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: 2/29/04
Item 1. Report to Shareholders
The Trust's semi-annual report transmitted to shareholders pursuant to
Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Technology Fund performed during the semiannual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of February 29,
2004.
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.
<Table>
<Caption>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary
<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 -16.95% -18.01% -17.60% -17.87% -17.60% -17.60%
1-year 50.00 41.53 48.91 43.91 48.91 47.91
6-month 8.40 2.16 7.87 2.87 7.87 6.87
- ---------------------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future results and current performance may
be lower or higher than the figures shown. For more up-to-date information,
including month-end performance figures, please visit vankampen.com or speak
with your financial advisor. Investment returns 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. Performance of share classes will vary due to differences in sales
charges and expenses.
As a result of recent market activity, current performance may vary from the
figures shown. 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. The index does not include any
expenses, fees or sales charges, which would lower performance. The index is
unmanaged and should not be considered an investment.
1
Fund Report
FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 2004
Van Kampen Technology Fund is managed by the adviser's Multi-Cap Growth team.(1)
Current members include Gary Lewis, Managing Director; David Walker, Executive
Director; Dudley Brickhouse, Executive Director; Janet Luby, Executive Director;
Matthew Hart, Vice President; and Scott Miller, Associate.
MARKET CONDITIONS
Technology stocks performed well during the six-month reporting period, building
on a rally that began in October 2002. Strengthening in the global economy
helped increase demand for technology products and services, and this resulted
in vastly improved earnings results for companies in the sector. In general,
cyclical technology companies (those in the best position to benefit from
improving economic growth) produced the strongest performance in the first four
months of the fund's reporting period, as they had through most of 2003.
Included in this group are companies in the telecommunications and semiconductor
(computer chip) sectors. By mid-January 2004, however, the environment began to
shift as the combination of lofty valuations and renewed concerns about the
economy prompted investors to take profits. As the broader technology sector
came under selling pressure, the stocks that were hit hardest were largely the
same economically sensitive companies that had performed so well in 2003.
PERFORMANCE ANALYSIS
Van Kampen Technology Fund returned 8.40 percent for the six months ended
February 29, 2004 (Class A shares unadjusted for sales charge). The fund's
benchmark, the PSE Technology Index, returned 15.19 percent for the same period,
reflecting the strong overall environment for tech stocks.
The primary reason for the fund's underperformance relative to its benchmark was
its overweight position in the types of cyclical companies that lagged during
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDING FEBRUARY 29, 2004
<Table>
<Caption>
- --------------------------------------------------------------
CLASS A CLASS B CLASS C PSE TECHNOLOGY INDEX
8.40% 7.87% 7.87% 15.19%
- --------------------------------------------------------------
</Table>
The performance for the three share classes varies because each has different
expenses. The fund's total return figures assume the reinvestment of all
distributions, but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. Past performance is no guarantee of future
results. See Performance Summary for standardized performance information and an
index definition.
(1)Team members may change at any time without notice.
2
the final six weeks of the reporting period. Early in 2003, we established a
large overweight in this area by increasing the fund's position in semiconductor
and telecom-equipment stocks. This proved to be very beneficial for the fund in
the 2003 calendar year, during which the fund returned 55.84 percent (Class A
shares unadjusted for sales charge) versus 52.14 percent for its benchmark. An
example of an investment that worked out very well in 2003 but then hurt
performance late in the reporting period is Lam Research, a chipmaker that cut
costs significantly during the technology downturn by outsourcing some of its
manufacturing functions. When the semiconductor industry recovered last year,
the resulting boost to the company's top-line revenue growth had a powerful
impact on its bottom-line earnings. But once the market turned downward in
mid-January, the stock suffered disproportionately, falling from a high of
$33.67 on January 20 to $25.57 at the end of February.
Cisco Systems, another winner for the fund in 2003, also was hit by selling
pressure late in the period. Cisco has positioned itself as a leader in the
evolving world of communications-network architecture, and its stock price rose
from $19.14 at the start of the period to $23.16 at the end of February.
However, its sharp decline from its January high of over $29 detracted from the
fund's relative performance late in the period.
Not all of the fund's winning positions gave up ground, of course. A strong
performer during the full reporting period was Symantec, which is best known for
its Norton anti-virus software. The company's sales volumes soared in mid-
August when two viruses hit the world's computing networks, raising concerns
about network security. Corporations proactively took steps to strengthen their
<Table>
TOP 10 HOLDINGS AS OF 2/29/04 TOP 10 INDUSTRIES AS OF 2/29/04
eBay Inc 5.8% Semiconductors 16.5%
Cisco Systems, Inc 4.8 Communications Equipment 15.5
Genentech, Inc 3.8 Biotechnology 11.2
Intel Corp 3.5 Systems Software 10.5
Symantec Corp 3.4 Health Care Equipment 7.8
International Business Machines 3.4 Data Processing &
Yahoo! Inc 3.1 Outsourcing Services 5.9
Microsoft Corp 3.0 Internet Retail 5.8
Juniper Networks Inc 2.7 Computer Hardware 5.7
St. Jude Medical Inc 2.5 Application Software 5.0
Semiconductor Equipment 5.0
</Table>
Subject to change daily. 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. Van Kampen is a wholly
owned subsidiary of a global securities firm which is engaged in a wide range of
financial services including, for example, securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
3
networks, which translated into stronger sales and higher prices for Symantec's
products.
With respect to the portfolio's current positioning, we made some noteworthy
changes in the latter half of the period when the tech sector had begun to show
signs of vulnerability. For instance, we witnessed stock-price weakness in
companies that released good news, which is not a sign of a robust market. We
responded to this shift in the market environment by adopting a more defensive
posture within the portfolio. This entailed taking profits in some of the fund's
more aggressive, economically sensitive positions.
At the same time, we increased its weighting in "defensive" areas; i.e., those
more likely to outperform during times of market weakness. For example, we
increased the portfolio's weighting in health-care stocks, particularly
biotechnology companies that we believe are on the verge of receiving FDA
approval for key products. A recent purchase was Genentech, which received
approval for its colorectal cancer treatment Avastin in late February. The fund
bought the stock in mid-2003 at an average price of roughly $60, and it closed
the period at $107.89 in the wake of the positive news. The fund also purchased
Boston Scientific, which is bringing to market a stent that will be used to
alleviate coronary blockages as a lower-cost and less-invasive alternative to
open-heart surgery. Johnson & Johnson was first to the market with its stent,
but we believe Boston Scientific's stent is a superior product in that it is not
only drug-coated, but also likely to be less expensive.
It seems unlikely that the year ahead will bring technology-sector returns
comparable to what we have witnessed since the U.S. market began its post-war
rally last March. But we believe our approach, which seeks to identify companies
whose stock prices do not reflect their potential for favorable earnings
surprises, will help the fund successfully navigate the volatile technology
sector over time. We remain confident that our investment process will enable
the fund to deliver strong relative performance on a long-term basis.
There is no guarantee the securities mentioned will continue to perform well or
be held by the fund in the future.
4
ANNUAL HOUSEHOLDING NOTICE
To reduce fund 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 prospectuses
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.
5
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED)
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCKS 100.0%
AEROSPACE & DEFENSE 1.6%
Lockheed Martin Corp. ...................................... 125,000 $ 5,785,000
------------
APPLICATION SOFTWARE 5.0%
Mercury Interactive Corp. (a)............................... 175,000 8,494,500
SAP AG--ADR (Germany)....................................... 150,000 5,940,000
Siebel Systems, Inc. (a).................................... 275,000 3,591,500
------------
18,026,000
------------
BIOTECHNOLOGY 11.2%
Amgen, Inc. (a)............................................. 125,000 7,941,250
Biogen, Inc. (a)............................................ 125,000 6,931,250
Genentech, Inc. (a)......................................... 125,000 13,486,250
Genzyme Corp. (a)........................................... 100,000 5,078,000
Protein Design Labs, Inc. (a)............................... 275,000 6,600,000
------------
40,036,750
------------
COMMUNICATIONS EQUIPMENT 15.5%
Avaya, Inc. (a)............................................. 125,000 2,143,750
Cisco Systems, Inc. (a)..................................... 750,000 17,325,000
Corning, Inc. (a)........................................... 350,000 4,392,500
Ericsson, Class B--ADR (Sweden) (a)......................... 125,000 3,627,500
Harris Corp. ............................................... 125,000 5,906,250
Juniper Networks, Inc. (a).................................. 375,000 9,701,250
Nortel Networks Corp. (Canada) (a).......................... 550,000 4,389,000
QUALCOMM, Inc. ............................................. 125,000 7,931,250
------------
55,416,500
------------
COMPUTER HARDWARE 5.7%
Dell Computer Corp. (a)..................................... 150,000 4,897,500
International Business Machines Corp. ...................... 125,000 12,062,500
Research in Motion Ltd. (Canada) (a)........................ 35,000 3,462,900
------------
20,422,900
------------
COMPUTER STORAGE & PERIPHERALS 1.0%
EMC Corp. (a)............................................... 250,000 3,580,000
------------
DATA PROCESSING & OUTSOURCING SERVICES 5.9%
Automatic Data Processing, Inc. ............................ 125,000 5,306,250
Computer Sciences Corp. (a)................................. 125,000 5,223,750
DST Systems, Inc. (a)....................................... 125,000 5,595,000
First Data Corp. ........................................... 125,000 5,122,500
------------
21,247,500
------------
ELECTRONIC MANUFACTURING SERVICES 0.5%
Flextronics International Ltd. (Singapore) (a).............. 100,000 1,810,000
------------
HEALTH CARE EQUIPMENT 7.8%
Biomet, Inc. ............................................... 50,000 1,949,000
Boston Scientific Corp. (a)................................. 85,000 3,472,250
Guidant Corp. .............................................. 100,000 6,814,000
</Table>
6 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (CONTINUED)
Kinetic Concepts, Inc. (a).................................. 45,000 $ 1,815,750
St. Jude Medical, Inc. (a).................................. 125,000 9,081,250
Zimmer Holdings, Inc. (a)................................... 65,000 4,916,600
------------
28,048,850
------------
HEALTH CARE SUPPLIES 1.7%
Millipore Corp. (a)......................................... 115,000 6,020,250
------------
HOME ENTERTAINMENT SOFTWARE 1.6%
Electronic Arts, Inc. (a)................................... 125,000 5,895,000
------------
INTEGRATED TELECOMMUNICATION SERVICES 0.6%
Amdocs Ltd. (Guernsey) (a).................................. 75,000 2,091,000
------------
INTERNET RETAIL 5.8%
eBay, Inc. (a).............................................. 300,000 20,658,000
------------
INTERNET SOFTWARE & SERVICES 3.1%
Yahoo!, Inc. (a)............................................ 250,000 11,100,000
------------
SEMICONDUCTOR EQUIPMENT 5.0%
Applied Materials, Inc. (a)................................. 200,000 4,248,000
KLA-Tencor Corp. (a)........................................ 125,000 6,600,000
Lam Research Corp. (a)...................................... 150,000 3,835,500
Novellus Systems, Inc. (a).................................. 100,000 3,215,000
------------
17,898,500
------------
SEMICONDUCTORS 16.5%
Analog Devices, Inc. ....................................... 125,000 6,237,500
Broadcom Corp., Class A (a)................................. 150,000 6,087,000
Intel Corp. ................................................ 425,000 12,422,750
Linear Technology Corp. .................................... 125,000 4,998,750
Marvell Technology Group Ltd. (Bermuda) (a)................. 90,000 4,097,700
Maxim Integrated Products, Inc. ............................ 125,000 6,238,750
National Semiconductor Corp. (a)............................ 125,000 4,920,000
PMC-Sierra, Inc. (a)........................................ 75,000 1,492,500
Texas Instruments, Inc. .................................... 175,000 5,363,750
Vitesse Semiconductor Corp. (a)............................. 250,000 1,997,500
Xilinx, Inc. (a)............................................ 125,000 5,255,000
------------
59,111,200
------------
SYSTEMS SOFTWARE 10.5%
Microsoft Corp. ............................................ 400,000 10,600,000
NCR Corp. (a)............................................... 125,000 5,595,000
Oracle Corp. (a)............................................ 200,000 2,576,000
Red Hat, Inc. (a)........................................... 150,000 2,712,000
Symantec Corp. (a).......................................... 300,000 12,342,000
VERITAS Software Corp. (a).................................. 125,000 3,802,500
------------
37,627,500
------------
</Table>
See Notes to Financial Statements 7
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
MARKET
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES 1.0%
Nextel Communications, Inc., Class A (a).................... 135,000 $ 3,576,150
------------
TOTAL INVESTMENTS 100.0%
(Cost $285,569,546)................................................ 358,351,100
LIABILITIES IN EXCESS OF OTHER ASSETS 0.0%.......................... (154,869)
------------
NET ASSETS 100.0%................................................... $358,196,231
============
</Table>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
8 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 29, 2004 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $285,569,546)....................... $ 358,351,100
Receivables:
Investments Sold.......................................... 4,824,590
Fund Shares Sold.......................................... 211,312
Dividends................................................. 98,250
Other....................................................... 44,733
---------------
Total Assets............................................ 363,529,985
---------------
LIABILITIES:
Payables:
Custodian Bank............................................ 3,145,410
Distributor and Affiliates................................ 747,851
Fund Shares Repurchased................................... 561,818
Investment Advisory Fee................................... 257,357
Accrued Expenses............................................ 556,770
Trustees' Deferred Compensation and Retirement Plans........ 64,548
---------------
Total Liabilities....................................... 5,333,754
---------------
NET ASSETS.................................................. $ 358,196,231
===============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 1,930,227,456
Net Unrealized Appreciation................................. 72,781,554
Accumulated Net Investment Loss............................. (4,927,996)
Accumulated Net Realized Loss............................... (1,639,884,783)
---------------
NET ASSETS.................................................. $ 358,196,231
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $133,939,626 and 31,419,116 shares of
beneficial interest issued and outstanding)............. $ 4.26
Maximum sales charge (5.75%* of offering price)......... .26
---------------
Maximum offering price to public........................ $ 4.52
===============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $180,237,193 and 43,840,453 shares of
beneficial interest issued and outstanding)............. $ 4.11
===============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $44,019,412 and 10,705,874 shares of
beneficial interest issued and outstanding)............. $ 4.11
===============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 9
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended February 29, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $110)........ $ 264,436
Interest.................................................... 2,869
------------
Total Income............................................ 267,305
------------
EXPENSES:
Shareholder Services........................................ 1,940,313
Investment Advisory Fee..................................... 1,617,275
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $163,707, $905,004 and $226,053,
respectively)............................................. 1,294,764
Custody..................................................... 19,250
Legal....................................................... 16,168
Trustees' Fees and Related Expenses......................... 9,643
Other....................................................... 236,620
------------
Total Expenses.......................................... 5,134,033
------------
NET INVESTMENT LOSS......................................... $ (4,866,728)
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 46,988,809
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 87,144,534
End of the Period......................................... 72,781,554
------------
Net Unrealized Depreciation During the Period............... (14,362,980)
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 32,625,829
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 27,759,101
============
</Table>
10 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss.................................... $ (4,866,728) $ (8,866,411)
Net Realized Gain/Loss................................. 46,988,809 (79,234,441)
Net Unrealized Appreciation/Depreciation During the
Period............................................... (14,362,980) 175,267,856
------------ -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 27,759,101 87,167,004
------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 31,983,770 162,947,100
Cost of Shares Repurchased............................. (42,826,437) (180,950,468)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... (10,842,667) (18,003,368)
------------ -------------
TOTAL INCREASE IN NET ASSETS........................... 16,916,434 69,163,636
NET ASSETS:
Beginning of the Period................................ 341,279,797 272,116,161
------------ -------------
End of the Period (Including accumulated net investment
loss of $4,927,996 and $61,268, respectively)........ $358,196,231 $ 341,279,797
============ =============
</Table>
See Notes to Financial Statements 11
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED AUGUST 31, OF OPERATIONS)
CLASS A SHARES FEBRUARY 29, ---------------------------------------- TO AUGUST 31,
2004 (a) 2003 (a) 2002 (a) 2001 (a) 2000 1999
------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 3.93 $ 2.90 $ 5.49 $ 26.81 $ 11.17 $10.00
------ ------ ------- ------- ------- ------
Net Investment Loss...... (.05) (.08) (.11) (.18) (.16) (.01)
Net Realized and
Unrealized Gain/Loss... .38 1.11 (2.48) (21.14) 15.80 1.18
------ ------ ------- ------- ------- ------
Total from Investment
Operations............... .33 1.03 (2.59) (21.32) 15.64 1.17
------ ------ ------- ------- ------- ------
NET ASSET VALUE, END OF THE
PERIOD................... $ 4.26 $ 3.93 $ 2.90 $ 5.49 $ 26.81 $11.17
====== ====== ======= ======= ======= ======
Total Return (b)........... 8.40%* 35.52% -47.18% -79.51% 139.93% 11.70%*
Net Assets at End of the
Period (In millions)..... $133.9 $125.3 $ 103.5 $ 198.8 $ 928.8 $ 49.7
Ratio of Expenses to
Average Net Assets....... 2.37% 2.88% 2.39% 1.65% 1.47% 1.45%
Ratio of Net Investment
Loss to Average Net
Assets................... (2.22%) (2.73%) (2.31%) (1.48%) (1.14%) (1.03%)
Portfolio Turnover......... 100%* 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.
12 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED AUGUST 31, OF OPERATIONS)
CLASS B SHARES FEBRUARY 29, ----------------------------------------- TO AUGUST 31,
2004 (a) 2003 (a) 2002 (a) 2001 (a) 2000 1999
-------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 3.81 $ 2.83 $ 5.41 $ 26.59 $ 11.16 $10.00
------ ------ ------- ------- -------- ------
Net Investment Loss...... (.06) (.10) (.14) (.28) (.28) (.02)
Net Realized and
Unrealized Gain/Loss... .36 1.08 (2.44) (20.90) 15.71 1.18
------ ------ ------- ------- -------- ------
Total from Investment
Operations............... .30 .98 (2.58) (21.18) 15.43 1.16
------ ------ ------- ------- -------- ------
NET ASSET VALUE, END OF THE
PERIOD................... $ 4.11 $ 3.81 $ 2.83 $ 5.41 $ 26.59 $11.16
====== ====== ======= ======= ======== ======
Total Return (b)........... 7.87%* 34.63% -47.69% -79.65% 138.17% 11.60%*
Net Assets at End of the
Period (In millions)..... $180.2 $172.7 $ 133.8 $ 288.4 $1,442.2 $164.3
Ratio of Expenses to
Average Net Assets....... 3.14% 3.65% 3.16% 2.40% 2.23% 2.21%
Ratio of Net Investment
Loss to Average Net
Assets................... (2.99%) (3.50%) (3.08%) (2.24%) (1.89%) (1.79%)
Portfolio Turnover......... 100%* 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.
See Notes to Financial Statements 13
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JULY 26, 1999
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED AUGUST 31, OF OPERATIONS)
CLASS C SHARES FEBRUARY 29, ---------------------------------------- TO AUGUST 31,
2004 (a) 2003 (a) 2002 (a) 2001 (a) 2000 1999
------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 3.81 $ 2.83 $ 5.41 $ 26.59 $ 11.16 $10.00
------ ------ ------- ------- ------- ------
Net Investment Loss...... (.06) (.10) (.14) (.28) (.27) (.02)
Net Realized and
Unrealized Gain/Loss... .36 1.08 (2.44) (20.90) 15.70 1.18
------ ------ ------- ------- ------- ------
Total from Investment
Operations............... .30 .98 (2.58) (21.18) 15.43 1.16
------ ------ ------- ------- ------- ------
NET ASSET VALUE, END OF THE
PERIOD................... $ 4.11 $ 3.81 $ 2.83 $ 5.41 $ 26.59 $11.16
====== ====== ======= ======= ======= ======
Total Return (b)........... 7.87%* 34.63% -47.69% -79.65% 138.17% 11.60%*
Net Assets at End of the
Period (In millions)..... $ 44.0 $ 43.4 $ 34.7 $ 80.3 $ 412.0 $ 28.0
Ratio of Expenses to
Average Net Assets....... 3.14% 3.66% 3.16% 2.40% 2.22% 2.21%
Ratio of Net Investment
Loss to Average Net
Assets................... (2.99%) (3.51%) (3.08%) (2.23%) (1.88%) (1.79%)
Portfolio Turnover......... 100%* 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.
14 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED)
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 statutory 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 (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.
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.
15
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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 February 29, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $291,720,850
============
Gross tax unrealized appreciation........................... $ 71,694,145
Gross tax unrealized depreciation........................... (5,063,895)
------------
Net tax unrealized appreciation on investments.............. $ 66,630,250
============
</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.
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.
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 six months ended February 29, 2004, the Fund recognized expenses of
approximately $5,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, 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 six months ended
February 29, 2004, the Fund recognized expenses of approximately $23,300
representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van
Kampen") cost of providing accounting and legal services to the Fund, which are
reported as part of "Other" and "Legal" expenses, respectively, on 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 six months ended
February 29, 2004, the Fund recognized expenses of approximately $1,544,300,
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 trustees of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
16
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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 $41,375 are included in
"Other" assets on the Statement of Assets and Liabilities at February 29, 2004.
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 six months ended February 29, 2004, the Fund paid brokerage
commissions to Morgan Stanley DW Inc., an affiliate of the Adviser, totaling
$27,650.
3. CAPITAL TRANSACTIONS
At February 29, 2004, capital aggregated $723,564,761, $922,815,435, and
$283,847,260 for Classes A, B and C, respectively. For the six months ended
February 29, 2004, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 4,158,995 $ 17,537,277
Class B................................................... 2,858,184 11,576,246
Class C................................................... 715,832 2,870,247
----------- ------------
Total Sales................................................. 7,733,011 $ 31,983,770
=========== ============
Repurchases:
Class A................................................... (4,613,348) $(19,355,632)
Class B................................................... (4,385,860) (17,762,875)
Class C................................................... (1,403,105) (5,707,930)
----------- ------------
Total Repurchases........................................... (10,402,313) $(42,826,437)
=========== ============
</Table>
17
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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>
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 six months ended
February 29, 2004 and year ended August 31, 2003, 53,028 and 63,082 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 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 six months ended February 29, 2004, Van Kampen, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $44,600 and CDSC on redeemed shares of Classes B and C of
approximately $253,900. Sales charges do not represent expenses of the Fund.
18
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $357,761,895 and $372,041,051,
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 $27,553,700 and
$219,800 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 the fees for the six months ended February 29, 2004, are
payments retained by Van Kampen of approximately $712,300 and payments made to
Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $125,100.
6. LEGAL MATTERS
The Adviser, certain affiliates of the Adviser and certain investment companies
advised by the Adviser or its affiliates, including the Fund, are named as
defendants in a number of recently filed, similar class action complaints. One
of the actions also names the individual Trustees of the Van Kampen funds as
defendants. These complaints generally allege that defendants, including the
Fund, violated their statutory disclosure obligations and fiduciary duties by
failing properly to disclose (i) that the Adviser and certain affiliates of the
Adviser allegedly offered economic incentives to brokers and others to steer
investors to the funds advised by the Adviser or its affiliates rather than
funds managed by other companies, and (ii) that the funds advised by the Adviser
or its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters is not
presently determinable at this early stage of the litigation, and no provision
has been made in the Fund's financial statements for the effect, if any, of
these matters.
19
VAN KAMPEN TECHNOLOGY FUND
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
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
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1221 Avenue of the Americas
New York, New York 10020
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 LLP
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.
20
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen Asset Management, Van
Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services
Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the
many Van Kampen mutual funds and Van Kampen unit investment trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 77, 177, 277
TECH SAR 4/04 14080C04-AP-4/04
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
International Advantage Fund performed during the semiannual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of February 29, 2004.
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.
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
Performance Summary
<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 11.43% 8.75% 10.59% 9.51% 10.82% 10.82%
1-year 52.45 43.73 51.42 46.42 52.50 51.20
6-month 20.04 13.14 19.65 14.65 20.27 19.27
- ---------------------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future results and current performance may
be lower or higher than the figures shown. For more up-to-date information,
including month-end performance figures, please visit vankampen.com or speak
with your financial advisor. Investment returns 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. Performance of share classes will vary due to differences in sales
charges and expenses.
As a result of recent market activity, current performance may vary from the
figures shown. 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. The index does not include any
expenses, fees or sales charges, which would lower performance. The index is
unmanaged and should not be considered an investment.
1
Fund Report
FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 2004
Van Kampen International Advantage Fund is managed by the adviser's Global Core
team.(1) Current members include Kate Cornish-Bowden, Managing Director; Simon
Carter, Executive Director; Jamie Wood, Executive Director; Michael Allison,
Vice President; and Mark Laskin, Vice President.
MARKET CONDITIONS
Over the six-month reporting period, the global economy began to show signs of a
sustainable recovery. Central banks around the world eased short-term interest
rates to help stimulate their economies.
The Asia region as a whole rebounded strongly from the SARS scare that had
hampered its progress earlier in 2003. Strength in the Chinese economy, which
continued to benefit from its growing role as a manufacturing and export center,
was sufficient to also buoy the long-languishing Japanese economy. The Japanese
yen rose in value against the U.S. dollar, however, which hurt the results for
the export-related companies that play a large role in the Japanese stock
market.
European economies, which had been muddled in years of near-zero growth,
benefited from increased external demand. However, like the yen, the
appreciation of the euro and the British pound relative to the U.S. dollar did
not help export-driven European economies, including automakers, as the shift in
currencies made exported goods more expensive for U.S. customers. This impact
was somewhat offset, though, by increased demand from Asian and Eastern European
markets. Overall, industrial confidence in Europe has been improving, leading
the U.K. central bank to begin raising interest rates.
The U.S. economy continued to signal growth. Although actual job growth remained
elusive, it appeared employment prospects were improving. In addition, consumer
spending held steady, and corporate capital expenditures increased.
Among the industry sectors that built on these positive trends and experienced
strong performance relative to the broader market were materials,
transportation, and technology. Overall, technology and other sectors that had
suffered the most in previous years' weaker markets turned in some of the
strongest performance over the six months. These stocks were the beneficiaries
of investors' improving confidence in the prospects for a sustainable global
economic recovery.
Within individual sectors, lower-quality companies--those with heavier levels of
debt, for example--often outperformed their steadier, higher-quality
counterparts. This effect was particularly notable in the long-troubled banking
sector in
(1)Team members may change at any time without notice.
2
Japan, as returns for lower-quality banks strongly outpaced those of their more
stable peers.
PERFORMANCE ANALYSIS
Over the six-month period, the fund posted a return of 20.04 percent (Class A
shares unadjusted for sales charge). While a strong absolute performance figure,
it placed the fund behind its benchmark, the MSCI All Country World Free Index
ex-U.S., which returned 25.43 percent for the same period.
In selecting individual stocks for the portfolio, we emphasize rigorous
fundamental research. This means we tend not to invest in lower-quality stocks,
such as those with high levels of debt or other concerns affecting their long-
term viability. During the period, however, the increasing sense of investor
optimism (fueled in part by a shorter-than-expected war in Iraq) led these
weaker companies to outperform. Our bias toward higher-quality stocks thus hurt
the fund's relative performance over the six months. This short-term trend will
not, however, lead us away from our preference for sturdier, financially stable
companies, as we believe this approach is a prudent investment strategy for the
long term.
Much of the fund's underperformance relative to its benchmark came from what the
fund did not own (low-quality stocks), rather than the high-quality stocks it
did own. We avoided some bank, media company, and technology hardware and
equipment stocks that did not meet our quality standards, and some of these
stocks ended up performing well during the period. Because these stocks were
represented in the benchmark index, the fund lost ground relative to the index.
In absolute terms, however, many of the fund's investments generated strong
gains during the period. Anticipating expansion in the global economy, we
positioned the portfolio with a growth bias, emphasizing companies and sectors
we believed would benefit most from the improving climate. As part of this
approach, the fund had significant holdings in the materials, automobiles, and
technology sectors, all of which contributed positively to performance over the
period. Among companies in the materials sector, U.K. steelworks Corus, Swiss
crop-protection chemicals producer Syngenta, and Brazilian iron-ore miner
Companhia Vale do Rio Doce were top performers. Automakers Porsche (Germany) and
DaimlerChrysler (U.S.) also performed well, as did technology
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDING FEBRUARY 29, 2004
<Table>
<Caption>
- ------------------------------------------------------------------------
CLASS A CLASS B CLASS C MSCI AC WORLD FREE EX-US INDEX
20.04% 19.65% 20.27% 25.43%
- ------------------------------------------------------------------------
</Table>
The performance for the three share classes varies because each has different
expenses. The fund's total return figures assume the reinvestment of all
distributions, but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. Past performance is no guarantee of future
results. See Performance Summary for standardized performance information and
index definitions.
3
companies Checkpoint Software (U.S.), semiconductor company ARM (U.K.), and
wireless-communications company Nokia (Finland).
As stocks in these strong-performing areas of the market reached full
valuations, we reduced a number of our positions in them. Even though many Asian
real-estate companies enjoyed strong performance over the period, we actually
increased the fund's exposure to this sector. We believe both the Hong Kong and
Japanese property markets are showing signs of further recovery following their
years-long slump. We have also increased the fund's exposure to capital-
market-sensitive banks, as these stand to benefit, in our opinion, from
additional increases in corporate activity.
In addition, selected automobile, transportation, and real estate stocks
contributed positively to the fund's performance. Among automakers, Porsche was
the fund's star performer, while in airlines Qantas (Australia) performed well
as the SARS crisis subsided. In real estate, Mitsubishi Estate (Japan) and Sun
Hung Kai (Hong Kong) both performed strongly, with the Asian property market
beginning to recover as the regional economy gained momentum.
In our assessment, there are many positive signs on the global economic
landscape. European manufacturing is improving, and business confidence in the
region is at multi-year highs. Economic conditions in Japan also continue to
improve, with corporate restructuring and balance-sheet repair having progressed
significantly over the past few years. Emerging market economies have performed
well in the past year. With growing demand from China for resources, this trend
appears set to continue, though at a more modest, sustainable pace. Overall, we
believe the global economy is in a much stronger position today than it was a
year ago.
There is no guarantee the securities mentioned will continue to perform well or
be held by the fund in the future.
<Table>
TOP 10 HOLDINGS AS OF 2/29/04 TOP 10 COUNTRIES AS OF 2/29/04
iShares MSCI Emerging Markets United Kingdom 25.3%
Index 4.2% Japan 20.5
GlaxoSmithKline plc 2.9 Netherlands 9.1
Royal Dutch Petroleum 2.6 Germany 9.1
HSBC Holdings plc 1.9 Switzerland 8.6
Royal Bank of Scotland Group plc 1.8 France 4.7
Nokia Oyj 1.7 United States 4.2
Deutsche Bank AG 1.6 Finland 2.5
Amvescap plc 1.6 Australia 2.3
Wolters Kluwer NV 1.6 Italy 1.8
Vodafone Group plc 1.5
</Table>
Subject to change daily. All percentages are as a percentage of long-term
investments. 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. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
4
ANNUAL HOUSEHOLDING NOTICE
To reduce fund 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 prospectuses
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.
5
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
COMMON STOCKS 90.4%
AUSTRALIA 2.2%
National Australia Bank, Ltd. .............................. 4,572 $ 109,007
Qantas Airways, Ltd. ....................................... 36,568 104,674
Rio Tinto, Ltd. ............................................ 3,767 104,980
-----------
318,661
-----------
BRAZIL 0.4%
Petroleo Brasileiro, SA--ADR................................ 1,934 60,341
-----------
CANADA 1.2%
Inco, Ltd. ................................................. 2,127 78,592
Royal Bank of Canada........................................ 690 32,667
Sun Life Financial, Inc. ................................... 2,470 67,030
-----------
178,289
-----------
DENMARK 0.4%
Novo Nordisk A/S............................................ 1,375 63,821
-----------
FINLAND 2.5%
Nokia (Ab) Oyj (a).......................................... 10,831 237,571
Stora Enso Oyj.............................................. 9,240 122,892
-----------
360,463
-----------
FRANCE 4.6%
Aventis, SA................................................. 1,076 82,464
BNP Paribas, SA............................................. 2,296 145,256
Cap Gemini, SA (a).......................................... 1,903 78,984
M6-Metropole Television..................................... 1,989 60,678
Schneider Electric, SA...................................... 1,349 89,792
Total, SA................................................... 1,164 212,884
-----------
670,058
-----------
GERMANY 7.9%
Allianz, AG................................................. 1,049 130,851
BASF, AG.................................................... 2,575 137,118
Deutsche Bank, AG........................................... 2,693 231,184
Deutsche Telekom, AG (a).................................... 8,195 160,380
E.On, AG.................................................... 2,481 167,918
Linde, AG................................................... 928 48,827
Siemens, AG................................................. 1,257 97,040
Volkswagen, AG.............................................. 4,156 195,452
-----------
1,168,770
-----------
HONG KONG 1.0%
China Mobile Communications Corp. .......................... 20,500 72,158
Sun Hung Kai Properties, Ltd. .............................. 7,000 68,792
-----------
140,950
-----------
INDIA 0.6%
Ranbaxy Laboratories, Ltd.--GDR............................. 3,913 86,477
-----------
</Table>
6 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
INDONESIA 0.4%
PT Telekomunikasi Indonesia--ADR............................ 3,184 $ 54,828
-----------
ISRAEL 0.5%
Teva Pharmaceutical Industries, Ltd.--ADR................... 1,034 67,210
-----------
ITALY 1.7%
ENI S.p.A. ................................................. 3,727 73,125
Telecom Italia S.p.A. (a)................................... 14,779 46,520
UniCredito Italiano S.p.A. ................................. 25,874 136,490
-----------
256,135
-----------
JAPAN 19.7%
Advantest Corp. ............................................ 800 59,541
Canon, Inc. ................................................ 3,000 146,382
Central Japan Railway Co. .................................. 7 60,622
Dai Nippon Printing Co., Ltd. .............................. 5,000 77,814
Daiwa Securities Group, Inc. ............................... 23,000 154,548
Denso Corp. ................................................ 4,400 92,040
Fanuc, Ltd. ................................................ 2,100 131,881
Fuji Television Network, Inc. .............................. 9 39,465
Kao Corp. .................................................. 4,000 84,405
Marui Co., Ltd. ............................................ 3,000 44,217
Matsushita Electric Industrial Co., Ltd. ................... 12,000 174,999
Millea Holdings, Inc. ...................................... 8 102,531
Mitsubishi Estate Co., Ltd. ................................ 16,000 186,314
Mitsui Sumitomo Insurance Co., Ltd. ........................ 7,000 61,519
NTT DoCoMo, Inc. ........................................... 69 143,388
Promise Co., Ltd. .......................................... 2,950 178,780
Seven-Eleven Japan Co., Ltd. ............................... 3,000 94,750
Shin-Etsu Chemical Co., Ltd. ............................... 3,300 128,393
SMC Corp. .................................................. 1,200 140,724
Sony Corp. ................................................. 3,200 130,654
Sumitomo Electric Industries, Ltd. ......................... 12,000 102,934
Sumitomo Trust and Banking Co., Ltd. ....................... 24,000 129,189
Takeda Chemical Industries, Ltd. ........................... 3,300 135,945
TDK Corp. .................................................. 2,200 153,467
Tokyo Electric Power Co., Inc. ............................. 1,500 32,956
Toshiba Corp. .............................................. 27,000 110,981
-----------
2,898,439
-----------
MEXICO 1.0%
Fomento Economico Mexicano SA de C.V. ...................... 15,371 69,211
Wal-Mart de Mexico SA de C.V. .............................. 23,828 73,035
-----------
142,246
-----------
NETHERLANDS 8.8%
ABN Amro Holdings, NV....................................... 1,810 41,863
DSM, NV..................................................... 1,200 56,897
European Aeronautic Defence and Space Co. .................. 4,946 114,518
</Table>
See Notes to Financial Statements 7
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
NETHERLANDS (CONTINUED)
Koninklijke Ahold, NV (a)................................... 10,987 $ 91,449
Koninklijke Philips Electronics, NV......................... 6,736 204,905
Royal Dutch Petroleum Co. .................................. 7,460 368,470
Unilever, NV CVA............................................ 1,699 123,341
VNU, NV..................................................... 2,191 71,474
Wolters Kluwer, NV.......................................... 12,427 222,175
-----------
1,295,092
-----------
NORWAY 0.9%
Telenor, ASA................................................ 18,834 129,405
-----------
REPUBLIC OF KOREA 1.1%
Kookmin Bank (a)............................................ 2,698 112,407
Korea Electric Power Corp. ................................. 2,663 46,775
-----------
159,182
-----------
RUSSIA 0.2%
YUKOS Corp.--ADR............................................ 631 31,727
-----------
SINGAPORE 0.7%
United Overseas Bank, Ltd. ................................. 13,000 107,713
-----------
SOUTH AFRICA 0.3%
Sasol, Ltd. ................................................ 3,109 46,869
-----------
SPAIN 0.8%
Amadeus Global Travel Distribution, SA...................... 20,047 119,470
-----------
SWEDEN 0.4%
Volvo AB, Class B........................................... 1,808 56,946
-----------
SWITZERLAND 8.3%
Compagnie Financiere Richemont, AG.......................... 6,441 171,628
Converium Holdings, AG...................................... 1,185 63,011
Credit Suisse Group......................................... 3,417 124,637
Holcim, Ltd. ............................................... 1,760 91,502
Nestle, SA.................................................. 479 126,690
Novartis, AG................................................ 2,930 129,428
STMicroelectronics, NV...................................... 7,118 184,645
Syngenta, AG................................................ 1,703 118,387
UBS, AG..................................................... 2,888 212,735
-----------
1,222,663
-----------
TAIWAN-REPUBLIC OF CHINA 1.5%
Hon Hai Precision Industry Co., Ltd.--GDR................... 16,874 164,522
Taiwan Semiconductor Manufacturing Co., Ltd.--ADR (a)....... 6,010 62,444
-----------
226,966
-----------
</Table>
8 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
UNITED KINGDOM 23.3%
3i Group Plc................................................ 9,823 $ 118,608
Amvescap Plc................................................ 28,120 222,829
Barclays Plc................................................ 14,904 134,034
BP Plc...................................................... 9,844 79,195
British Sky Broadcasting Plc................................ 7,345 98,451
BT Group Plc................................................ 26,060 85,630
Cadbury Schweppes Plc....................................... 12,865 106,190
Celltech Group Plc (a)...................................... 4,676 35,206
Corus Group Plc (a)......................................... 174,144 145,684
GlaxoSmithKline Plc......................................... 19,599 408,449
HSBC Holdings Plc........................................... 16,651 271,013
Intercontinental Hotels Group............................... 8,787 84,944
Lloyds TSB Group Plc........................................ 8,479 70,578
MFI Furniture Plc........................................... 31,114 85,462
Misys Plc................................................... 30,120 127,108
National Grid Transco Plc................................... 15,470 123,953
Next Plc.................................................... 1,756 45,409
Prudential Plc.............................................. 18,895 172,911
Rentokil Initial Plc........................................ 15,048 54,691
Royal Bank of Scotland Group Plc............................ 7,844 248,484
Smiths Group Plc............................................ 13,501 167,160
Standard Chartered Plc...................................... 7,136 123,110
Tesco Plc................................................... 17,935 85,858
Vedanta Resources Plc (a)................................... 18,290 116,627
Vodafone Group Plc.......................................... 87,124 217,442
-----------
3,429,026
-----------
TOTAL COMMON STOCKS 90.4%............................................. 13,291,747
-----------
PREFERRED STOCKS 0.8%
GERMANY 0.8%
Porsche, AG................................................. 201 117,125
-----------
INVESTMENT COMPANY 5.1%
UNITED KINGDOM 1.0%
Templeton Emerging Markets Investment Trust Plc............. 56,195 151,742
-----------
</Table>
See Notes to Financial Statements 9
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
UNITED STATES 4.1%
iShares MSCI Emerging Markets Index......................... 3,432 $ 599,021
-----------
TOTAL INVESTMENT COMPANY 5.1%......................................... 750,763
-----------
TOTAL LONG-TERM INVESTMENTS 96.3%
(Cost $11,929,382)................................................... 14,159,635
SHORT-TERM INVESTMENT 3.5%
(Cost $512,000)...................................................... 512,000
-----------
TOTAL INVESTMENTS 99.8%
(Cost $12,441,382)................................................... 14,671,635
FOREIGN CURRENCY (0.1%)
(Cost ($8,037))...................................................... (7,489)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.3%............................ 36,615
-----------
NET ASSETS 100.0%..................................................... $14,700,761
===========
</Table>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
10 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 29, 2004 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $12,441,382)........................ $14,671,635
Cash........................................................ 973
Receivables:
Investments Sold.......................................... 180,339
Fund Shares Sold.......................................... 125,218
Dividends................................................. 18,537
Expense Reimbursement from Adviser........................ 5,601
Forward Foreign Currency Contracts.......................... 3,096
Other....................................................... 12,481
-----------
Total Assets............................................ 15,017,880
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 230,808
Distributor and Affiliates................................ 6,994
Fund Shares Repurchased................................... 733
Accrued Expenses............................................ 50,078
Trustees' Deferred Compensation and Retirement Plans........ 21,017
Foreign Currency (Cost $8,037).............................. 7,489
-----------
Total Liabilities....................................... 317,119
-----------
NET ASSETS.................................................. $14,700,761
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $12,202,930
Net Unrealized Appreciation................................. 2,231,980
Accumulated Net Realized Gain............................... 334,022
Accumulated Undistributed Net Investment Income............. (68,171)
-----------
NET ASSETS.................................................. $14,700,761
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $10,889,471 and 922,592 shares of
beneficial interest issued and outstanding)............. $ 11.80
Maximum sales charge (5.75%* of offering price)......... .72
-----------
Maximum offering price to public........................ $ 12.52
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $2,386,079 and 204,096 shares of
beneficial interest issued and outstanding)............. $ 11.69
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,425,211 and 121,251 shares of
beneficial interest issued and outstanding)............. $ 11.75
===========
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 11
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended February 29, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $5,143)...... $ 55,703
Interest.................................................... 797
----------
Total Income............................................ 56,500
----------
EXPENSES:
Investment Advisory Fee..................................... 47,552
Shareholder Reports......................................... 20,347
Registration and Filing Fees................................ 16,481
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $7,967, $3,972 and $1,857, respectively).... 13,796
Audit....................................................... 13,244
Shareholder Services........................................ 12,434
Accounting.................................................. 10,136
Custody..................................................... 8,966
Trustees' Fees and Related Expenses......................... 7,328
Legal....................................................... 5,439
Other....................................................... 2,607
----------
Total Expenses.......................................... 158,330
Expense Reduction ($47,552 Investment Advisory Fee and
$11,195 Other)........................................ 58,747
Less Credits Earned on Cash Balances.................... 20
----------
Net Expenses............................................ 99,563
----------
NET INVESTMENT LOSS......................................... $ (43,063)
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 568,271
Foreign Currency Transactions............................. (23,380)
Forward Foreign Currency Contracts........................ (27,155)
----------
Net Realized Gain........................................... 517,736
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 855,551
----------
End of the Period:
Investments............................................. 2,230,253
Forward Foreign Currency Contracts...................... 3,096
Foreign Currency Translation............................ (1,369)
----------
2,231,980
----------
Net Unrealized Appreciation During the Period............... 1,376,429
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,894,165
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,851,102
==========
</Table>
12 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income/Loss.............................. $ (43,063) $ 31,290
Net Realized Gain/Loss.................................. 517,736 (109,597)
Net Unrealized Appreciation During the Period........... 1,376,429 991,515
----------- -----------
Change in Net Assets from Operations.................... 1,851,102 913,208
----------- -----------
Distributions from Net Investment Income:
Class A Shares........................................ -0- (137,983)
Class B Shares........................................ -0- (49,829)
Class C Shares........................................ -0- (43,996)
----------- -----------
Total Distributions..................................... -0- (231,808)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 1,851,102 681,400
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................... 6,237,426 5,632,593
Net Asset Value of Shares Issued Through Dividend
Reinvestment.......................................... -0- 230,905
Cost of Shares Repurchased.............................. (1,016,868) (2,044,934)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...... 5,220,558 3,818,564
----------- -----------
TOTAL INCREASE IN NET ASSETS............................ 7,071,660 4,499,964
NET ASSETS:
Beginning of the Period................................. 7,629,101 3,129,137
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of ($68,171) and ($25,108),
respectively)......................................... $14,700,761 $ 7,629,101
=========== ===========
</Table>
See Notes to Financial Statements 13
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS YEAR SEPTEMBER 26, 2001
ENDED ENDED (COMMENCEMENT OF
CLASS A SHARES FEBRUARY 29, AUGUST 31, OPERATIONS) TO
2004 2003 AUGUST 31, 2002
----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $ 9.83 $ 9.43 $ 10.00
------ ------ -------
Net Investment Income/Loss (b)................ (.04) .09 .03
Net Realized and Unrealized Gain/Loss......... 2.01 .88 (.28)
------ ------ -------
Total from Investment Operations................ 1.97 .97 (.25)
------ ------ -------
Less:
Distributions from Net Investment Income...... -0- .57 .31
Distributions from Net Realized Gain.......... -0- -0- .01
------ ------ -------
Total Distributions............................. -0- .57 .32
------ ------ -------
NET ASSET VALUE, END OF THE PERIOD.............. $11.80 $ 9.83 $ 9.43
====== ====== =======
Total Return (a)*............................... 20.04%** 11.20% -2.60%**
Net Assets at End of the Period (In millions)... $ 10.9 $ 5.6 $ 1.6
Ratio of Expenses to Average Net Assets (c)*.... 1.75% 1.75% 1.78%
Ratio of Net Investment Income/Loss to Average
Net Assets*................................... (.75%) .98% .33%
Portfolio Turnover.............................. 30%** 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)........................................ 2.86% 4.85% 15.81%
Ratio of Net Investment Loss to Average Net
Assets..................................... (1.87%) (2.11%) (13.70%)
** Non-Annualized
</Table>
(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 charge was 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.
14 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS YEAR SEPTEMBER 26, 2001
ENDED ENDED (COMMENCEMENT OF
CLASS B SHARES FEBRUARY 29, AUGUST 31, OPERATIONS) TO
2004 2003 AUGUST 31, 2002
----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $ 9.77 $ 9.38 $ 10.00
------ ------ -------
Net Investment Loss (b)....................... (.08) -0-(d) (.04)
Net Realized and Unrealized Gain/Loss......... 2.00 .89 (.27)
------ ------ -------
Total from Investment Operations................ 1.92 .89 (.31)
------ ------ -------
Less:
Distributions from Net Investment Income...... -0- .50 .30
Distributions from Net Realized Gain.......... -0- -0- .01
------ ------ -------
Total Distributions............................. -0- .50 .31
------ ------ -------
NET ASSET VALUE, END OF THE PERIOD.............. $11.69 $ 9.77 $ 9.38
====== ====== =======
Total Return (a)*............................... 19.65%** 10.40% -3.37%**
Net Assets at End of the Period (In millions)... $ 2.4 $ 1.2 $ .9
Ratio of Expenses to Average Net Assets (c)*.... 2.50% 2.50% 2.53%
Ratio of Net Investment Loss to Average Net
Assets*....................................... (1.52%) (.02%) (.45%)
Portfolio Turnover.............................. 30%** 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)........................................ 3.61% 5.60% 16.56%
Ratio of Net Investment Loss to Average Net
Assets..................................... (2.63%) (3.12%) (14.48%)
** Non-Annualized
</Table>
(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 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.
See Notes to Financial Statements 15
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
SIX MONTHS YEAR (COMMENCEMENT
ENDED ENDED OF INVESTMENT
CLASS C SHARES FEBRUARY 29, AUGUST 31, OPERATIONS) TO
2004 2003 AUGUST 31, 2002
----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $ 9.77 $ 9.38 $ 10.00
------ ------ -------
Net Investment Loss (b)....................... (.05) -0-(d) (.04)
Net Realized and Unrealized Gain/Loss......... 2.03 .89 (.27)
------ ------ -------
Total from Investment Operations................ 1.98 .89 (.31)
------ ------ -------
Less:
Distributions from Net Investment Income...... -0- .50 .30
Distributions from Net Realized Gain.......... -0- -0- .01
------ ------ -------
Total Distributions............................. -0- .50 .31
------ ------ -------
NET ASSET VALUE, END OF THE PERIOD.............. $11.75 $ 9.77 $ 9.38
====== ====== =======
Total Return (a)*............................... 20.27%**(e) 10.40%(e) -3.37%**
Net Assets at End of the Period (In millions)... $ 1.4 $ .8 $ .6
Ratio of Expenses to Average Net Assets (c)*.... 2.17%(e) 2.50%(e) 2.53%
Ratio of Net Investment Loss to Average Net
Assets*....................................... (.53%)(e) .00%(e) (.44%)
Portfolio Turnover.............................. 30%** 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)........................................ 3.28%(e) 5.60%(e) 16.56%
Ratio of Net Investment Loss to Average Net
Assets..................................... (1.64%)(e) (3.09%)(e) (14.47%)
** Non-Annualized
</Table>
(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 Loss to Average Net Assets reflect the refund of certain 12b-1
fees during the period.
16 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED)
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 statutory 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. Most foreign markets close before the New York Stock Exchange
(NYSE). Occasionally, developments that could affect the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If these
developments are expected to materially affect the value of the securities, the
valuations may be adjusted to reflect the estimated fair value as of the close
of the NYSE, as determined in good faith under procedures established 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. 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 Van Kampen Asset Management (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The 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.
17
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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 February 29, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $12,456,346
===========
Gross tax unrealized appreciation........................... $ 2,286,989
Gross tax unrealized depreciation........................... (71,700)
-----------
Net tax unrealized appreciation on investments.............. $ 2,215,289
===========
</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 in ordinary income for tax purposes.
The tax character of distributions paid during the year ended August 31,
2003 was as follows:
<Table>
<Caption>
2003
Distribution paid from:
Ordinary income........................................... $238,396
Long-term capital gain.................................... -0-
--------
$238,396
========
</Table>
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.
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 at the mean of the quoted bid
and ask prices of such currencies against the U.S. dollar. Purchases and sales
of portfolio securities are translated at the rate of exchange prevailing when
such securities were acquired or sold. 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
18
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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 six months ended February 29, 2004, the Fund's
custody fee was reduced by $20 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>
The Adviser has entered into a subadvisory agreement with Morgan Stanley
Investment Management Ltd. (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 Adviser pays 50% of its investment
advisory fee to the Subadviser. For the six months ended February 29, 2004, the
Adviser voluntarily waived $47,552 of its investment advisory fee and $11,195 of
other expenses. This waiver is voluntary and can be discontinued at the
Adviser's discretion.
For the six months ended February 29, 2004, the Fund recognized expenses of
approximately $500 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom LLP, 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. 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 six months ended February 29, 2004,
no cost was allocated to the Fund in regards to the Accounting Service
agreement. For the six months ended February 29, 2004, the Fund recognized
expenses of approximately $5,000 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 six months ended
February 29, 2004, the Fund recognized expenses of approximately $8,100
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
19
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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 $12,200 are included in "Other" assets on the Statement of
Assets and Liabilities at February 29, 2004. 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 February 29, 2004, 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 six months ended February 29, 2004, the Fund paid brokerage
commissions to Morgan Stanley DW Inc., an affiliate of the Adviser, totaling
$770.
3. CAPITAL TRANSACTIONS
At February 29, 2004, capital aggregated $8,966,136, $2,039,165 and $1,197,629
for Classes A, B, and C, respectively. For the six months ended February 29,
2004, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 438,173 $ 4,866,186
Class B................................................... 89,167 974,553
Class C................................................... 36,434 396,687
------- -----------
Total Sales................................................. 563,774 $ 6,237,426
======= ===========
Repurchases:
Class A................................................... (85,501) $ (927,786)
Class B................................................... (5,939) (69,517)
Class C................................................... (1,875) (19,565)
------- -----------
Total Repurchases........................................... (93,315) $(1,016,868)
======= ===========
</Table>
20
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
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>
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>
For the six months ended February 29, 2004, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A Shares of
approximately $2,100 and CDSC on redeemed shares of approximately $1,000. Sales
charges do not represent expenses of the Fund.
21
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
4. REDEMPTION FEE
Effective January 1, 2004, the Fund will assess a 2% redemption fee on the
proceeds of Class A Shares of the Fund that are redeemed (either by sale or
exchange) within 60 days of purchase. The redemption fee is paid directly to the
Fund. For the six months ended February 29, 2004, the Fund received redemption
fees of approximately $700, which are reported as part of "Cost of Shares
Repurchased" in the Statement of Changes in Net Assets.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $7,885,548 and $3,106,502, respectively.
6. 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, foreign currency exposure, or 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.
22
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
The following forward foreign currency contracts were outstanding as of
February 29, 2004:
<Table>
<Caption>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
LONG CONTRACTS
Australian Dollar,
345,000 expiring 03/01/04................................. $266,082 $ 2,750
365,000 expiring 04/01/04................................. 280,396 40
Canadian Dollar,
175,000 expiring 03/01/04................................. 130,563 (239)
175,000 expiring 03/01/04................................. 130,563 (239)
350,000 expiring 03/01/04................................. 261,126 (1,160)
190,000 expiring 04/01/04................................. 141,597 (534)
440,000 expiring 04/01/04................................. 327,908 381
Hong Kong Dollar,
515,000 expiring 03/01/04................................. 66,164 (68)
Swedish Krona,
1,476,156 expiring 03/01/04............................... 198,667 (1,153)
1,660,000 expiring 04/01/04............................... 223,141 (574)
-------------
(796)
-------------
SHORT CONTRACTS
Japanese Yen,
13,828,500 expiring 03/01/04.............................. 126,607 4,195
24,446,820 expiring 04/01/04.............................. 224,021 (306)
Norwegian Krone,
460,850 expiring 03/01/04................................. 65,417 815
Pound Sterling,
110,000 expiring 03/01/04................................. 204,441 (4,620)
176,028 expiring 04/01/04................................. 326,372 1,155
Swiss Franc,
163,450 expiring 03/01/04................................. 129,056 1,746
178,724 expiring 04/01/04................................. 141,224 907
-------------
3,892
-------------
$ 3,096
=============
</Table>
7. 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
23
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 29, 2004 (UNAUDITED) continued
receivable") was approximately $25,200 and $500 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 six months ended February 29, 2004, are
payments retained by Van Kampen of approximately $8,600 and payments made to
Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $700.
8. LEGAL MATTERS
The Adviser, certain affiliates of the Adviser and certain investment companies
advised by the Adviser or its affiliates, including the Fund, are named as
defendants in a number of recently filed, similar class action complaints. One
of the actions also names the individual Trustees of the Van Kampen funds as
defendants. These complaints generally allege that defendants, including the
Fund, violated their statutory disclosure obligations and fiduciary duties by
failing properly to disclose (i) that the Adviser and certain affiliates of the
Adviser allegedly offered economic incentives to brokers and others to steer
investors to the Funds advised by the Adviser or its affiliates rather than
Funds managed by other companies, and (ii) that the Funds advised by the Adviser
or its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these Funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters is not
presently determinable at this early stage of the litigation, and no provision
has been made in the Fund's financial statements for the effect, if any, of
these matters.
24
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND IMPORTANT ADDRESS INFORMATION
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
1221 Avenue of the Americas
New York, New York 10020
INVESTMENT SUBADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT LTD.
25 Cabot Square
Canary Wharf, London
United Kingdom E14 4QA
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1221 Avenue of the Americas
New York, New York 10020
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 LLP
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.
25
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen Asset Management, Van
Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services
Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the
many Van Kampen mutual funds and Van Kampen unit investment trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 185, 285, 385
IA SAR 4/04 14073C04-AP-4/04
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics -- Not applicable for semi-annual reports.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Equity Trust II
By: /s/ Ronald E. Robison
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: April 20, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: April 20, 2004
By: /s/ John L. Sullivan
Name: John L. Sullivan
Title: Principal Financial Officer
Date: April 20, 2004