UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9279
Van Kampen Equity Trust II
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 8/31
Date of reporting period: 8/31/03
Item 1. Report to Shareholders
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Technology Fund performed during the annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of August 31,
2003.
This material must be preceded or accompanied by a prospectus for the
fund being offered.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the fund will achieve its investment
objective. The fund is subject to market risk, which is the possibility
that the market values of securities owned by the fund will decline and,
therefore, the value of the fund shares may be less than what you paid
for them. Accordingly, you can lose money investing in this fund. Please
see the prospectus for more complete information on investment risks.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Performance Summary
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Pacific Stock
Exchange (PSE) Technology Index from 7/26/99 through 8/31/03. Class A shares,
adjusted for sales charges.
(LINE GRAPH)
<Table>
<Caption>
PACIFIC STOCK EXCHANGE TECHNOLOGY
VAN KAMPEN TECHNOLOGY FUND INDEX
-------------------------- ---------------------------------
7/99 10000 10000
10867 10809
12/99 19274 16741
24298 20012
6/00 21593 18969
24081 17890
12/00 14260 14026
6607 11404
6/01 6795 12499
3761 8908
12/01 5061 11839
4910 11801
6/02 3393 8845
2300 6643
12/02 2582 7893
2630 7860
6/03 3223 9684
8/03 3704 10872
</Table>
Source: Confluence Technologies, Inc. and Bloomberg.
<Table>
<Caption>
A SHARES B SHARES C SHARES
since 07/26/99 since 07/26/99 since 07/26/99
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL W/O SALES W/SALES W/O SALES W/SALES W/O SALES W/SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception -20.38% -21.52% -20.98% -21.27% -20.98% -20.98%
1-year 35.52 27.60 34.63 29.63 34.63 33.63
- ---------------------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and fund shares, when redeemed, may be worth
more or less than their original cost. The returns shown in this report do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
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. Average annual total return with sales
charges includes payment of the maximum sales charge of 5.75 percent for Class A
shares, a contingent deferred sales charge of 5.00 percent for Class B shares
(in year one and declining to zero after year five), a contingent deferred sales
charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1
fees and service fees of up to 0.25 percent for Class A shares and 1.00 percent
for Class B and C shares. Figures shown above assume reinvestment of all
dividends and capital gains.
Pacific Stock Exchange (PSE) Technology Index measures the performance of 100
technology stocks from 15 industrial groups. Index is unmanaged and does not
include any sales charges or fees. Such costs would lower performance. It is not
possible to invest directly in an index.
1
Fund Report
FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
Van Kampen Technology Fund is managed by the adviser's Multi-Cap Growth
team. Current members include(1) Gary Lewis, Managing Director; David
Walker, Executive Director; Dudley Brickhouse, Executive Director; Janet
Luby, Executive Director; Matthew Hart, Vice President; and Scott Miller,
Associate. The following discussion reflects the team's views on the
fund's performance.
Q. BEFORE YOU DISCUSS HOW THE FUND PERFORMED, PLEASE DESCRIBE THE
OVERALL MARKET ENVIRONMENT.
A. Throughout the first half of the reporting period, technology stocks
continued to struggle. By the end of the 12 months, however, they were
enjoying their best sustained results since early 2000.
-- When the period began, stock investors were worried about the
economy's potential to dip back into a recession. They also had
concerns about an increasingly likely war in Iraq, the economic
impact of SARS and the lingering effects of corporate-accounting
scandals.
-- In light of continued low interest rates, a major tax cut and the
end of major combat in Iraq, investors gradually became more
optimistic about the economy, which showed unmistakable signs of
recovery.
-- As investor confidence increased, so did stock prices. The biggest
beneficiaries were technology and other economically sensitive
stocks, as investors anticipated a future jump in these companies'
earnings.
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. The fund underperformed its benchmark index.
-- Van Kampen Technology Fund returned 35.52 percent for the 12 months
ended August 31, 2003. Performance figures are for Class A shares,
and assume the reinvestment of all distributions but do not reflect
the deduction of any applicable sales charges. If sales charges were
included, performance would be lower. Past performance is no
guarantee of future results.
-- The fund's benchmark index, the Pacific Stock Exchange (PSE)
Technology Index, returned 41.03 percent.
Although the fund lagged the benchmark for the trailing 12-month period,
it did considerably better in calendar year 2003. The improving market
conditions during the year were more suited to the fund's investment
style--seeking stocks with rising earnings expectations
(1)Team members may change at any time without notice.
2
and/or rising valuations. This approach has historically performed better
in a strengthening economy than in a weakening economy, and 2003 was no
exception. During the first eight months of the year, the fund returned
43.43 percent, compared to 37.74 percent for the PSE index.
See Performance Summary for additional information and index definitions.
Q. WHAT FACTORS HINDERED PERFORMANCE?
A. Owning positions in Tenet Healthcare and Brocade Communications
Systems detracted from the fund's relative performance, as did the fund's
holdings in several defense stocks.
-- Health-care services provider Tenet Healthcare faced allegations of
fraud stemming from its Medicare billing. When we invested the fund
in Tenet, we believed the company had strong fundamentals.
Unfortunately, we had no way to know that the company's financial
statements may have been based on unsound business practices. We
sold the stock from the portfolio after learning of the problem,
but, unfortunately, not soon enough to avoid a loss to the fund.
-- Brocade Communications Systems makes switches that allow companies
to improve their data-storage capabilities. In the face of stiff
competition and a disappointing new-product lineup, Brocade's
earnings fell well short of expectations, and the company's stock
reflected the weakness. In response, we eliminated the fund's
position in Brocade.
<Table>
TOP TEN HOLDINGS AS OF 8/31/03 TOP TEN INDUSTRIES AS OF 8/31/03
eBay 5.2% Semiconductor Equipment 22.6%
Cisco Systems 4.6 Semiconductors 19.7
Lam Research 4.5 Communications Equipment 11.4
KLA-Tencor 4.4 Internet Retail 10.3
Applied Materials 4.3 Biotechnology 6.8
Intel 4.0 Systems Software 6.6
Mercury Interactive 3.9 Application Software 5.3
Novellus Systems 3.5 Computer Storage & Peripherals 3.9
Amazon.com 3.4 Internet Software & Services 3.8
VERITAS 2.8 Health Care Equipment 2.8
</Table>
Subject to change daily. All percentages are as of a percentage of long-term
investments. All information is provided for informational purposes only and
should not be deemed as a recommendation to buy the securities mentioned or
securities in the industries shown above. Morgan Stanley is a full-service
securities firm engaged in securities trading and brokerage activities,
investment banking, research and analysis, financing and financial advisory
services.
3
-- Defense contractors Lockheed Martin and Northrop Grumman also
lagged. As the United States prepared to go to war in Iraq, these
companies benefited from expectations for increased defense
spending. Once the war came and went, however, investors started
looking elsewhere for new opportunities. Questions about the size of
future defense budgets also weighed on both stocks. The
disappointing results led us to sell the fund's positions in these
companies.
Q. WHAT HELPED PERFORMANCE DURING THE REPORTING PERIOD?
A. On the positive side, the fund benefited from owning several large
Internet names, and from positions in certain semiconductor companies and
biotechnology firms.(2)
-- Three of the best-established Internet companies, eBay, Amazon.com
and Yahoo, helped boost results. In the Internet's early days, many
investors were skeptical about the future prospects of these
businesses. As these companies have matured, however, investors
increasingly have come to believe that all three are real businesses
with real earnings and are legitimate investment opportunities.
-- The second half of the reporting period saw a resurgence in the
semiconductor industry, after a particularly brutal slowdown. The
fund enjoyed success with investments in semiconductor-equipment
makers such as Applied Materials and Lam Research, which benefited
as their customers sought to meet increased demand for chips.
-- Leading biotechnology companies Amgen, Gilead Sciences and Genentech
also helped relative performance. Investors in these stocks were
enthusiastic about new drugs that are already generating strong
earnings, as well as the pipeline of promising biotech products that
soon are expected to enter the marketplace.
Q. PLEASE HIGHLIGHT SIGNIFICANT WEIGHTINGS FROM THE PORTFOLIO.
A. Three significant holdings in the fund as of August 31, 2003, were eBay,
Cisco Systems, and Intel.(2)
-- As the leading online auction house, eBay has continued to benefit
from the increasing number of Internet users, especially
internationally. We were attracted to eBay's business model,
impressive profit margins and healthy cash flow.
-- Cisco, the dominant provider of networking equipment, took advantage
of the recent downturn to acquire competitors and solidify its
position in the marketplace. It also cut costs aggressively in an
effort to operate even more efficiently. We believed Cisco offered
(2)There is no guarantee that these securities will continue to perform well or
be held by the fund in the future.
4
considerable growth potential in an increasingly positive
environment for technology spending.
-- Semiconductor giant Intel looked to gain from a potential rebound in
personal computer sales. We also liked Intel's aggressive marketing
efforts, which, by promoting the benefits of wireless networking,
generated demand for its Centrino(TM) microprocessor.
Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW OF THE FUND, DO YOU HAVE ANY
CLOSING THOUGHTS FOR SHAREHOLDERS?
A. We think the current economic backdrop is favorable. There has been a
tremendous amount of economic stimulus during the past several years that
has recently started to have a noticeable impact on the technology
sector. Although the economy is not yet out of the woods, we are hopeful
that it may continue to improve and continue to generate a favorable
environment for technology companies and our style of investing.
5
ANNUAL HOUSEHOLDING NOTICE
To reduce expenses, the fund attempts to eliminate duplicate mailings to
the same address. The fund delivers a single copy of certain shareholder
documents to investors who share an address, even if the accounts are
registered under different names. The fund's prospectus and shareholder
reports (including annual privacy notices) will be delivered to you in
this manner indefinitely unless you instruct us otherwise. You can
request multiple copies of these documents by either calling (800)
341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza,
P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has
received your instructions, we will begin sending individual copies for
each account within 30 days.
PROXY VOTING POLICIES AND PROCEDURES
A description of the fund's policies and procedures with respect to the
voting of proxies relating to the fund's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
6
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2003
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
COMMON STOCKS 99.7%
APPLICATION SOFTWARE 5.2%
BEA Systems, Inc. (a)....................................... 125,000 $ 1,693,750
Cognos Inc. (Canada) (a).................................... 100,000 3,065,000
Mercury Interactive Corp. (a)............................... 300,000 13,167,000
------------
17,925,750
------------
BIOTECHNOLOGY 6.8%
Amgen, Inc. (a)............................................. 100,000 6,590,000
Genentech, Inc. (a)......................................... 65,000 5,161,000
Gen-Probe, Inc. (a)......................................... 50,000 3,162,000
Gilead Sciences, Inc. (a)................................... 125,000 8,337,500
------------
23,250,500
------------
COMMUNICATIONS EQUIPMENT 11.4%
Cisco Systems, Inc. (a)..................................... 825,000 15,798,750
Corning, Inc. (a)........................................... 350,000 2,887,500
Emulex Corp. (a)............................................ 75,000 1,815,750
Foundry Networks, Inc. (a).................................. 300,000 5,835,000
Juniper Networks, Inc. (a).................................. 325,000 5,596,500
QLogic Corp. (a)............................................ 75,000 3,676,500
Utstarcom, Inc. (a)......................................... 75,000 3,222,000
------------
38,832,000
------------
COMPUTER HARDWARE 2.7%
Dell Computer Corp. (a)..................................... 190,000 6,199,700
Seagate Technology (Cayman Islands)......................... 125,000 2,876,250
------------
9,075,950
------------
COMPUTER STORAGE & PERIPHERALS 3.9%
Avid Technology, Inc. (a)................................... 65,000 3,227,250
EMC Corp. (a)............................................... 200,000 2,550,000
Network Appliance, Inc. (a)................................. 100,000 2,241,000
SanDisk Corp. (a)........................................... 85,000 5,139,100
------------
13,157,350
------------
HEALTH CARE EQUIPMENT 2.8%
Boston Scientific Corp. (a)................................. 100,000 6,010,000
Cyberonics, Inc. (a)........................................ 70,000 1,927,100
Medtronic, Inc. ............................................ 35,000 1,735,300
------------
9,672,400
------------
HOME ENTERTAINMENT SOFTWARE 1.3%
Electronic Arts, Inc. (a)................................... 50,000 4,487,500
------------
</Table>
See Notes to Financial Statements 7
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
INTERNET RETAIL 10.2%
Amazon.com, Inc. (a)........................................ 250,000 $ 11,610,000
eBay, Inc. (a).............................................. 320,000 17,721,600
InterActiveCorp (a)......................................... 150,000 5,551,500
------------
34,883,100
------------
INTERNET SOFTWARE & SERVICES 3.8%
At Road, Inc. (a)........................................... 121,900 1,637,117
Netease.com, Inc.--ADR (China) (a).......................... 50,000 2,545,500
United Online, Inc. (a)..................................... 75,000 2,858,250
Yahoo!, Inc. (a)............................................ 175,000 5,845,000
------------
12,885,867
------------
PHARMACEUTICALS 1.8%
American Pharmaceutical Partners, Inc. (a).................. 35,000 1,667,400
Teva Pharmaceutical Industries, Ltd.--ADR (Israel).......... 75,000 4,403,400
------------
6,070,800
------------
SEMICONDUCTOR EQUIPMENT 22.6%
Applied Materials, Inc. (a)................................. 675,000 14,580,000
ASML Holding N.V. (Netherlands) (a)......................... 250,000 3,975,000
Brooks Automation, Inc. (a)................................. 125,000 3,056,250
Entegris, Inc. (a).......................................... 200,000 2,944,000
Integrated Circuit Systems, Inc. (a)........................ 125,000 4,315,000
KLA-Tencor Corp. (a)........................................ 250,000 14,840,000
Lam Research Corp. (a)...................................... 600,000 15,432,000
Novellus Systems, Inc. (a).................................. 300,000 11,988,000
Teradyne, Inc. (a).......................................... 100,000 1,783,000
Varian Semiconductor Equipment Associates, Inc. (a)......... 100,000 4,057,000
------------
76,970,250
------------
SEMICONDUCTORS 19.6%
Analog Devices, Inc. (a).................................... 125,000 5,125,000
Broadcom Corp., Class A (a)................................. 150,000 4,098,000
Cypress Semiconductor Corp. (a)............................. 225,000 4,178,250
Intel Corp. ................................................ 475,000 13,594,500
Intersil Corp., Class A (a)................................. 150,000 4,369,500
Linear Technology Corp. .................................... 175,000 7,213,500
Marvell Technology Group Ltd. (Bermuda) (a)................. 150,000 6,325,500
Maxim Integrated Products, Inc. ............................ 75,000 3,368,250
Micron Technology, Inc. (a)................................. 175,000 2,513,000
National Semiconductor Corp. (a)............................ 125,000 3,642,500
Omnivision Technologies, Inc. (a)........................... 75,000 3,329,250
RF Micro Devices, Inc. (a).................................. 175,000 1,543,500
Skyworks Solutions, Inc. (a)................................ 150,000 1,701,000
Taiwan Semiconductor Manufacturing Co., Ltd.--ADR
(Taiwan-Republic of China)................................ 297,000 3,498,660
Texas Instruments, Inc. .................................... 100,000 2,385,000
------------
66,885,410
------------
</Table>
8 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
SYSTEMS SOFTWARE 6.6%
Microsoft Corp. ............................................ 255,000 $ 6,762,600
Oracle Corp. (a)............................................ 200,000 2,556,000
Symantec Corp. (a).......................................... 65,000 3,732,950
VERITAS Software Corp. (a).................................. 275,000 9,482,000
------------
22,533,550
------------
WIRELESS TELECOMMUNICATION SERVICES 1.0%
Nextel Communications, Inc., Class A (a).................... 175,000 3,374,000
------------
TOTAL LONG-TERM INVESTMENTS 99.7%
(Cost $252,859,893).................................................. 340,004,427
REPURCHASE AGREEMENT 0.8%
UBS Securities LLC ($2,817,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 08/29/03, to be sold on
09/02/03 at $2,817,307)
(Cost $2,817,000).................................................. 2,817,000
------------
TOTAL INVESTMENTS 100.5%
(Cost $255,676,893)................................................ 342,821,427
LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%)........................ (1,541,630)
------------
NET ASSETS 100.0%................................................... $341,279,797
============
</Table>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
See Notes to Financial Statements 9
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2003
<Table>
ASSETS:
Total Investments (Cost $255,676,893)....................... $ 342,821,427
Receivables:
Investments Sold.......................................... 981,198
Fund Shares Sold.......................................... 396,636
Dividends................................................. 19,640
Interest.................................................. 230
Other....................................................... 39,836
---------------
Total Assets............................................ 344,258,967
---------------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 1,012,861
Investments Purchased..................................... 840,598
Fund Shares Repurchased................................... 379,061
Investment Advisory Fee................................... 241,554
Custodian Bank............................................ 2,462
Accrued Expenses............................................ 448,444
Trustees' Deferred Compensation and Retirement Plans........ 54,190
---------------
Total Liabilities....................................... 2,979,170
---------------
NET ASSETS.................................................. $ 341,279,797
===============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 1,941,070,123
Net Unrealized Appreciation................................. 87,144,534
Accumulated Net Investment Loss............................. (61,268)
Accumulated Net Realized Loss............................... (1,686,873,592)
---------------
NET ASSETS.................................................. $ 341,279,797
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $125,262,551 and 31,873,469 shares of
beneficial interest issued and outstanding)............. $ 3.93
Maximum sales charge (5.75% * of offering price)........ .24
---------------
Maximum offering price to public........................ $ 4.17
===============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $172,654,201 and 45,368,129 shares of
beneficial interest issued and outstanding)............. $ 3.81
===============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $43,363,045 and 11,393,147 shares of
beneficial interest issued and outstanding)............. $ 3.81
===============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
10 See Notes to Financial Statements
Statement of Operations
For the Year Ended August 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $10,840)..... $ 346,925
Interest.................................................... 66,447
------------
Total Income............................................ 413,372
------------
EXPENSES:
Shareholder Services........................................ 4,454,865
Investment Advisory Fee..................................... 2,485,355
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $257,646, $1,367,123 and $350,170,
respectively)............................................. 1,974,939
Custody..................................................... 27,989
Legal....................................................... 19,315
Trustees' Fees and Related Expenses......................... 18,007
Other....................................................... 301,017
------------
Total Expenses.......................................... 9,281,487
Less Credits Earned on Cash Balances.................... 1,704
------------
Net Expenses............................................ 9,279,783
------------
NET INVESTMENT LOSS......................................... $ (8,866,411)
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(79,234,441)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (88,123,322)
End of the Period......................................... 87,144,534
------------
Net Unrealized Appreciation During the Period............... 175,267,856
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 96,033,415
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 87,167,004
============
</Table>
See Notes to Financial Statements 11
Statements of Changes in Net Assets
<Table>
<Caption>
YEAR ENDED YEAR ENDED
AUGUST 31, 2003 AUGUST 31, 2002
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss................................... $ (8,866,411) $ (12,760,483)
Net Realized Loss..................................... (79,234,441) (183,629,834)
Net Unrealized Appreciation/Depreciation During the
Period.............................................. 175,267,856 (54,983,554)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 87,167,004 (251,373,871)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 162,947,100 142,260,287
Cost of Shares Repurchased............................ (180,950,468) (186,278,473)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (18,003,368) (44,018,186)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS................. 69,163,636 (295,392,057)
NET ASSETS:
Beginning of the Period............................... 272,116,161 567,508,218
------------- -------------
End of the Period (Including accumulated net
investment loss of $61,268 and $38,224,
respectively)....................................... $ 341,279,797 $ 272,116,161
============= =============
</Table>
12 See Notes to Financial Statements
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS A SHARES ------------------------------------------- OF OPERATIONS) TO
2003 (a) 2002 (a) 2001 (a) 2000 AUGUST 31, 1999
----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.......................... $ 2.90 $ 5.49 $ 26.81 $ 11.17 $10.00
------ ------- ------- ------- ------
Net Investment Loss............. (.08) (.11) (.18) (.16) (.01)
Net Realized and Unrealized
Gain/Loss..................... 1.11 (2.48) (21.14) 15.80 1.18
------ ------- ------- ------- ------
Total from Investment
Operations...................... 1.03 (2.59) (21.32) 15.64 1.17
------ ------- ------- ------- ------
NET ASSET VALUE, END OF THE
PERIOD.......................... $ 3.93 $ 2.90 $ 5.49 $ 26.81 $11.17
====== ======= ======= ======= ======
Total Return (b).................. 35.52% -47.18% -79.51% 139.93% 11.70%*
Net Assets at End of the Period
(In millions)................... $125.3 $ 103.5 $ 198.8 $ 928.8 $ 49.7
Ratio of Expenses to Average Net
Assets.......................... 2.88% 2.39% 1.65% 1.47% 1.45%
Ratio of Net Investment Loss to
Average Net Assets.............. (2.73%) (2.31%) (1.48%) (1.14%) (1.03%)
Portfolio Turnover................ 152% 142% 274% 167% 7%*
</Table>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 5.75% or contingent deferred
sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower. These returns
include combined Rule 12b-1 fees and service fees of up to .25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
See Notes to Financial Statements 13
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS B SHARES -------------------------------------------- OF OPERATIONS) TO
2003 (a) 2002 (a) 2001 (a) 2000 AUGUST 31, 1999
-----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.......................... $ 2.83 $ 5.41 $ 26.59 $ 11.16 $10.00
------ ------- ------- -------- ------
Net Investment Loss............. (.10) (.14) (.28) (.28) (.02)
Net Realized and Unrealized
Gain/Loss..................... 1.08 (2.44) (20.90) 15.71 1.18
------ ------- ------- -------- ------
Total from Investment
Operations...................... .98 (2.58) (21.18) 15.43 1.16
------ ------- ------- -------- ------
NET ASSET VALUE, END OF THE
PERIOD.......................... $ 3.81 $ 2.83 $ 5.41 $ 26.59 $11.16
====== ======= ======= ======== ======
Total Return (b).................. 34.63% -47.69% -79.65% 138.17% 11.60%*
Net Assets at End of the Period
(In millions)................... $172.7 $ 133.8 $ 288.4 $1,442.2 $164.3
Ratio of Expenses to Average Net
Assets.......................... 3.65% 3.16% 2.40% 2.23% 2.21%
Ratio of Net Investment Loss to
Average Net Assets.............. (3.50%) (3.08%) (2.24%) (1.89%) (1.79%)
Portfolio Turnover................ 152% 142% 274% 167% 7%*
</Table>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 5%, charged on certain redemptions
made within one year of purchase and declining to 0% after the fifth year.
If the sales charge was included, total returns would be lower. These
returns include combined Rule 12b-1 fees and service fees of 1% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
14 See Notes to Financial Statements
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS C SHARES ------------------------------------------- OF OPERATIONS) TO
2003 (a) 2002 (a) 2001 (a) 2000 AUGUST 31, 1999
----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.......................... $ 2.83 $ 5.41 $ 26.59 $ 11.16 $10.00
------ ------- ------- ------- ------
Net Investment Loss............. (.10) (.14) (.28) (.27) (.02)
Net Realized and Unrealized
Gain/Loss..................... 1.08 (2.44) (20.90) 15.70 1.18
------ ------- ------- ------- ------
Total from Investment
Operations...................... .98 (2.58) (21.18) 15.43 1.16
------ ------- ------- ------- ------
NET ASSET VALUE, END OF THE
PERIOD.......................... $ 3.81 $ 2.83 $ 5.41 $ 26.59 $11.16
====== ======= ======= ======= ======
Total Return (b).................. 34.63% -47.69% -79.65% 138.17% 11.60%*
Net Assets at End of the Period
(In millions)................... $ 43.4 $ 34.7 $ 80.3 $ 412.0 $ 28.0
Ratio of Expenses to Average Net
Assets.......................... 3.66% 3.16% 2.40% 2.22% 2.21%
Ratio of Net Investment Loss to
Average Net Assets.............. (3.51%) (3.08%) (2.23%) (1.88%) (1.79%)
Portfolio Turnover................ 152% 142% 274% 167% 7%*
</Table>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower. These returns include combined Rule 12b-1 fees and
service fees of 1% and do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
See Notes to Financial Statements 15
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Technology Fund (the "Fund") is organized as a series of Van Kampen
Equity Trust II (the "Trust"), a Delaware business trust, and is registered as a
diversified, open-end management investment company under the Investment Company
Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to
seek capital appreciation. The Fund commenced investment operations on July 26,
1999 with three classes of common shares: Class A, Class B, and Class C.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 in securities listed on a securities exchange
are valued at their sales price as of the close of such securities exchange.
Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing
Price. Listed securities and unlisted securities for which the last sales price
is not available are valued at the mean of the bid and asked prices. For those
securities where quotations or prices are not available, valuations are
determined 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 Fund may invest in repurchase agreements, which are short-term
investments whereby the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund 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 Inc. (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 Fund 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 Fund.
C. INCOME AND EXPENSES Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
16
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
D. FEDERAL INCOME TAXES It is the Fund'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 Fund 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 August 31, 2003, the Fund had an accumulated capital loss carryforward
for tax purposes of $1,655,792,355, which will expire between August 31, 2007
and August 31, 2011.
At August 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $268,215,435
============
Gross tax unrealized appreciation........................... $ 77,056,140
Gross tax unrealized depreciation........................... (2,450,148)
------------
Net tax unrealized appreciation on investments.............. $ 74,605,992
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses, and
realized gains/ losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting for the 2003 fiscal year have been
identified and appropriately reclassified on the Statement of Assets and
Liabilities. At August 31, 2003, a permanent book to tax basis difference
relating to a net operating loss totaling $8,839,931 was reclassified from
accumulated net investment loss to capital. Additionally, a permanent book to
tax basis difference related to the Fund's investment in other regulated
investment companies totaling $3,436 was reclassified from accumulated net
investment loss to accumulated net realized loss.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses related to wash sale
transactions and post October losses which are not recognized for tax purposes
until the first day of the following fiscal year.
F. EXPENSE REDUCTIONS During the year ended August 31, 2003, the Fund's custody
fee was reduced by $1,704 as a result of credits earned on cash balances.
17
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .90%
Next $500 million........................................... .85%
Over $1 billion............................................. .80%
</Table>
For the year ended August 31, 2003, the Fund recognized expenses of
approximately $7,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Fund. The Adviser
allocates the cost of such services to each fund. For the year ended August 31,
2003, the Fund recognized expenses of approximately $36,600 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, which are reported as part
of "Other" and "Legal" expenses, respectively, in the Statement of Operations.
Van Kampen Investor Services Inc.(VKIS), an affiliate of the Adviser, serves
as the shareholder servicing agent for the Fund. For the year ended August 31,
2003, the Fund recognized expenses of approximately $3,732,400, representing
shareholder servicing fees paid to VKIS. Shareholder servicing fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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.
Amounts deferred are retained by the Fund, and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of $37,038 are included in
"Other" assets on the Statement of Assets and Liabilities at August 31, 2003.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per
trustee under the plan is $2,500.
For the year ended August 31, 2003, the Fund paid brokerage commissions to
Morgan Stanley DW Inc., an affiliate of Van Kampen, totaling $33,075.
18
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
3. CAPITAL TRANSACTIONS
At August 31, 2003, capital aggregated $725,383,116, $929,002,064, and
$286,684,943 for Classes A, B and C, respectively. For the year ended August 31,
2003, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 45,209,810 $ 130,925,282
Class B................................................... 8,338,529 25,325,522
Class C................................................... 2,195,056 6,696,296
----------- -------------
Total Sales................................................. 55,743,395 $ 162,947,100
=========== =============
Repurchases:
Class A................................................... (49,042,951) $(142,389,017)
Class B................................................... (10,222,198) (29,649,186)
Class C................................................... (3,071,460) (8,912,265)
----------- -------------
Total Repurchases........................................... (62,336,609) $(180,950,468)
=========== =============
</Table>
At August 31, 2002, capital aggregated $740,091,439, $937,797,869, and
$290,024,114 for Classes A, B and C, respectively. For the year ended August 31,
2002, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 22,050,651 $ 93,518,042
Class B................................................... 7,962,773 36,622,083
Class C................................................... 2,673,715 12,120,162
----------- -------------
Total Sales................................................. 32,687,139 $ 142,260,287
=========== =============
Repurchases:
Class A................................................... (22,532,471) $(101,113,997)
Class B................................................... (14,059,396) (61,596,804)
Class C................................................... (5,268,462) (23,567,672)
----------- -------------
Total Repurchases........................................... (41,860,329) $(186,278,473)
=========== =============
</Table>
Class B Shares and any dividend reinvestment plan Class B Shares received
thereon automatically convert to Class A Shares eight years after the end of the
calendar month in which the shares were purchased. For the years ended August
31, 2003 and 2002, 63,082 and 0 Class B Shares automatically converted to Class
A Shares, respectively, and are shown in the above tables as sales of Class A
Shares and repurchases of Class B Shares. Class C Shares do not possess a
conversion feature. Class B and C Shares are offered without a front end sales
charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC
for Class B and C Shares will be imposed on most redemptions made within five
years of the purchase
19
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
for Class B Shares and within one year of the purchase for Class C Shares as
detailed in the following schedule.
<Table>
<Caption>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
First....................................................... 5.00% 1.00%
Second...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
</Table>
For the year ended August 31, 2003, Van Kampen, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A Shares of approximately
$71,700 and CDSC on redeemed shares of Classes B and C of approximately
$464,300. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $417,095,216 and $439,424,460,
respectively.
5. DISTRIBUTION AND SERVICE PLANS
With respect to its Class A Shares, Class B Shares, and Class C Shares, the Fund
and its shareholders have adopted a distribution plan pursuant to Rule 12b-1
under the 1940 Act and a service plan (collectively, the "Plans"). The Plans
govern payments for: the distribution of the Fund's Class A Shares, Class B
Shares, and Class C Shares; the provision of ongoing shareholder services with
respect to such classes of shares; and the maintenance of shareholder accounts
with respect to such classes of shares.
Annual fees under the Plans of up to .25% of Class A average daily net
assets and 1.00% each of Class B and Class C average daily net assets are
accrued daily. The amount of distribution expenses incurred by Van Kampen and
not yet reimbursed ("unreimbursed receivable") was approximately $27,731,500 and
$217,400 for Class B and Class C Shares, respectively. These amounts may be
recovered from future payments under the distribution plan or CDSC. To the
extent the unreimbursed receivable has been fully recovered, any excess 12b-1
fees will be refunded to the Fund on a quarterly basis.
Included in these fees for the year ended August 31, 2003, are payments
retained by Van Kampen of approximately $1,103,600 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $195,800.
20
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Van Kampen Technology Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Technology Fund (the "Fund"), including the portfolio of investments, as
of August 31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the Fund for the period from July 26, 1999
(commencement of investment operations) through August 31, 1999 were audited by
other auditors whose report dated October 6, 1999 expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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 the
Van Kampen Technology Fund at August 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended in conformity with accounting principles generally
accepted in the United States.
-s- Ernst & Young LLP
Chicago, Illinois
October 8, 2003
21
VAN KAMPEN INVESTMENTS
THE VAN KAMPEN
FAMILY OF FUNDS
Global/International
Asian Equity**
Emerging Markets
European Value Equity
Global Equity Allocation
Global Franchise
Global Value Equity
International Advantage
International Magnum
Latin American**
Worldwide High Income
Growth
Aggressive Growth
American Value
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Growth
Small Cap Value
Technology
Growth and Income
Comstock
Equity and Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Value Opportunities
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
Tax Free
California Insured Tax Free
High Yield Municipal*
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Strategic Municipal Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Senior Loan Fund
For more complete information, including risk considerations, fees, sales
charges and ongoing expenses, please contact your financial advisor for a
prospectus. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
VANKAMPEN.COM--
to view a prospectus, select
Download Fund Info (COMPUTER ICON)
- - call us at (800) 847-2424
Telecommunications Device
for the Deaf (TDD) users,
call (800) 421-2833. (PHONE ICON)
- - e-mail us by visiting
VANKAMPEN.COM and
selecting Contact Us
(MAIL ICON)
* Open to new investors for a limited time
** Closed to new investors.
22
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN TECHNOLOGY FUND
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 947
Jersey City, New Jersey 07303-0947
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
23
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen 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." The term "Fund Complex" includes each of the investment companies
advised by the Advisers or their affiliates as of the date of this Statement of
Additional Information. Trustees serve until reaching their retirement age or
until their successors are duly elected and qualified. Officers are annually
elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 90 Trustee/Director/Managing
Blistex Inc. since 2003 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
J. Miles Branagan (71) Trustee Trustee Private investor. 88 Trustee/Director/Managing
1632 Morning Mountain Road since 1999 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
</Table>
24
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 88 Trustee/Director/Managing
33971 Selva Road since 1999 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 90 Trustee/Director/Managing
CAC, llc. since 2003 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of TeleTech
San Diego, CA 92122-6223 services. Prior to July Holdings Inc.,
2000, Managing Partner of Stericycle, Inc.,
Equity Group Corporate TheraSense, Inc., GATX
Investment (EGI), a Corporation, Arris Group,
company that makes Inc. and Trustee of the
private investments in University of Chicago
other companies. Hospitals and Health
Systems. Prior to May
2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Vice Chairman and
Director of Anixter
International, Inc. and
IMC Global Inc. Prior to
July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Director of Metal
Management, Inc.
</Table>
25
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 88 Trustee/Director/Managing
Heidrick & Struggles since 1999 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (51) Trustee Trustee Director and President of 88 Trustee/Director/Managing
11 DuPont Circle, N.W. since 1999 the German Marshall Fund General Partner of funds
Washington, D.C. 20016 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (67) Trustee Trustee Prior to 1998, President 90 Trustee/Director/Managing
736 North Western Avenue since 2003 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation
</Table>
26
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (67) Trustee Trustee President of Nelson 88 Trustee/Director/Managing
423 Country Club Drive since 1999 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 90 Trustee/Director/Managing
1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey (61) Trustee Trustee Chief Communications 88 Trustee/Director/Managing
2101 Constitution Ave., N.W. since 1999 Officer of the National General Partner of funds
Room 285 Academy of in the Fund Complex.
Washington, D.C. 20418 Sciences/National Director of Neurogen
Research Council, an Corporation, a
independent, federally pharmaceutical company,
chartered policy since January 1998.
institution, since 2001
and previously Chief
Operating Officer from
1993 to 2001. Director of
the Institute for Defense
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, and
Trustee of Colorado
College. Prior to 1993,
Executive Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
27
INTERESTED TRUSTEES*
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (50) Trustee, Trustee President and Chief 88 Trustee/Director/Managing
1221 Avenue of the Americas President since 1999 Executive Officer of General Partner of funds
New York, NY 10020 and Chief funds in the Fund in the Fund Complex.
Executive Complex. Chairman,
Officer President, Chief
Executive Officer and
Director of the Advisers
and VK Advisors Inc.
since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
</Table>
28
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 90 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 90 Trustee/Director/Managing
333 West Wacker Drive since 1999 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom in the Fund Complex.
(Illinois), legal counsel
to funds in the Fund
Complex.
</Table>
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Advisers by reason
of their current or former positions with Morgan Stanley or its affiliates.
29
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 1999 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Advisers and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Advisers and Van Kampen Advisors Inc. Prior to December
2000, Executive Vice President and Chief Investment Officer
of Van Kampen Investments, and President and Chief Operating
Officer of the 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.
Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Advisers and Van Kampen
Advisors Inc. since December 2002.
</Table>
30
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers
1 Parkview Plaza since 1999 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 the Fixed Income Department of the 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, Senior Vice President of the investment grade taxable
group for the Advisers. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the
New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Managing Director and General
Counsel-Mutual Funds of Morgan Stanley Investment Advisors,
Inc. Vice President and Secretary of funds in the Fund
Complex. Prior to July 2001, Managing Director, General
Counsel, Secretary and Director of Van Kampen Investments,
the 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.
</Table>
31
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 1999 the Advisers, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Advisers and Van
Kampen Advisors Inc.
</Table>
32
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen 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 System Inc. and Van Kampen Exchange Corp., as well as the many
Van Kampen mutual funds and Van Kampen unit investment trusts.
The Statement of Additional Information includes additional information about
Fund trustees and is available, without charge, upon request by calling (800)
847-2424.
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.
Member NASD/SIPC. 77, 177, 277
TECH ANR
10/03 12039J03-AP-10/03
Item 1. Report to Shareholders
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
International Advantage Fund performed during the annual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of August 31, 2003.
This material must be preceded or accompanied by a prospectus for the
fund being offered.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the fund will achieve its investment
objective. The fund is subject to market risk, which is the possibility
that the market values of securities owned by the fund will decline and,
therefore, the value of the fund shares may be less than what you paid
for them. Accordingly, you can lose money investing in this fund. Please
see the prospectus for more complete information on investment risks.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Performance Summary
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the MSCI AC World Free
Index ex-USA from 9/26/2001 through 8/31/2003. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL
ADVANTAGE MSCI AC WORLD FREE INDEX EX USA
------------------------ -------------------------------
9/01 9632 10266
12/01 10357 11162
3/02 10532 11286
6/02 10308 10893
9/02 8198 8743
12/02 8723 9317
3/03 7924 8570
6/03 9596 10152
8/03 10208 10691
</Table>
Source: Confluence Technologies, Inc. and Bloomberg.
<Table>
<Caption>
A SHARES B SHARES C SHARES
since 9/26/01 since 9/26/01 since 9/26/01
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL W/O SALES W/SALES W/O SALES W/SALES W/O SALES W/SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 4.23% 1.08% 3.41% 1.42% 3.41% 3.41%
1-year 11.20 4.77 10.40 5.40 10.40 9.40
- ---------------------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and fund shares, when redeemed, may be worth
more or less than their original cost. The returns shown in this report do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
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. Average annual total return with sales
charges includes payment of the maximum sales charge of 5.75 percent for Class A
shares, a contingent deferred sales charge of 5.00 percent for Class B shares
(in year one and declining to zero after year five), a contingent deferred sales
charge of 1.00 percent for Class C shares in year one, and combined Rule 12b-1
fees and service fees of up to 0.25 percent for Class A shares and 1.00 percent
for Class B and C shares. Figures shown above assume reinvestment of all
distributions. The fund's adviser has waived or reimbursed fees and expenses
from time to time; absent such waivers/ reimbursements, the fund's returns would
have been lower.
The MSCI All Country World Free ex-USA is generally representative of world
stock markets, excluding the United States. Index is unmanaged and does not
include any sales charges or fees. Such costs would lower performance. It is not
possible to invest directly into an index.
1
Fund Report
FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
Van Kampen International Advantage Fund is managed by the adviser's
Global Core team. Current members include(1) Kate Cornish-Bowden,
Managing Director; Simon Carter, Executive Director; Michael Allison,
Vice President; Mark Laskin, Vice President; and Jamie Wood, Vice
President. The following discussion reflects the team's views on the
fund's performance.
Q. BEFORE YOU DISCUSS HOW THE FUND PERFORMED, PLEASE DESCRIBE THE
OVERALL MARKET ENVIRONMENT.
A. Stock markets continued to face challenges during the first half of the
period but were much more favorable during the second half.
-- Early on, equity investors were concerned about a likely war in
Iraq, a budding nuclear crisis in North Korea, and the impact of
SARS on economic growth.
-- As these crises subsided, stock markets around the world rebounded
impressively. For example, between the market's low point on March
12, 2003, and the end of the period, the fund gained over 36
percent.
-- Stock performance was further helped by the increasingly apparent
signs of a global economic recovery, spurred by worldwide
interest-rate cuts as well as the beginnings of much-needed pension
reforms and tax reductions in Europe.
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. The fund underperformed its benchmark index.
-- The fund returned 11.20 percent for the 12 months ended August 31,
2003. Performance figures are for Class A shares, and assume the
reinvestment of all distributions but do not reflect the deduction
of any applicable sales charges. If sales charges were included,
performance would be lower. Past performance is no guarantee of
future results.
-- The fund's benchmark index, the MSCI All Country World Free Index
ex-USA, returned 13.12 percent.
See Performance Summary for additional information and index definition.
(1)Team members may change at any time without notice.
2
Q. WHAT FACTORS HINDERED PERFORMANCE?
A. Stock selection in the capital-goods sector as well as the food,
beverages and tobacco sector hurt the fund's relative performance. Not
owning certain low-quality stocks in the benchmark that had particularly
strong returns during the period also detracted from results.
-- In capital goods, the fund was dragged down by positions in two
British companies, BAE Systems and Invensys. BAE Systems, a leading
European defense contractor, was hurt when it spent far more than
budgeted on the development of two large submarines for the British
military. Invensys, a maker of industrial controls and automation
equipment, issued a surprisingly disappointing earnings report that
depressed the company's stock.
-- The fund was underweighted in less economically sensitive sectors--
such as food, beverages and tobacco--because we anticipated a
continuing economic recovery. Though we de-emphasized this area, we
did make several stock picks that fell short of our expectations.
One was Interbrew, a Belgian brewer that is one of the world's
largest. Interbrew faced difficulties with some of its distribution
partners. Cadbury-Schweppes, a British food and beverage company,
also was a weak relative performer. Investors believed the company
paid too much for its recent acquisition of Adams Chewing Gum, which
manages the Trident and Dentyne brands.
-- Low-quality stocks with weak fundamentals tended to be the best
performers during the stock-market rally, as investors looked for
higher-risk/higher-reward opportunities. By contrast, we continued
to favor fundamentally sound companies with strong balance sheets,
capable management teams and a clear strategic focus.
<Table>
TOP 10 HOLDINGS AS OF 8/31/2003 TOP 10 COUNTRIES AS OF 8/31/2003
Nokia 3.1% United Kingdom 25.3%
Royal Dutch Petroleum 2.5 Japan 23.5
GlaxoSmithKline 2.5 Switzerland 9.0
Total SA 2.3 Netherlands 8.6
Koninklijke Philips Electronics 2.1 Germany 8.5
Vodafone 2.0 France 5.2
UBS 2.0 Finland 4.2
Matsushita Electric Works 1.9 Australia 2.9
AMVESCAP 1.6 Italy 1.9
Credit Suisse 1.6 Republic of Korea 1.7
</Table>
Subject to change daily. All percentages are as of a percentage of long-term
investments. All information is provided for informational purposes only and
should not be deemed as a recommendation to buy the securities mentioned. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.
3
Q. WHAT HELPED PERFORMANCE DURING THE REPORTING PERIOD?
A. Relative performance was helped by stock selection in technology
hardware, pharmaceuticals and retail.(2)
-- Positioned for a potential economic rebound, the fund enjoyed
success with holdings in Nokia (Finland), a maker of mobile phones;
Canon (Japan), a diversified consumer products manufacturer; and
Samsung (South Korea), a conglomerate that includes a range of
technology businesses. All three benefited as investors became
increasingly confident that the economy was growing. Canon and
Samsung did particularly well; they derive substantial revenues from
semiconductor sales, which finally started to pick up during the
period.
-- Pharmaceutical companies Teva Pharmaceutical Industries and
GlaxoSmithKline also boosted performance. Teva, an Israeli
generic-drug maker, was helped by an increasingly favorable
environment for non-brand-name pharmaceutical products.
GlaxoSmithKline (U.K.) benefited from increased operating and
research efficiencies stemming from the 2000 merger of Glaxo
Wellcome and SmithKline.
-- In the retail sector, the fund was helped by our position in NEXT,
an apparel, housewares, and furniture retailer in the U.K. and
Ireland. NEXT was rewarded by investors for the success of its new
management team, which helped boost financial results during the
period.
Q. PLEASE HIGHLIGHT SIGNIFICANT WEIGHTINGS FROM THE PORTFOLIO.
A. At the end of the period, the fund had substantial positions in Nokia,
Philips Electronics and Amvescap.(2)
-- Nokia was the largest position in the fund as of August 31, 2003.
Nokia is the world's leading maker of mobile phone handsets and the
dominant player in its market. We were attracted to the company's
strong lineup of products and sound financial condition.
-- Another large holding was Philips Electronics, a Dutch maker of
electronics and other consumer products. We believed the company was
positioned to benefit from an expanding economy, its own internal
restructuring, and a further rebound of semiconductor prices.
-- Amvescap represented a third sizeable portfolio weighting. Amvescap
is a global money manager whose United States brands include Invesco
and AIM. The company's valuation had been depressed in recent years,
paralleling the stock market's performance. We believed that as
equity prices continue to improve, Amvescap's earnings could
increase as well.
(2)There is no guarantee that these securities will continue to perform well or
be held by the fund in the future.
4
Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW OF THE FUND, DO YOU HAVE ANY
CLOSING THOUGHTS FOR SHAREHOLDERS?
A. In recent weeks, we have noticed a marked increase in positive economic
news. This has been the case in Europe, where tax cuts and pension
reforms have been increasingly common; in Japan, which may be coming out
of a 10-year slumber; and in other regions around the world. More
importantly for investors, recent negative news has had a relatively
muted effect on stock prices. In this environment, we have positioned the
fund for a steady economic recovery. Although we cannot predict what the
future has in store, we will continue to stick to our investment strategy
and provide our shareholders with core international-stock exposure, a
vital part of any investor's long-term asset allocation plan.
5
ANNUAL HOUSEHOLDING NOTICE
To reduce expenses, the fund attempts to eliminate duplicate mailings to
the same address. The fund delivers a single copy of certain shareholder
documents to investors who share an address, even if the accounts are
registered under different names. The fund's prospectus and shareholder
reports (including annual privacy notices) will be delivered to you in
this manner indefinitely unless you instruct us otherwise. You can
request multiple copies of these documents by either calling (800)
341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza,
P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has
received your instructions, we will begin sending individual copies for
each account within 30 days.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
6
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2003
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
COMMON STOCKS 96.5%
AUSTRALIA 2.8%
National Australia Bank, Ltd. .............................. 4,184 $ 84,468
Qantas Airways, Ltd. ....................................... 23,728 49,921
Rio Tinto, Ltd. ............................................ 3,544 78,957
----------
213,346
----------
BRAZIL 0.7%
Cia Vale do Rio Doce--ADR................................... 811 30,372
Petroleo Brasileiro, SA--ADR................................ 1,079 23,846
----------
54,218
----------
CANADA 1.5%
Abitibi-Consolidated, Inc. ................................. 4,577 34,636
Royal Bank of Canada........................................ 642 27,624
Sun Life Financial, Inc. ................................... 2,317 50,861
----------
113,121
----------
DENMARK 0.6%
Novo Nordisk A/S............................................ 1,289 45,805
----------
FINLAND 4.1%
Nokia (Ab) Oyj.............................................. 14,254 233,798
Stora Enso Oyj.............................................. 5,945 77,513
----------
311,311
----------
FRANCE 5.0%
Aventis, SA................................................. 788 38,325
BNP Paribas, SA............................................. 2,164 107,959
Schneider Electric, SA...................................... 1,268 68,556
Total, SA................................................... 1,098 168,630
----------
383,470
----------
GERMANY 7.3%
BASF, AG.................................................... 2,426 111,855
DaimlerChrysler, AG......................................... 2,900 110,596
Deutsche Telekom, AG (a).................................... 5,400 77,174
E.On, AG.................................................... 607 31,430
Linde, AG................................................... 868 36,366
SAP, AG..................................................... 246 29,559
Siemens, AG................................................. 1,248 77,380
T-Online International (a).................................. 3,320 35,586
Volkswagen, AG.............................................. 1,019 50,030
----------
559,976
----------
</Table>
See Notes to Financial Statements 7
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
HONG KONG 1.3%
China Mobile Communications Corp. .......................... 19,000 $ 48,844
CLP Holdings, Ltd. ......................................... 11,000 48,517
----------
97,361
----------
ISRAEL 1.3%
Check Point Software Technologies, Ltd. (a)................. 2,448 42,767
Teva Pharmaceutical Industries, Ltd.--ADR................... 970 56,951
----------
99,718
----------
ITALY 1.9%
ENI S.p.A. ................................................. 3,498 52,914
Telecom Italia S.p.A. ...................................... 13,821 32,515
UniCredito Italiano S.p.A. ................................. 12,809 59,565
----------
144,994
----------
JAPAN 23.0%
Advantest Corp. ............................................ 800 55,466
Canon, Inc. ................................................ 2,000 96,156
Central Japan Railway Co. .................................. 7 49,372
Dai Nippon Printing Co., Ltd. .............................. 5,000 63,719
Daiwa Securities Group, Inc. ............................... 12,000 77,439
Eisai Co., Ltd. ............................................ 2,000 41,822
Fanuc, Ltd. ................................................ 1,200 79,188
Fuji Television Network, Inc. .............................. 9 42,808
Fujisawa Pharmaceutical Co., Ltd. .......................... 2,000 38,394
Fujitsu, Ltd. .............................................. 9,000 43,039
Furukawa Electric Co., Ltd. ................................ 8,000 29,070
Hitachi, Ltd. .............................................. 8,000 43,605
Kao Corp. .................................................. 1,000 18,854
Matsushita Electric Works Information System Co., Ltd. ..... 11,000 140,275
Millea Holdings, Inc. ...................................... 8 82,958
Mitsubishi Estate Co., Ltd. ................................ 8,000 71,714
Mitsubishi Heavy Industries, Ltd. .......................... 13,000 42,002
Mitsui Sumitomo Insurance Co., Ltd. ........................ 7,000 41,813
NTT DoCoMo, Inc. ........................................... 45 115,696
Seven-Eleven Japan Co., Ltd. ............................... 1,000 27,339
Shin-Etsu Chemical Co., Ltd. ............................... 2,000 78,502
SMC Corp. .................................................. 400 44,496
Sumitomo Electric Industries, Ltd. ......................... 5,000 43,622
Sumitomo Trust and Banking Co., Ltd. ....................... 8,000 36,063
Takeda Chemical Industries, Ltd. ........................... 1,500 54,249
TDK Corp. .................................................. 1,000 65,133
Tokyo Electric Power Co., Inc. ............................. 1,400 27,236
Toshiba Corp. .............................................. 16,000 65,407
Toyota Motor Corp. ......................................... 4,000 110,383
Yamanouchi Pharmaceutical Co., Ltd. ........................ 1,000 26,224
----------
1,752,044
----------
</Table>
8 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
LUXEMBOURG 0.5%
Arcelor..................................................... 3,043 $ 39,308
----------
MEXICO 0.8%
Fomento Economico Mexicano SA de C.V. ...................... 7,900 29,292
Wal-Mart de Mexico SA de C.V. .............................. 12,699 34,694
----------
63,986
----------
NETHERLANDS 8.4%
ABN Amro Holdings, NV....................................... 1,645 28,844
DSM, NV..................................................... 1,124 51,219
Koninklijke Philips Electronics, NV......................... 6,355 155,097
Reed Elsevier, NV........................................... 5,045 55,684
Royal Dutch Petroleum Co. .................................. 4,162 185,994
Unilever, NV................................................ 1,600 89,179
Wolters Kluwer, NV.......................................... 4,761 74,166
----------
640,183
----------
REPUBLIC OF KOREA 1.7%
Kookmin Bank................................................ 1,470 53,756
Samsung Electronics Co., Ltd.--GDR.......................... 403 74,756
Samsung Electronics Co., Ltd., 144A--Private Placement--GDR
(b)....................................................... 7 1,298
----------
129,810
----------
RUSSIA 0.5%
YUKOS Corp.--ADR............................................ 660 38,016
----------
SINGAPORE 0.4%
United Overseas Bank, Ltd. ................................. 4,000 28,974
----------
SOUTH AFRICA 0.4%
Sasol, Ltd. ................................................ 2,907 33,550
----------
SWITZERLAND 8.8%
Converium Holdings, AG...................................... 1,112 50,092
Credit Suisse Group......................................... 3,796 118,655
Holcim, Ltd. ............................................... 1,655 65,625
Nestle, SA.................................................. 451 98,278
Novartis, AG................................................ 1,094 40,254
Roche Holding, AG........................................... 1,203 92,181
Syngenta, AG................................................ 1,004 55,234
UBS, AG..................................................... 2,725 147,089
----------
667,408
----------
TAIWAN-REPUBLIC OF CHINA 0.9%
Hon Hai Precision Industry Co., Ltd.--GDR................... 3,960 32,868
Taiwan Semiconductor Manufacturing Co., Ltd.--ADR (a)....... 3,142 37,013
----------
69,881
----------
</Table>
See Notes to Financial Statements 9
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
UNITED KINGDOM 24.6%
3i Group Plc................................................ 6,762 $ 67,096
Amvescap Plc................................................ 15,591 122,052
ARM Holdings Plc (a)........................................ 16,020 28,557
Barclays Plc................................................ 13,837 100,408
BHP Billiton Plc............................................ 9,254 60,655
BP Plc...................................................... 9,244 62,559
British Airways Plc (a)..................................... 8,678 25,599
British Sky Broadcasting Plc (a)............................ 6,911 72,172
BT Group Plc................................................ 19,943 57,887
Diageo Plc.................................................. 3,695 39,520
GKN Plc..................................................... 5,232 21,645
GlaxoSmithKline Plc......................................... 9,604 182,864
HSBC Holdings Plc........................................... 9,190 117,863
International Power Plc (a)................................. 15,440 36,535
Lloyds TSB Group Plc........................................ 7,959 52,105
MFI Furniture Plc........................................... 13,522 38,396
National Grid Transco Plc................................... 14,563 88,963
Next Plc.................................................... 1,640 27,837
Pearson Plc................................................. 5,851 57,041
Prudential Plc.............................................. 12,590 86,692
Rentokil Initial Plc........................................ 14,095 46,693
Royal Bank of Scotland Group Plc............................ 3,948 98,028
SABMiller Plc............................................... 5,274 39,332
Smiths Group Plc............................................ 6,459 71,731
Tesco Plc................................................... 16,706 56,924
Vodafone Group Plc.......................................... 82,192 150,079
WPP Group Plc............................................... 7,667 69,726
----------
1,878,959
----------
TOTAL COMMON STOCKS 96.5%............................................ 7,365,439
----------
PREFERRED STOCKS 1.0%
GERMANY 1.0%
Porsche, AG................................................. 176 75,072
----------
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $6,583,598)................................................... 7,440,511
</Table>
10 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
<Table>
<Caption>
MARKET
DESCRIPTION VALUE
SHORT-TERM INVESTMENT 3.1%
(Cost $237,000)....................................................... $ 237,000
----------
TOTAL INVESTMENTS 100.6%
(Cost $6,820,598)................................................... 7,677,511
FOREIGN CURRENCY 0.9%
(Cost $70,819)...................................................... 71,941
LIABILITIES IN EXCESS OF OTHER ASSETS (1.5%)......................... (120,351)
----------
NET ASSETS 100.0%.................................................... $7,629,101
==========
</Table>
(a) Non-income producing security as this stock currently does not declare
dividends.
(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.
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
See Notes to Financial Statements 11
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2003
<Table>
ASSETS:
Total Investments (Cost $6,820,598)......................... $7,677,511
Foreign Currency (Cost $70,819)............................. 71,941
Cash........................................................ 85
Receivables:
Dividends................................................. 24,232
Fund Shares Sold.......................................... 20,939
Expense Reimbursement from Adviser........................ 11,723
Other....................................................... 9,863
Forward Foreign Currency Contracts.......................... 1,059
----------
Total Assets............................................ 7,817,353
----------
LIABILITIES:
Payables:
Investments Purchased..................................... 104,511
Distributor and Affiliates................................ 11,705
Accrued Expenses............................................ 56,258
Trustees' Deferred Compensation and Retirement Plans........ 15,778
----------
Total Liabilities....................................... 188,252
----------
NET ASSETS.................................................. $7,629,101
==========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $6,982,372
Net Unrealized Appreciation................................. 855,551
Accumulated Undistributed Net Investment Income............. (25,108)
Accumulated Net Realized Loss............................... (183,714)
----------
NET ASSETS.................................................. $7,629,101
==========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $5,601,097 and 569,920 shares of
beneficial interest issued and outstanding)............. $ 9.83
Maximum sales charge (5.75% * of offering price)........ .60
----------
Maximum offering price to public........................ $ 10.43
==========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $1,180,978 and 120,868 shares of
beneficial interest issued and outstanding)............. $ 9.77
==========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $847,026 and 86,692 shares of beneficial
interest issued and outstanding)........................ $ 9.77
==========
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
12 See Notes to Financial Statements
Statement of Operations
For the Year Ended August 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $15,467)..... $ 127,784
Interest.................................................... 302
---------
Total Income............................................ 128,086
---------
EXPENSES:
Shareholder Reports......................................... 44,943
Investment Advisory Fee..................................... 43,494
Audit....................................................... 25,500
Shareholder Services........................................ 21,234
Legal....................................................... 18,468
Accounting.................................................. 17,674
Registration and Filing Fees................................ 17,586
Custody..................................................... 15,898
Trustees' Fees and Related Expenses......................... 13,183
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $6,169, $3,574 and $2,329, respectively).... 12,072
Other....................................................... 16,329
---------
Total Expenses.......................................... 246,381
Expense Reduction ($43,494 Investment Advisory Fee and
$105,898 Other)....................................... 149,392
Less Credits Earned on Cash Balances.................... 193
---------
Net Expenses............................................ 96,796
---------
NET INVESTMENT INCOME....................................... $ 31,290
=========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(149,415)
Forward Foreign Currency Contracts........................ 39,526
Foreign Currency Transactions............................. 292
---------
Net Realized Loss........................................... (109,597)
---------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (135,964)
---------
End of the Period:
Investments............................................. 856,913
Forward Foreign Currency Contracts...................... 1,059
Foreign Currency Translation............................ (2,421)
---------
855,551
---------
Net Unrealized Appreciation During the Period............... 991,515
---------
NET REALIZED AND UNREALIZED GAIN............................ $ 881,918
=========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 913,208
=========
</Table>
See Notes to Financial Statements 13
Statements of Changes in Net Assets
<Table>
<Caption>
SEPTEMBER 26, 2001
(COMMENCEMENT OF
YEAR ENDED INVESTMENT OPERATIONS) TO
AUGUST 31, 2003 AUGUST 31, 2002
-------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income/Loss......................... $ 31,290 $ (2,699)
Net Realized Loss.................................. (109,597) (34,212)
Net Unrealized Appreciation/Depreciation During the
Period........................................... 991,515 (135,964)
----------- -----------
Change in Net Assets from Operations............... 913,208 (172,875)
----------- -----------
Distributions from Net Investment Income:
Class A Shares................................... (137,983) (25,778)
Class B Shares................................... (49,829) (18,404)
Class C Shares................................... (43,996) (17,849)
----------- -----------
(231,808) (62,031)
----------- -----------
Distributions from Net Realized Gain:
Class A Shares................................... -0- (1,201)
Class B Shares................................... -0- (907)
Class C Shares................................... -0- (879)
----------- -----------
-0- (2,987)
----------- -----------
Total Distributions................................ (231,808) (65,018)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... 681,400 (237,893)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 5,632,593 2,657,366
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 230,905 65,018
Cost of Shares Repurchased......................... (2,044,934) (1,355,354)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... 3,818,564 1,367,030
----------- -----------
TOTAL INCREASE IN NET ASSETS....................... 4,499,964 1,129,137
NET ASSETS:
Beginning of the Period............................ 3,129,137 2,000,000
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of ($25,108)
and $123,628, respectively)...................... $ 7,629,101 $ 3,129,137
=========== ===========
</Table>
14 See Notes to Financial Statements
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR (COMMENCEMENT
ENDED OF INVESTMENT
CLASS A SHARES AUGUST 31, OPERATIONS) TO
2003 AUGUST 31, 2002
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 9.43 $10.00
------ ------
Net Investment Income (b)................................. .09 .03
Net Realized and Unrealized Gain/Loss..................... .88 (.28)
------ ------
Total from Investment Operations............................ .97 (.25)
------ ------
Less:
Distributions from Net Investment Income.................. .57 .31
Distributions from Net Realized Gain...................... -0- .01
------ ------
Total Distributions......................................... .57 .32
------ ------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 9.83 $ 9.43
====== ======
Total Return (a)*........................................... 11.20% -2.60%**
Net Assets at End of the Period (In millions)............... $ 5.6 $ 1.6
Ratio of Expenses to Average Net Assets (c)*................ 1.75% 1.78%
Ratio of Net Investment Income to Average Net Assets*....... .98% .33%
Portfolio Turnover.......................................... 43% 62%**
* 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 (c).............. 4.85% 15.81%
Ratio of Net Investment Loss to Average Net Assets....... (2.11%) (13.70%)
</Table>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 5.75% or contingent deferred
sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower. These returns
include combined Rule 12b-1 fees and service fees of up to .25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(b) Based on average shares outstanding.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .03% for the period ended August 31,
2002.
See Notes to Financial Statements 15
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR (COMMENCEMENT
ENDED OF INVESTMENT
CLASS B SHARES AUGUST 31, OPERATIONS) TO
2003 AUGUST 31, 2002
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 9.38 $ 10.00
------ -------
Net Investment Loss (b)................................... -0-(d) (.04)
Net Realized and Unrealized Gain/Loss..................... .89 (.27)
------ -------
Total from Investment Operations............................ .89 (.31)
------ -------
Less:
Distributions from Net Investment Income.................. .50 .30
Distributions from Net Realized Gain...................... -0- .01
------ -------
Total Distributions......................................... .50 .31
------ -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 9.77 $ 9.38
====== =======
Total Return (a)*........................................... 10.40% -3.37%**
Net Assets at End of the Period (In millions)............... $ 1.2 $ .9
Ratio of Expenses to Average Net Assets (c)*................ 2.50% 2.53%
Ratio of Net Investment Loss to Average Net Assets*......... (.02%) (.45%)
Portfolio Turnover.......................................... 43% 62%**
* 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 (c).............. 5.60% 16.56%
Ratio of Net Investment Loss to Average Net Assets....... (3.12%) (14.48%)
</Table>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 5%, charged on certain redemptions
made within one year of purchase and declining to 0% after the fifth year.
If the sales charges were included, total returns would be lower. These
returns include combined Rule 12b-1 fees and service fees of up to 1% and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(b) Based on average shares outstanding.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .03% for the period ended August 31,
2002.
(d) Amount is less than $.01.
16 See Notes to Financial Statements
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR (COMMENCEMENT
ENDED OF INVESTMENT
CLASS C SHARES AUGUST 31, OPERATIONS) TO
2003 AUGUST 31, 2002
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 9.38 $10.00
------ ------
Net Investment Loss (b)................................... -0-(d) (.04)
Net Realized and Unrealized Gain/Loss..................... .89 (.27)
------ ------
Total from Investment Operations............................ .89 (.31)
------ ------
Less:
Distributions from Net Investment Income.................. .50 .30
Distributions from Net Realized Gain...................... -0- .01
------ ------
Total Distributions......................................... .50 .31
------ ------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 9.77 $ 9.38
====== ======
Total Return (a)*........................................... 10.40%(e) -3.37%**
Net Assets at End of the Period (In millions)............... $ .8 $ .6
Ratio of Expenses to Average Net Assets (c)*................ 2.50%(e) 2.53%
Ratio of Net Investment Loss to Average Net Assets*......... .00%(e) (.44%)
Portfolio Turnover.......................................... 43% 62%**
* 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 (c).............. 5.60%(e) 16.56%
Ratio of Net Investment Loss to Average Net Assets....... (3.09%)(e) (14.47%)
</Table>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1% charged on certain redemptions
made within one year of purchase. If the sale charge was included, total
returns would be lower. These returns include combined Rule 12b-1 fees and
service fees of up to 1% and do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
(b) Based on average shares outstanding.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .03% for the period ended August 31,
2002.
(d) Amount is less than $.01.
(e) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net
Investment Income to Average Net Assets reflect the refund of certain 12b-1
fees during the period.
See Notes to Financial Statements 17
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen International Advantage Fund (the "Fund") is organized as a series of
the Van Kampen Equity Trust II, a Delaware business trust, and is registered as
a diversified, open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment
objective is to seek long-term capital appreciation through investments in a
diversified portfolio of equity securities of foreign issuers. The Fund
commenced investment operations on September 26, 2001, with three classes of
common shares: Class A, Class B, and Class C.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing
Price. Unlisted securities and listed securities for which the last sale price
is not available are valued at the mean of the bid and asked prices. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. Also, if events materially affecting the value of foreign portfolio
securities or other portfolio securities occur between the time when their price
is determined and the time when the Fund's net asset value is calculated, such
securities may be valued at their fair value as determined in good faith by Van
Kampen Asset Management Inc. (the "Adviser") in accordance with procedures
established by the Fund's Board of Trustees. Short-term securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. Forward foreign currency contracts are valued using
quoted foreign exchange rates.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by 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 Fund 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 Fund.
18
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
C. INCOME AND EXPENSES Dividend income is recorded net of applicable withholding
taxes on the ex-dividend date and interest income is recorded on an accrual
basis. Income and expenses of the Fund are allocated on a pro rata basis to each
class of shares, except for distribution and service fees and transfer agency
costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES It is the Fund'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 Fund intends to utilize provisions of the federal income tax law 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 August 31, 2003, the Fund had an accumulated capital loss carryforward
for tax purposes of $84,577 which will expire on August 31, 2011.
At August 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $6,835,562
==========
Gross tax unrealized appreciation........................... $ 955,519
Gross tax unrealized depreciation........................... (113,570)
----------
Net tax unrealized appreciation on investments.............. $ 841,949
==========
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains. 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 August 31,
2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
Distribution paid from:
Ordinary income........................................... $238,396 $65,018
Long-term capital gain.................................... -0- -0-
-------- -------
$238,396 $65,018
======== =======
</Table>
Due to inherent differences in the recognition of income, expenses and
realized gain/ losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. Permanent book and tax
differences relating to currency gains totaling $39,818 were reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. A permanent book and tax difference relating to the Fund's investment in
other
19
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
regulated investment companies totaling $307 was reclassified from accumulated
net realized loss to accumulated undistributed net investment income.
Additionally, a permanent book and tax difference relating to expenses which are
not deductible for tax purposes totaling $11,657 was reclassified from
accumulated undistributed net investment income to capital.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of the deferral of losses relating to wash sales
transactions and post October 31 losses which are not realized for tax purposes
until the first day of the following fiscal year.
F. FOREIGN CURRENCY TRANSLATION The market values of foreign securities, forward
foreign currency contracts and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars based on quoted exchange rates
as of noon Eastern Standard Time. The cost of securities is determined using
historical exchange rates. Gains and losses on the sale of securities are not
segregated for financial reporting purposes between amounts arising from changes
in exchange rates and amounts arising from changes in the market prices of
securities. Realized gain and loss on foreign currency includes the net realized
amount from the sale of foreign currency and the amount realized between trade
date and settlement date on securities transactions. Income and expenses are
translated at rates prevailing when accrued.
G. EXPENSE REDUCTIONS During the year ended August 31, 2003, the Fund's custody
fee was reduced by $193 as a result of credits earned on cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .90%
Next $500 million........................................... .85%
Over $1 billion............................................. .80%
</Table>
On August 11, 2003, the Adviser entered into a subadvisory agreement with
Morgan Stanley Investment Management Limited (the "Subadviser", a wholly owned
subsidiary of Morgan Stanley) to provide advisory services to the Fund and the
Adviser with respect to the Fund's investments. The Advisor pays 50% of its
investment advisory fee to the Subadviser. For the year ended August 31, 2003,
the Adviser voluntarily waived $43,494 of its investment advisory fee and
$105,898 of other expenses. This waiver is voluntary and can be discontinued at
the Adviser's discretion.
For the year ended August 31, 2003, the Fund recognized expenses of
approximately $200 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Fund. The Adviser
allocates the cost of such services to
20
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
each fund. With respect to the Accounting Service agreement, the Adviser
allocates the cost of such services to each fund with assets exceeding $25
million. For the year ended August 31, 2003, no cost was allocated to the Fund
in regards to the Accounting Service agreement. For the year ended August 31,
2003, the Fund recognized expenses of approximately $18,300 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing legal services to the Fund, which are reported as part of "Legal"
expenses in the Statement of Operations.
Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
August 31, 2003, the Fund recognized expenses of approximately $15,300
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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.
Amounts deferred are retained by the Fund, and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of approximately $9,600 are
included in "Other" assets on the Statement of Assets and Liabilities at August
31, 2003. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
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 Fund. The
maximum annual benefit per trustee under the plan is $2,500.
At August 31, 2003, Morgan Stanley Investment Management Inc., an affiliate
of the Adviser, owned 88,147 shares of Class A, 65,512 shares of Class B, and
65,512 shares of Class C.
For the year ended August 31, 2003, the Fund paid brokerage commissions to
Morgan Stanley DW Inc., an affiliate of the Adviser, totaling $608.
21
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
3. CAPITAL TRANSACTIONS
At August 31, 2003, capital aggregated $5,027,736, $1,134,129 and $820,507 for
Classes A, B, and C, respectively. For the year ended August 31, 2003,
transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 551,362 $ 4,775,616
Class B................................................... 29,905 263,644
Class C................................................... 70,097 593,333
-------- -----------
Total Sales................................................. 651,364 $ 5,632,593
======== ===========
Dividend Reinvestment:
Class A................................................... 16,539 $ 137,608
Class B................................................... 5,929 49,324
Class C................................................... 5,285 43,973
-------- -----------
Total Dividend Reinvestment................................. 27,753 $ 230,905
======== ===========
Repurchases:
Class A................................................... (165,110) $(1,465,104)
Class B................................................... (11,659) (97,807)
Class C................................................... (57,492) (482,023)
-------- -----------
Total Repurchases........................................... (234,261) $(2,044,934)
======== ===========
</Table>
22
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
At August 31, 2002, capital aggregated $1,587,341, $921,178 and $666,946 for
Classes A, B, and C, respectively. For the period ended August 31, 2002,
transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 190,157 $ 1,965,370
Class B................................................... 37,965 391,886
Class C................................................... 27,720 300,110
-------- -----------
Total Sales................................................. 255,842 $ 2,657,366
======== ===========
Dividend Reinvestment:
Class A................................................... 2,604 $ 26,980
Class B................................................... 1,866 19,310
Class C................................................... 1,810 18,728
-------- -----------
Total Dividend Reinvestment................................. 6,280 $ 65,018
======== ===========
Repurchases:
Class A................................................... (105,632) $(1,124,609)
Class B................................................... (3,138) (33,535)
Class C................................................... (20,728) (197,210)
-------- -----------
Total Repurchases........................................... (129,498) $(1,355,354)
======== ===========
</Table>
Class B shares, including any dividend reinvestment plan Class B Shares
received there on, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased.
Class B and C Shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule.
<Table>
<Caption>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
First....................................................... 5.00% 1.00%
Second...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
</Table>
23
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
For the year ended August 31, 2003, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A Shares of approximately $400
and CDSC on redeemed shares of approximately $5,500. Sales charges do not
represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $5,541,173 and $2,061,598, 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 Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, to manage foreign currency exposure, or to generate potential gain.
All of the Fund's holdings, including derivative instruments, are marked to
market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
forward commitment. In this instance, the recognition of gain or loss is
postponed until the disposal of the security underlying the forward commitment.
Purchasing securities on a forward commitment involves a risk that the
market value at the time of delivery may be lower than the agreed upon purchase
price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
A forward foreign currency contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated forward rate. Upon the
settlement of the contract, a realized gain or loss is recognized and is
included as a component of realized gain/loss on forward foreign currency
contracts. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
24
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
The following forward foreign currency contracts were outstanding as of
August 31, 2003:
<Table>
<Caption>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
LONG CONTRACTS
Australian Dollar,
215,000 expiring 09/02/03................................. $139,556 $ 2,117
175,000 expiring 10/02/03................................. 113,256 1,387
Canadian Dollar,
300,000 expiring 09/02/03................................. 216,581 3,453
100,000 expiring 09/02/03................................. 72,194 1,030
370,000 expiring 10/02/03................................. 266,751 1,860
Danish Krone,
242,600 expiring 09/02/03................................. 35,916 (758)
Euro Currency,
185,000 expiring 09/02/03................................. 203,357 (4,435)
35,000 expiring 10/02/03.................................. 38,441 296
140,000 expiring 10/02/03................................. 153,762 1,183
Japanese Yen,
25,047,000 expiring 09/02/03.............................. 214,681 1,397
Pound Sterling,
127,706 expiring 09/02/03................................. 201,403 (8)
Swedish Krona,
1,175,109 expiring 09/02/03............................... 140,486 (2,490)
320,000 expiring 10/02/03................................. 38,201 400
960,000 expiring 10/02/03................................. 114,604 1,186
Swiss Franc,
50,000 expiring 09/02/03.................................. 35,727 314
195,000 expiring 09/02/03................................. 139,334 1,222
-------
8,154
-------
</Table>
25
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
<Table>
<Caption>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
SHORT CONTRACTS
Canadian Dollar,
300,000 expiring 09/02/03................................. $216,581 $(3,297)
100,000 expiring 09/02/03................................. 72,194 (586)
Danish Krone,
241,745 expiring 09/02/03................................. 35,790 (376)
Euro Currency,
185,000 expiring 09/02/03................................. 203,357 (1,947)
Japanese Yen,
25,728,000 expiring 09/02/03.............................. 220,518 (7,390)
13,207,680 expiring 10/02/03.............................. 113,311 106
30,819,150 expiring 10/02/03.............................. 264,404 487
Pound Sterling,
128,871 expiring 09/02/03................................. 203,241 4,551
87,452 expiring 09/02/03.................................. 137,919 (480)
96,754 expiring 10/02/03.................................. 152,286 293
Swedish Krona,
1,170,273 expiring 09/02/03............................... 139,908 (1,796)
Swiss Franc,
50,000 expiring 09/02/03.................................. 35,727 948
195,000 expiring 09/02/03................................. 139,334 3,642
53,692 expiring 10/02/03.................................. 38,392 (248)
157,850 expiring 10/02/03................................. 112,871 (1,002)
-------
(7,095)
-------
$ 1,059
=======
</Table>
6. DISTRIBUTION AND SERVICE PLANS
With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund
and its shareholders have adopted a distribution plan pursuant to Rule 12b-1
under the 1940 Act, as amended, and a service plan (collectively, the "Plans").
The Plans govern payments for: the distribution of the Fund's Class A Shares,
Class B Shares and Class C Shares; the provision of ongoing shareholder services
with respect to such classes of shares; and the maintenance of shareholder
accounts with respect to such classes of shares.
Annual fees under the Plans of up to .25% of Class A average daily net
assets and 1.00% each of Class B and Class C average daily net assets are
accrued daily. The amount of distribution expenses incurred by Van Kampen and
not yet reimbursed ("unreimbursed receivable") was approximately $15,300 and $0
for Class B and C Shares, respectively. This amount may be recovered from future
payments under the distribution plan or CDSC. To the extent the unreimbursed
receivable has been fully recovered, any excess 12b-1 fees will be refunded to
the fund on a quarterly basis.
Included in the fees for the year ended August 31, 2003, are payments
retained by Van Kampen of approximately $9,200 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $700.
26
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen International Advantage
Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen International Advantage Fund (the "Fund"), including the portfolio of
investments, as of August 31, 2003, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year then ended and for the period from September
26, 2001 (commencement of investment operations) through August 31, 2002. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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 the
Van Kampen International Advantage Fund at August 31, 2003, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from September
26, 2001 (commencement of investment operations) through August 31, 2002 in
conformity with accounting principles generally accepted in the United States.
-s- Ernst & Young LLP
Chicago, Illinois
October 8, 2003
27
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT LTD.
25 Cabot Square
Canary Wharf, London
United Kingdom E14 4QA
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 947
Jersey City, New Jersey 07303-0947
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1173
Boston, Massachusetts 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
August 31, 2003. For corporate shareholders, 2% of the distributions qualify
for the dividends received deductions. The Fund intends to pass through
foreign tax credits of $15,467 and has derived gross income from sources
within foreign countries amounting to $127,734. In January, the Fund provides
tax information to shareholders for the preceding calendar year.
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
28
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen 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." The term "Fund Complex" includes each of the investment companies
advised by the Advisers or their affiliates as of the date of this Statement of
Additional Information. Trustees serve until reaching their retirement age or
until their successors are duly elected and qualified. Officers are annually
elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 90 Trustee/Director/Managing
Blistex Inc. since 2003 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
J. Miles Branagan (71) Trustee Trustee Private investor. 88 Trustee/Director/Managing
1632 Morning Mountain Road since 2001 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
</Table>
29
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 88 Trustee/Director/Managing
33971 Selva Road since 2001 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 90 Trustee/Director/Managing
CAC, llc. since 2003 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of TeleTech
San Diego, CA 92122-6223 services. Prior to July Holdings Inc.,
2000, Managing Partner of Stericycle, Inc.,
Equity Group Corporate TheraSense, Inc., GATX
Investment (EGI), a Corporation, Arris Group,
company that makes Inc. and Trustee of the
private investments in University of Chicago
other companies. Hospitals and Health
Systems. Prior to May
2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Vice Chairman and
Director of Anixter
International, Inc. and
IMC Global Inc. Prior to
July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Director of Metal
Management, Inc.
</Table>
30
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 88 Trustee/Director/Managing
Heidrick & Struggles since 2001 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (51) Trustee Trustee Director and President of 88 Trustee/Director/Managing
11 DuPont Circle, N.W. since 2001 the German Marshall Fund General Partner of funds
Washington, D.C. 20016 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (67) Trustee Trustee Prior to 1998, President 90 Trustee/Director/Managing
736 North Western Avenue since 2003 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation
</Table>
31
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (67) Trustee Trustee President of Nelson 88 Trustee/Director/Managing
423 Country Club Drive since 2001 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 90 Trustee/Director/Managing
1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey (61) Trustee Trustee Chief Communications 88 Trustee/Director/Managing
2101 Constitution Ave., N.W. since 2001 Officer of the National General Partner of funds
Room 285 Academy of in the Fund Complex.
Washington, D.C. 20418 Sciences/National Director of Neurogen
Research Council, an Corporation, a
independent, federally pharmaceutical company,
chartered policy since January 1998.
institution, since 2001
and previously Chief
Operating Officer from
1993 to 2001. Director of
the Institute for Defense
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, and
Trustee of Colorado
College. Prior to 1993,
Executive Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
32
INTERESTED TRUSTEES*
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (50) Trustee, Trustee President and Chief 88 Trustee/Director/Managing
1221 Avenue of the Americas President since 2001 Executive Officer of General Partner of funds
New York, NY 10020 and Chief funds in the Fund in the Fund Complex.
Executive Complex. Chairman,
Officer President, Chief
Executive Officer and
Director of the Advisers
and VK Advisors Inc.
since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
</Table>
33
<Table>
<Caption>
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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 90 Trustee/Director/Managing
1 Parkview Plaza since 2001 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 90 Trustee/Director/Managing
333 West Wacker Drive since 2001 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom in the Fund Complex.
(Illinois), legal counsel
to funds in the Fund
Complex.
</Table>
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Advisers by reason
of their current or former positions with Morgan Stanley or its affiliates.
34
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 2001 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Advisers and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Advisers and Van Kampen Advisors Inc. Prior to December
2000, Executive Vice President and Chief Investment Officer
of Van Kampen Investments, and President and Chief Operating
Officer of the 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.
Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Advisers and Van Kampen
Advisors Inc. since December 2002.
</Table>
35
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers
1 Parkview Plaza since 2001 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 the Fixed Income Department of the 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, Senior Vice President of the investment grade taxable
group for the Advisers. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 2001 Director of Van Kampen Investments, Director of the
New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Managing Director and General
Counsel-Mutual Funds of Morgan Stanley Investment Advisors,
Inc. Vice President and Secretary of funds in the Fund
Complex. Prior to July 2001, Managing Director, General
Counsel, Secretary and Director of Van Kampen Investments,
the 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.
</Table>
36
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 2001 the Advisers, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Advisers and Van
Kampen Advisors Inc.
</Table>
37
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen 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 System Inc. and Van Kampen Exchange Corp., as well as the many
Van Kampen mutual funds and Van Kampen unit investment trusts.
The Statement of Additional Information includes additional information about
Fund trustees and is available, without charge, upon request by calling (800)
847-2424.
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.
Member NASD/SIPC. 185, 285, 385
IA ANR 10/03 12035J03-AP-10/03
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions,regardless of whether these individuals are employed by the Trust
or a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Trust has amended its Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.
(d) The Trust has granted a waiver or an implicit waiver from a provision
of its Code of Ethics.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 10A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: J. Miles Branagan, Jerry Choate and R. Craig Kennedy.
Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as a result of being designated or identified as an audit committee
financial expert. The designation or identification of a person as an audit
committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the audit committee and Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each Principal Executive Officer and
Principal Financial Officer of the registrant are 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 Equity Trust II
--------------------------
By: /s/ Ronald E. Robison
-----------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: October 20, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
-----------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: October 20, 2003
By: /s/ John L. Sullivan
-----------------------------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: October 20, 2003