares) (d) (e)............. 0
DecisionOne Corp. (5,386 common stock warrants) (d) (e)..... 0
Globix Corp. (8,945 common shares) (e)...................... 17,890
HCI Direct, Inc. (30,357 common shares) (d) (e)............. 236,785
Hosiery Corp. of America, Inc. (500 common shares) (e)...... 5
McLeodUSA, Inc. (1,087 common stock warrants) (e)........... 380
McLeodUSA, Inc. (490 preferred shares) (e).................. 2,009
Pioneer Cos., Inc. (3,675 common shares) (e)................ 6,615
Star Gas Partners L.P. (220 limited partnership units)...... 4,070
VS Holdings, Inc. (8,891 common shares) (d) (e)............. 1,660
-----------
TOTAL EQUITIES.............................................. 269,414
-----------
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
December 31, 2002
DESCRIPTION
TOTAL LONG-TERM INVESTMENTS 182.7%
(Cost $67,186,412)........................................ $56,118,148
REPURCHASE AGREEMENT 4.6%
State Street Bank & Trust Co. ($1,402,000 par collateralized
by U.S. Government obligations in a pooled cash account,
dated 12/31/02, to be sold on 01/02/03 at $1,402,082)
(Cost $1,402,000)......................................... 1,402,000
-----------
TOTAL INVESTMENTS 187.3%
(Cost $68,588,412)........................................ 57,520,148
OTHER ASSETS IN EXCESS OF LIABILITIES 3.3%................. 1,029,007
PREFERRED SHARES (INCLUDING ACCRUED
DISTRIBUTIONS) (90.6%)................................... (27,832,898)
-----------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............. $30,716,257
===========
(a) Non-income producing as security is in default.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(c) This borrower has filed for protection in federal bankruptcy court.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Non-income producing security.
(f) Payment-in-kind security.
See Notes to Financial Statements
18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2002
ASSETS:
Total Investments (Cost $68,588,412)........................ $ 57,520,148
Cash........................................................ 279
Interest Receivable......................................... 1,281,638
Other....................................................... 579
------------
Total Assets............................................ 58,802,644
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 34,755
Affiliates................................................ 5,887
Trustees' Deferred Compensation and Retirement Plans........ 133,182
Accrued Expenses............................................ 79,665
------------
Total Liabilities....................................... 253,489
Preferred Shares (including accrued distributions).......... 27,832,898
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 30,716,257
============
NET ASSET VALUE PER COMMON SHARE ($30,716,257 divided by
8,109,000 shares outstanding)............................. $ 3.79
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 8,109,000 shares issued and
outstanding).............................................. $ 81,090
Paid in Surplus............................................. 66,761,242
Accumulated Undistributed Net Investment Income............. (1,036,698)
Net Unrealized Depreciation................................. (11,068,264)
Accumulated Net Realized Loss............................... (24,021,113)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 30,716,257
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 1,112 issued with liquidation preference of
$25,000 per share)........................................ $ 27,800,000
------------
NET ASSETS INCLUDING PREFERRED SHARES....................... $ 58,516,257
============
See Notes to Financial Statements
19
Statement of Operations
For the Year Ended December 31, 2002
INVESTMENT INCOME:
Interest.................................................... $ 5,584,096
Dividends................................................... 506
Other....................................................... 34,012
------------
Total Income............................................ 5,618,614
------------
EXPENSES:
Investment Advisory Fee..................................... 451,942
Preferred Share Maintenance................................. 91,437
Shareholder Services........................................ 38,409
Legal....................................................... 35,964
Custody..................................................... 13,791
Trustees' Fees and Related Expenses......................... 8,751
Other....................................................... 122,604
------------
Total Expenses.......................................... 762,898
------------
NET INVESTMENT INCOME....................................... $ 4,855,716
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (8,628,105)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (12,489,998)
End of the Period......................................... (11,068,264)
------------
Net Unrealized Appreciation During the Period............... 1,421,734
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (7,206,371)
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (565,742)
============
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ (2,916,397)
============
See Notes to Financial Statements
20
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
--------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 4,855,716 $ 7,293,789
Net Realized Loss................................ (8,628,105) (6,366,705)
Net Unrealized Appreciation During the Period.... 1,421,734 1,406,736
Distributions to Preferred Shareholders:
Net Investment Income.......................... (526,962) (1,474,556)
Return of Capital Distribution................. (38,780) (10,892)
----------- -----------
Change in Net Assets Applicable to Common Shares
from Operations................................ (2,916,397) 848,372
Distributions to Common Shareholders:
Net Investment Income.......................... (4,682,374) (5,939,518)
Return of Capital Distribution................. (344,582) (43,874)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES.............. (7,943,353) (5,135,020)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.......................... 38,659,610 43,794,630
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of
($1,036,698) and ($1,220,331), respectively)... $30,716,257 $38,659,610
=========== ===========
See Notes to Financial Statements
21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------
2002 2001 (c) 2000
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD............... $ 4.77 $ 5.40 $ 6.56
------- ------- -------
Net Investment Income................................ .60 .90 1.10
Net Realized and Unrealized Gain/Loss................ (.89) (.61) (1.11)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income.............................. (.07) (.18) (.33)
Return of Capital Distributions.................... -0-* -0-* -0-*
------- ------- -------
Total from Investment Operations....................... (.36) .11 (.34)
Distributions Paid to Common Shareholders:
Net Investment Income................................ (.58) (.73) (.76)
Return of Capital Distributions...................... (.04) (.01) (.06)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD..................... $ 3.79 $ 4.77 $ 5.40
======= ======= =======
Common Share Market Price Per Share at End of the
Period............................................... $ 4.07 $ 5.75 $ 5.69
Total Return (a)....................................... -19.86% 13.57% 12.13%
Net Assets Applicable to Common Shares at End of the
Period (In millions)................................. $ 30.7 $ 38.7 $ 43.8
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (b).................................... 2.28% 2.14% 2.03%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b)...................... 14.50% 16.83% 18.16%
Portfolio Turnover..................................... 81% 63% 40%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (b)................................. 1.18% 1.15% 1.07%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)...................... 12.93% 13.40% 12.66%
SENIOR SECURITIES:
Total Preferred Shares Outstanding..................... 1,112 1,360 1,520
Asset Coverage Per Preferred Share (e)................. $52,652 $53,426 $53,812
Involuntary Liquidating Preference Per Preferred
Share................................................ $25,000 $25,000 $25,000
Average Market Value Per Preferred Share............... $25,000 $25,000 $25,000
* Amount is less than $.01.
(a) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(b) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(c) As required, effective January 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the period ended December 31, 2001 was to decrease net investment income per
share by $.02, increase net realized and unrealized gains and losses per
share by $.02 and decrease the ratio of net investment income to average net
assets applicable to common shares by .40%. Per share, ratios and
supplemental data for periods prior to December 31, 2001 have not been
restated to reflect this change in presentation.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
22
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
$ 7.59 $ 8.44 $ 8.31 $ 8.12 $ 7.32 $ 8.98 $ 7.92
------- -------- -------- -------- -------- -------- --------
1.14 1.18 1.20 1.23 1.27 1.28 1.42
(1.00) (.77) .18 .21 .81 (1.53) 1.02
(.27) (.30) (.29) (.29) (.32) (.23) (.18)
-0- -0- -0- -0- -0- -0- -0-
------- -------- -------- -------- -------- -------- --------
(.13) .11 1.09 1.15 1.76 (.48) 2.26
(.90) (.96) (.96) (.96) (.96) (1.18) (1.20)
-0- -0- -0- -0- -0- -0- -0-
------- -------- -------- -------- -------- -------- --------
$ 6.56 $ 7.59 $ 8.44 $ 8.31 $ 8.12 $ 7.32 $ 8.98
======= ======== ======== ======== ======== ======== ========
$ 5.75 $ 8.625 $ 9.8125 $ 9.375 $ 8.75 $ 7.50 $ 9.75
-25.28% -2.73% 15.34% 18.91% 30.33% -12.94% 17.01%
$ 53.2 $ 61.6 $ 68.4 $ 67.4 $ 65.8 $ 59.4 $ 72.8
1.97% 1.92% 1.83% 1.89% 1.96% 1.97% 1.72%
16.32% 14.54% 14.43% 15.19% 16.19% 15.75% 16.46%
56% 65% 98% 94% 124% 125% 140%
1.10% 1.14% 1.10% 1.12% 1.15% 1.17% 1.05%
12.41% 10.85% 10.93% 11.58% 12.09% 12.87% 14.41%
1,800 900 900 900 900 900 900
$54,557 $118,418 $126,015 $124,849 $123,135 $115,957 $130,926
$25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements
23
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Trust II (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide high current
income, while seeking to preserve shareholders' capital through investment in a
professionally managed diversified portfolio of high yield, fixed income
securities. The Trust commenced investment operations on April 28, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available, valuations are obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Trust may 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 Investment Advisory Corp. (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.
24
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
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.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 2002, the Trust had an accumulated capital loss
carryforward for tax purposes of $22,397,747 which expires between December 31,
2003 and December 31, 2010. Of this amount, $2,448,303 will expire on December
31, 2003.
At December 31, 2002, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $ 68,913,329
============
Gross tax unrealized appreciation........................... $ 1,696,272
Gross tax unrealized depreciation........................... (13,089,453)
------------
Net tax unrealized depreciation on investments.............. $(11,393,181)
============
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually to common shareholders. Distributions from net
realized gains for book purposes may include short-term capital gains which are
included in ordinary income for tax purposes.
The tax character of distributions paid during the years ended December 31,
2002 and 2001 was as follows:
2002 2001
Distributions paid from:
Ordinary income........................................... $5,224,881 $7,537,483
Return of capital......................................... 383,362 54,747
---------- ----------
$5,608,243 $7,592,230
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between
25
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
book and tax basis reporting for the 2002 fiscal year have been identified and
appropriately reclassified. Permanent differences of $549,828 relating to book
to tax amortization differences were reclassified from accumulated undistributed
net investment income to accumulated net realized loss, $12,575 relating to fee
income received from tender offers were reclassified from accumulated
undistributed net investment income to accumulated net realized loss, $383,362
relating to return of capital distributions were reclassified from accumulated
undistributed net investment income to capital, and $902,223 relating to a
portion of the capital loss carryforward that expired during the tax year ended
December 31, 2002, were reclassified from accumulated net realized loss to
capital.
Net realized gains or losses may differ for financial reporting and tax
purposes as a result of the deferral of losses relating to wash sale
transactions and as a result of post-October losses which may not be recognized
for tax purposes until the first day of the following fiscal year.
F. RECLASSIFICATIONS In accordance with the provisions of EITF D-98,
"Classification and Measurement of Redeemable Securities", effective for the
current period, the Trust has reclassified its Auction Preferred Shares ("APS")
outside of permanent equity in the Net Assets section of the Statement of Assets
and Liabilities. In addition, distributions to APS shareholders are now
classified as a component of the "Net decrease in net assets applicable to
common shares from operations" on the Statement of Operations and the Statements
of Changes in Net Assets and as a component of the "Total from Investment
Operations" on the Financial Highlights. Prior year amounts presented have been
reclassified to conform to this period's presentation. This change has no impact
on the net assets applicable to common shares of the Trust.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average daily net assets of the Trust.
For the year ended December 31, 2002, the Trust recognized expenses of
approximately $20,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended December
31, 2002, the Trust recognized expenses of approximately $28,200 representing
Van Kampen
26
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
Investment Inc.'s or its affiliates (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, which are reported as part
of "Other" and "Legal" expenses, respectively, in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments were $48,873,403 and $51,846,575, respectively.
4. AUCTION PREFERRED SHARES
As of December 31, 2002, the Trust has outstanding 1,112 APS. Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on December 31, 2002 was 1.60%. During the
year ended December 31, 2002, the rates ranged from 1.60% to 2.00%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
On June 28, 2002, the Trust redeemed 132 shares of its APS with a
liquidation value of $25,000 per share.
On July 30, 2002, the Trust redeemed an additional 116 shares of its APS
with a liquidation value of $25,000 per share.
27
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Van Kampen High Income Trust II
We have audited the accompanying statement of assets and liabilities of Van
Kampen High Income Trust II (the "Trust"), including the portfolio of
investments, as of December 31, 2002, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to December 31, 2000, were audited by other auditors whose report, dated
February 4, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002, by correspondence with the Trust's
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen High Income Trust II as of December 31, 2002, the results of its
operations, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 7, 2003
28
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. All Common Shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate. Common Shareholders who elect not to
participate in the Plan will receive all distributions of dividends and capital
gains in cash paid by check mailed directly to the Common Shareholder by the
Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
29
RIGHT TO WITHDRAW
All Common Shareholders of the Trust are deemed to be participants in the
Plan unless they specifically elect not to participate. You may withdraw from
the Plan at any time by calling 1-800-341-2929 or by writing State Street Bank
and Trust Company. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan, and a cash payment will be made for any fractional
Common Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
2800 Post Oak Blvd.
Houston, TX 77056
Attn: Closed-End Funds
30
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME TRUST II
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
31
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Trust and their
principal occupations for the last five years, other directorships held by the
trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van
Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."),
Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc.
(the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset
Management sometimes are referred to herein collectively as the "Advisers." For
purposes hereof, the term "Fund Complex" includes each of the investment
companies advised by the Advisers or their affiliates. Trustees serve three year
terms or until their successors are duly elected and qualified. Officers are
annually elected by the trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (57) Trustee Trustee Mr. Arch is Chairman 37 Mr. Arch is a
Blistex Inc. since 1989 and Chief Executive member of the Board
1800 Swift Drive Officer of Blistex of Directors of the
Oak Brook, IL 60523 Inc., a consumer health Heartland Alliance,
care products a non-profit
manufacturer, and organization
former Director of the serving human needs
World Presidents based in Chicago.
Organization-Chicago
Chapter. Mr. Arch is
also a Trustee or
Managing General
Partner of other
investment companies
advised by the
Advisers.
32
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (62) Trustee Trustee Mr. Dammeyer is 37 Mr. Dammeyer is a
CAC, llc. since 1989 President of CAC, llc., member of the Board
676 North Michigan Avenue a private company of Directors of
Suite 2800 offering capital TeleTech Holdings
Chicago, IL 60611 investment and Inc., Stericycle,
management advisory Inc., GATX
services. Mr. Dammeyer Corporation,
is also a Trustee or Therasence, Inc.
Managing General and Peregrine
Partner of other Systems Inc. and a
investment companies member of the Board
advised by the of Trustees of the
Advisers. Prior to University of
February 2001, Mr. Chicago Hospitals
Dammeyer was Vice and Health Systems.
Chairman and Director Prior to July 2000,
of Anixter Mr. Dammeyer was a
International, Inc. and member of the Board
IMC Global Inc. Prior of Directors of
to July 2000, Mr. Allied Riser
Dammeyer was a Managing Communications
Partner of Equity Group Corp., Matria
Corporate Investment Healthcare Inc.,
(EGI), a company that Transmedia
makes private Networks, Inc., CNA
investments in other Surety, Corp. and
companies. Prior to Grupo Azcarero
1997, Mr. Dammeyer was Mexico (GAM). Prior
President, Chief to April 1999, Mr.
Executive Officer and a Dammeyer was a
Director of Great Director of Metal
American Management & Management, Inc.
Investment, Inc., a Prior to 1998, Mr.
diversified Dammeyer was a
manufacturing company. Director of Lukens,
Inc., Capsure
Holdings Corp.,
Revco D.S., Inc.,
the Chase Manhattan
Corporation
National Advisory
Board and Sealy,
Inc. Prior to 1997,
Mr. Dammeyer was a
Director of Flacon
Building Products,
Inc.
33
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Howard J Kerr (67) Trustee Trustee Mr. Kerr is a Trustee 37 Mr. Kerr is a
736 North Western Avenue since 1992 or Managing General Director of Canbra
P.O. Box 317 Partner of other Foods, Ltd., a
Lake Forest, IL 60045 investment companies Canadian oilseed
advised by the crushing, refining,
Advisers. Prior to processing and
1998, Mr. Kerr was the packaging,
President and Chief operations, the
Executive Officer of Marrow Foundation
Pocklington and Lake Forest
Corporation, Inc., an Bank & Trust.
Investment holding
company.
Theodore A. Myers (72) Trustee Trustee Mr. Myers is a 37 Mr. Myers is a
550 Washington Avenue since 1989 financial consultant. Director of Met
Glencoe, IL 60022 Mr. Myers is also a Life Investors
Trustee or Managing (formerly known as
General Partner of COVA Financial Life
other investment Insurance). Prior
companies advised by to 1997, Mr. Myers
the Advisers. Prior to was a Director of
1998, Mr. Myers was a McLouth Steel.
Senior Financial
Advisor (and, prior to
1997, an Executive Vice
President, Chief
Financial Officer and
Director) of Qualitech
Steel Corporation, a
producer of high
quality engineered
steels for automotive,
transportation and
capital goods
industries. Prior to
1997, Mr. Myers was a
member of the Arthur
Andersen Chief
Financial Officers'
Committee.
34
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (62) Trustee Trustee Mr. Sonnenschein is 37 Mr. Sonnenschein is
1126 E. 59th Street since 1994 President Emeritus and a Director of
Chicago, IL 60637 Honorary Trustee of the Winston
University of Chicago Laboratories, Inc.
and the Hutchinson
Distinguished Service
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, Mr. Sonnenschein
was President of the
University of Chicago.
Mr. Sonnenschein is a
member of the Board of
Trustees of the
University of Rochester
and a member of its
investment committee.
Mr. Sonnenschein is a
member of the National
Academy of Sciences,
the American
Philosophical Society,
and a fellow of the
American Academy of
Arts and Sciences. Mr.
Sonnenschein is also a
Trustee or Managing
General Partner of
other investment
companies advised by
the Advisers.
35
INTERESTED TRUSTEES*:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Chairman Trustee Mr. Powers is Chairman 92
1 Parkview Plaza since 1999 of the Board. Trustee/
Oakbrook Terrace, IL 60181 Director of funds in
the Fund Complex. Prior
to December 2002, Mr.
Powers was Chairman,
Director, President,
Chief Executive Officer
and Managing Director
of Van Kampen;
Chairman, Director,
Chief Executive Officer
and Managing Director
of the Advisers,
Distributor, Van Kampen
Advisors Inc. and Van
Kampen Management Inc.;
Director of other
subsidiaries of Van
Kampen; and Chief Sales
and Marketing Officer
of Morgan Stanley Asset
Management Inc. Prior
to May 1998, Mr. Powers
was Executive Vice
President; and Director
of Marketing of Morgan
Stanley and Director of
Dean Witter Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Mr. Powers was Director
of Dean Witter Reynolds
Inc.
Wayne W. Whalen* (63) Trustee Trustee Mr. Whalen is a Partner 92
333 West Wacker Drive since 1989 in the law firm of
Chicago, IL 60606 Skadden, Arps, Slate,
Meagher & Flom
(Illinois), legal
counsel to certain
funds advised by the
Advisers. Mr. Whalen is
a Trustee, Director or
Managing General
Partner of other funds
advised by the
Advisers.
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person to certain of the funds
in the Fund Complex by reason of his firm currently acting as legal counsel to
such funds in the Fund Complex. Mr. Powers is an interested person of such
funds in the Fund Complex and the Advisers by reason of their current or
former positions with Morgan Stanley or its affiliates.
36
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director and Chief Investment Officer of Van Kampen
2800 Post Oak Blvd. since 1998 Investments, and Managing Director and President of the
45th Floor Advisers and Van Kampen Advisors Inc. Executive Vice
Houston, TX 77056 President and Chief Investment Officer of funds in the Fund
Complex. Prior to December 2000, Executive Vice President
and Chief Investment Officer of Van Kampen Investments, and
President and Chief Operating Officer of the Advisers. Prior
to April 2000, Executive Vice President and Chief Investment
Officer for Equity Investments of the Advisers. Prior to
October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President and Portfolio Manager of Van Kampen
American Capital Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
37
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Mitchell M. Merin (49) President and Officer President and Chief Executive Officer of funds in the Fund
1221 Avenue of the Americas Chief Executive since 2002 Complex since November 2002. Trustee/Director of certain
New York, NY 10020 Officer funds in the Fund Complex since 1999. President and Chief
Operating Officer of Morgan Stanley Investment Management
since December 1998. President and Director since April 1997
and Chief Executive Officer since June 1998 of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley Services
Company Inc. Chairman, Chief Executive Officer and Director
of Morgan Stanley Distributors Inc. since June 1998.
Chairman since June 1998, and Director since January 1998 of
Morgan Stanley Trust. Director of various Morgan Stanley
subsidiaries. President of the Morgan Stanley Funds since
May 1999. Previously Chief Strategic Officer of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley Services
Company Inc. and Executive Vice President of Morgan Stanley
Distributors Inc. April 1997-June 1998, Vice President of
the Morgan Stanley Funds May 1997-April 1999, and Executive
Vice President of Dean Witter, Discover & Co. prior to May
1997.
Joseph J. McAlinden (60) Chief Investment Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas Officer since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Management Inc. and Morgan Stanley Investments LP; and
Director of Morgan Stanley Trust for five years.
38
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
A. Thomas Smith III (46) Vice President and Officer Managing Director and Director of Van Kampen Investments,
1221 Avenue of Americas Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the
New York, NY 10020 Distributor, Investor Services and certain other
subsidiaries of Van Kampen Investments. Managing Director
and General Counsel-Mutual Funds of Morgan Stanley
Investment Advisors, Inc. Vice President or Principal Legal
Officer and Secretary of funds in the Fund Complex. Prior to
July 2001, Managing Director, General Counsel, Secretary and
Director of Van Kampen Investments, the Advisers, the
Distributor, Investor Services, and certain other
subsidiaries of Van Kampen Investments. Prior to December
2000, Executive Vice President, General Counsel, Secretary
and Director of Van Kampen Investments, the Advisers, Van
Kampen Advisors Inc., the Distributor, Investor Services and
certain other subsidiaries of Van Kampen Investments. Prior
to January 1999, Vice President and Associate General
Counsel to New York Life Insurance Company ("New York
Life"), and prior to March 1997, Associate General Counsel
of New York Life. Prior to December 1993, Assistant General
Counsel of The Dreyfus Corporation. Prior to August 1991,
Senior Associate, Willkie Farr & Gallagher. Prior to January
1989, Staff Attorney at the Securities and Exchange
Commission, Division of Investment Management, Office of
Chief Counsel.
John R. Reynoldson (49) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors
1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to
Oakbrook Terrace, IL 60181 July 2001, Principal and Co-head of the Fixed Income
Department of the Advisers and Van Kampen Advisors Inc.
Prior to December 2000, Senior Vice President of the
Advisers and Van Kampen Advisors Inc. Prior to May 2000, he
managed the investment grade taxable group for the Advisers
since July 1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since April 1987.
John L. Sullivan (47) Vice President, Officer Executive Director of Van Kampen Investments, the Advisers
1 Parkview Plaza Chief Financial since 1996 and Van Kampen Advisors Inc. Vice President, Chief Financial
Oakbrook Terrace, IL 60181 Officer and Officer and Treasurer of funds in the Fund Complex. Head of
Treasurer Fund Accounting for Morgan Stanley Investment Management.
39
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John H. Zimmermann, III (45) Vice President Officer Managing Director and Director of Van Kampen Investments,
Harborside Financial Center since 2000 and Managing Director, President and Director of the
Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex.
Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance
Agency of Illinois Inc., and Senior Vice President and
Director of Van Kampen Investments. From November 1992 to
December 1997, Mr. Zimmermann was Senior Vice President of
the Distributor.
40
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
920, 913, 100 Member NASD/SIPC.
VLT ANR 2/03 9492B03-AS-2/03