UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02611
Van Kampen Exchange Fund
- --------------------------------------------------------------------------------
(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: 12/31
Date of reporting period: 6/30/05
Item 1. Report to Shareholders.
The Fund'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
Exchange Fund performed during the semi-annual period. This report
includes the fund's financial statements and a list of fund investments
as of June 30, 2005.
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
THAT THE VALUE OF THE FUND SHARES MAY BE THEREFORE LESS THAN WHAT YOU
PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND.
<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 as of 6/30/05
<Table>
<Caption>
since 12/16/76
- -----------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS W/O SALES CHARGES
Since Inception 12.14%
10-year 9.99
5-year -4.30
1-year 5.63
6 months 3.16
- -----------------------------------------------------------
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS 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
partner would pay on fund distributions or the redemption of fund shares.
Figures shown above assume reinvestment of all dividends and capital gains.
The S&P 500 Stock Index is generally representative of the U. S. stock market.
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
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Managing General Partners and by a majority of the independent Managing
General Partners voting separately.
On May 25, 2005, the Board of Managing General Partners, and the independent
Managing General Partners voting separately, determined that the terms of the
investment advisory agreement are fair and reasonable and approved the
continuance of the investment advisory contract as being in the best interests
of the Fund and its shareholders. In making its determination, the Board of
Managing General Partners considered materials that were specifically prepared
by the investment adviser at the request of the Board and Fund counsel, and by
an independent provider of investment company data contracted to assist the
Board, relating to the contract review process. The Board also considered
information received periodically about the portfolio, performance, the
investment strategy, portfolio management team and fees and expenses of the
Fund. Finally, the Board considered materials it had received in approving a
change in the advisory fee rate effective November 1, 2004. The Board of
Managing General Partners considered the contract over a period of several
months and the non-management Managing General Partners held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Managing General
Partners considered, among other things, the nature, extent and quality of the
services provided by the investment adviser, the performance, fees and expenses
of the Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Managing General
Partners considered the extent to which any economies of scale experienced by
the investment adviser are shared with the Fund's shareholders, and the
propriety of breakpoints in the Fund's investment advisory fee schedule. The
Board of Managing General Partners considered comparative advisory fees of the
Fund and other investment companies and/or other products at different asset
levels, and considered the trends in the industry. The Board of Managing General
Partners also reviewed the benefit to the investment adviser of receiving
research paid for by Fund assets and the propriety of such arrangements. The
Board of Managing General Partners evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Managing General Partners reviewed information about the foregoing
factors and considered changes, if any, in such information since its previous
approval. The Board of Managing General Partners discussed the financial
strength of the investment adviser and its affiliated companies and the
capability of the personnel of the investment adviser, and specifically the
strength and
2
background of its portfolio management personnel. The Board of Managing General
Partners reviewed the statutory and regulatory requirements for approval and
disclosure of investment advisory agreements.
The Board of Managing General Partners, including the independent Managing
General Partners, evaluated all of the foregoing and does not believe any single
factor or group of factors control or dominate the review process, and, after
considering all factors together, has determined, in the exercise of its
business judgment, that approval of the investment advisory agreement is in the
best interests of the Fund and its shareholders. The following summary provides
more detail on certain matters considered but does not detail all matters
considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Managing General Partners considers the roles and responsibilities of
the investment adviser as a whole and for those specific portfolio management,
support and trading functions servicing the Fund. The Managing General Partners
discuss with investment adviser the resources available and used in managing the
Fund. The Fund discloses information about its portfolio management team members
and their experience in its prospectus. The Managing General Partners also
discuss certain other services which are provided on a cost-reimbursement basis
by the investment adviser or its affiliates to the Van Kampen funds including
certain accounting, administrative and legal services. The Board has determined
that the nature, extent and quality of the services provided by the investment
adviser support its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Managing General Partners reviews the performance, fees and expenses of the Fund
compared to its peers and to appropriate benchmarks. In addition, a performance
committee of the Board spends more focused time on the performance of the Fund
and other funds in the Van Kampen complex, paying specific attention to
underperforming funds. The Managing General Partners discuss with the investment
adviser the performance goals and the actual results achieved in managing the
Fund. When considering a fund's performance, the Managing General Partners and
the investment adviser place emphasis on trends and longer-term returns
(focusing on one-year, three-year and five-year performance with special
attention to three-year performance) and, when a fund's weighted performance is
under the fund's benchmark, they discuss the causes and where necessary seek to
make specific changes to investment strategy or investment personnel. The Fund
discloses more information about its performance elsewhere in this report and in
the Fund's prospectus. The Managing General Partners discuss with the investment
adviser the level of advisory fees for this Fund relative to comparable funds
and other products advised by the adviser and others in the marketplace. The
Managing General Partners review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio.
3
The Board has determined that the performance, fees and expenses of the Fund
support its decision to approve the investment advisory contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the Managing General Partners review the investment adviser's
expenses in providing services to the Fund and other funds advised by the
investment adviser and the profitability of the investment adviser. These
profitability reports are put together by the investment adviser with the
oversight of a special ad hoc committee of the Board. The Managing General
Partners discuss with the investment adviser its revenues and expenses,
including among other things, revenues for advisory services, portfolio
management-related expenses, revenue sharing arrangement costs and allocated
expenses both on an aggregate basis and per fund. The Board has determined that
the analysis of the investment adviser's expenses and profitability support its
decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Managing General Partners
considers the size of the Fund and how that relates to the Fund's expense ratio
and particularly the Fund's advisory fee rate. In conjunction with its review of
the investment adviser's profitability, the Managing General Partners discuss
with the investment adviser how more (or less) assets can affect the efficiency
or effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current asset levels and/or whether the
advisory fee structure reflects economies of scale as asset levels change. The
Board has determined that its review of the actual and potential economies of
scale of the Fund support its decision to approve the investment advisory
contract.
Other Benefits of the Relationship. On a regular basis, the Board of Managing
General Partners considers other benefits to the investment adviser and it
affiliates derived from its relationship with the Fund and other funds advised
by the investment adviser. These benefits include, among other things, fees for
transfer agency services provided to the funds, in certain cases research
received by the adviser generated from commission dollars spent on funds'
portfolio trading, and in certain cases distribution or service related fees
related to funds' sales. The Managing General Partners review with the
investment adviser each of these arrangements and the reasonableness of its
costs relative to the services performed. The Board has determined that the
other benefits received by the investment adviser or its affiliates support its
decision to approve the investment advisory contract.
4
VAN KAMPEN EXCHANGE FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
COMMON STOCKS 99.3%
AEROSPACE & DEFENSE 0.7%
Honeywell International, Inc. .............................. 12,528 $ 458,901
-----------
ALUMINUM 0.6%
Alcan, Inc. (Canada)........................................ 10,774 323,220
Novelis Inc. (Canada)....................................... 2,154 55,315
-----------
378,535
-----------
AUTO PARTS & EQUIPMENT 0.3%
Dana Corp. ................................................. 13,677 205,292
-----------
COAL & CONSUMABLE FUELS 0.8%
Massey Energy Corp. ........................................ 12,831 483,985
-----------
COMPUTER HARDWARE 1.7%
International Business Machines Corp. ...................... 15,016 1,114,187
-----------
CONSTRUCTION & ENGINEERING 1.1%
Fluor Corp. ................................................ 12,831 738,937
-----------
DIVERSIFIED BANKS 1.4%
HSBC Holdings PLC--ADR (United Kingdom)..................... 11,434 910,718
-----------
FOREST PRODUCTS 1.0%
Louisiana-Pacific Corp. .................................... 25,970 638,343
-----------
HEALTH CARE DISTRIBUTORS 0.2%
Cardinal Health, Inc. ...................................... 1,867 107,502
-----------
HEALTH CARE EQUIPMENT 0.6%
Baxter International, Inc. ................................. 10,000 371,000
-----------
HEALTH CARE SERVICES 0.5%
Medco Health Solutions, Inc. (a)............................ 6,075 324,162
-----------
HEALTH CARE SUPPLIES 0.1%
Edwards Lifesciences Corp. (a).............................. 1,000 43,020
-----------
INDUSTRIAL GASES 8.3%
Air Products & Chemicals, Inc. ............................. 89,021 5,367,966
-----------
INDUSTRIAL MACHINERY 1.0%
SPX Corp. .................................................. 13,648 627,535
-----------
</Table>
See Notes to Financial Statements 5
VAN KAMPEN EXCHANGE FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
INTEGRATED OIL & GAS 14.5%
Amerada Hess Corp. ......................................... 21,200 $ 2,258,012
BP PLC--ADR (United Kingdom)................................ 33,876 2,113,185
Exxon Mobil Corp. .......................................... 86,639 4,979,143
-----------
9,350,340
-----------
MULTI-LINE INSURANCE 3.7%
American International Group, Inc. ......................... 41,688 2,422,073
-----------
OFFICE SERVICES & SUPPLIES 1.3%
IKON Office Solutions, Inc. ................................ 86,993 827,303
-----------
OIL & GAS DRILLING 0.3%
Transocean, Inc. (Cayman Islands) (a)....................... 3,113 168,009
-----------
OIL & GAS EQUIPMENT & SERVICES 6.2%
Baker Hughes, Inc. ......................................... 25,634 1,311,435
Halliburton Co. ............................................ 30,320 1,449,902
Schlumberger, Ltd. (Netherlands Antilles)................... 16,080 1,221,115
-----------
3,982,452
-----------
OIL & GAS EXPLORATION & PRODUCTION 3.9%
Apache Corp. ............................................... 26,346 1,701,952
Kerr-McGee Corp. ........................................... 10,900 831,779
-----------
2,533,731
-----------
PACKAGED FOODS & MEATS 4.9%
McCormick & Co., Inc. ...................................... 96,518 3,154,208
-----------
PAPER PRODUCTS 1.8%
Georgia-Pacific Corp. ...................................... 37,376 1,188,557
-----------
PHARMACEUTICALS 26.6%
Johnson & Johnson........................................... 78,636 5,111,340
Merck & Co., Inc. .......................................... 50,376 1,551,581
Pfizer, Inc. ............................................... 184,471 5,087,710
Schering-Plough Corp. ...................................... 156,022 2,973,779
Wyeth....................................................... 56,000 2,492,000
-----------
17,216,410
-----------
REAL ESTATE INVESTMENT TRUSTS 1.4%
Plum Creek Timber Co., Inc. REIT............................ 25,602 929,353
-----------
RESTAURANTS 0.2%
Luby's Cafeterias, Inc. (a)................................. 13,367 159,736
-----------
SEMICONDUCTORS 11.0%
Intel Corp. ................................................ 273,429 7,125,560
-----------
</Table>
6 See Notes to Financial Statements
VAN KAMPEN EXCHANGE FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
SPECIALTY CHEMICALS 5.2%
International Flavors & Fragrances, Inc. ................... 49,712 $ 1,800,569
Lubrizol Corp. ............................................. 37,620 1,580,416
-----------
3,380,985
-----------
TOTAL LONG-TERM INVESTMENTS 99.3%
(Cost $6,830,731).................................................... 64,208,800
REPURCHASE AGREEMENT 0.8%
State Street Bank & Trust Co. ($520,000 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of
3.25%, dated 06/30/05, to be sold on 07/01/05 at $520,047)
(Cost $520,000)...................................................... 520,000
-----------
TOTAL INVESTMENTS 100.1%
(Cost $7,350,731).................................................... 64,728,800
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%).......................... (34,530)
-----------
NET ASSETS 100.0%..................................................... $64,694,270
===========
</Table>
Percentages are calculated as a percentage of net assets.
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
REIT--Real Estate Investment Trust
See Notes to Financial Statements 7
VAN KAMPEN EXCHANGE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2005 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $7,350,731)......................... $64,728,800
Cash........................................................ 901
Receivables:
Dividends................................................. 74,941
Interest.................................................. 47
Other....................................................... 15,304
-----------
Total Assets............................................ 64,819,993
-----------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 16,088
Other Affiliates.......................................... 2,704
Managing General Partners' Retirement Plan.................. 68,091
Accrued Expenses............................................ 38,840
-----------
Total Liabilities....................................... 125,723
-----------
NET ASSETS.................................................. $64,694,270
===========
NET ASSETS ARE COMPRISED OF:
178,223 units of limited partnership interest............... $63,423,124
3,352 units of non-managing general partnership interest.... 1,192,856
220 units of managing general partnership interest.......... 78,290
-----------
NET ASSETS.................................................. $64,694,270
===========
NET ASSET VALUE PER UNIT ($64,694,270 divided by 181,795
units of partnership interest outstanding)................ $ 355.86
===========
</Table>
8 See Notes to Financial Statements
VAN KAMPEN EXCHANGE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $7,148)...... $ 590,456
Interest.................................................... 4,785
-----------
Total Income............................................ 595,241
-----------
EXPENSES:
Investment Advisory Fee..................................... 95,398
Managing General Partners' Fees and Related Expenses........ 19,158
Audit....................................................... 13,586
Shareholder Reports......................................... 13,301
Shareholder Services........................................ 7,994
Custody..................................................... 6,126
Legal....................................................... 3,450
Other....................................................... 12,700
-----------
Total Expenses.......................................... 171,713
Less Credits Earned on Cash Balances.................... 1,014
-----------
Net Expenses............................................ 170,699
-----------
NET INVESTMENT INCOME....................................... $ 424,542
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain on Investments as a result of partner
in-kind redemptions....................................... $ 581,508
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 56,381,252
End of the Period......................................... 57,378,069
-----------
Net Unrealized Appreciation During the Period............... 996,817
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,578,325
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,002,867
===========
</Table>
See Notes to Financial Statements 9
VAN KAMPEN EXCHANGE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 424,542 $ 640,439
Net Realized Gain on Investments as a result of
partner in-kind redemptions......................... 581,508 5,022,438
Net Unrealized Appreciation/Depreciation During the
Period.............................................. 996,817 (2,379,291)
----------- -----------
Change in Net Assets from Operations.................. 2,002,867 3,283,586
----------- -----------
Distributions from Net Investment Income.............. (117,198) (237,835)
Distributions from Net Realized Gain.................. (9,785) (17,030)
----------- -----------
Total Distributions................................... (126,983) (254,865)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 1,875,884 3,028,721
----------- -----------
FROM PARTNERSHIP UNIT TRANSACTIONS:
Proceeds From Units Issued Through Dividend
Reinvestment........................................ 23,087 46,523
Cost of Units Repurchased............................. (770,498) (5,935,578)
----------- -----------
NET CHANGE IN NET ASSETS FROM PARTNERSHIP UNIT
TRANSACTIONS........................................ (747,411) (5,889,055)
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. 1,128,473 (2,860,334)
NET ASSETS:
Beginning of the Period............................... 63,565,797 66,426,131
----------- -----------
End of the Period..................................... $64,694,270 $63,565,797
=========== ===========
CHANGE IN PARTNERSHIP UNITS OUTSTANDING:
Units Issued Through Dividend Reinvestment............ 67 141
Units Repurchased..................................... (2,174) (17,817)
----------- -----------
Decrease in Partnership Units Outstanding........... (2,107) (17,676)
=========== ===========
</Table>
10 See Notes to Financial Statements
VAN KAMPEN EXCHANGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------
2005 2004 2003 2002 2001 2000
-----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $345.65 $329.53 $261.82 $352.77 $376.51 $348.41
------- ------- ------- ------- ------- -------
Net Investment Income....... 2.32(a) 3.43(a) 2.99(a) 2.60(a) 2.40(a) 1.85(a)
Net Realized and Unrealized
Gain/Loss................. 8.58 14.06 66.00 (92.27) (24.86) 28.06
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. 10.90 17.49 68.99 (89.67) (22.46) 29.91
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income......... .64 1.28 1.28 1.28 1.28 1.28
Distributions from Net
Realized Gain............. .05 .09 -0- -0- -0- .53
------- ------- ------- ------- ------- -------
Total Distributions........... .69 1.37 1.28 1.28 1.28 1.81
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD...................... $355.86 $345.65 $329.53 $261.82 $352.77 $376.51
======= ======= ======= ======= ======= =======
Total Return (b).............. 3.16%* 5.33% 26.44% -25.47% -5.97% 8.56%
Net Assets at End of the
Period (In millions)........ $ 64.7 $ 63.6 $ 66.4 $ 56.5 $ 84.7 $ 94.8
Ratio of Expenses to Average
Net Assets.................. .54% .72% .78% .71% .64% .65%
Ratio of Net Investment Income
to Average Net Assets....... 1.34% 1.04% 1.05% .85% .68% .45%
Portfolio Turnover............ 0%* 0% 0% 0% 0% 0%
</Table>
* Non-Annualized
(a) Based on average units outstanding.
(b) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all units at the end of the period, all at NAV. These
returns do not reflect the deduction of taxes that a partner would pay on
Fund distributions or the redemption of Fund units.
See Notes to Financial Statements 11
VAN KAMPEN EXCHANGE FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Exchange Fund (the "Fund"), a California limited partnership, is a
partnership registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end investment management company. The Fund seeks long-term
growth of capital. The production of current income is a secondary objective.
The Fund commenced investment operations on December 16, 1976.
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 last sale price as of the close of such securities exchange.
Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing
Price. Listed and unlisted securities for which the last sales price is not
available are valued at the mean between the last reported bid and ask price.
For those securities where quotations or prices are not available, valuations
are determined in accordance with procedures established in good faith by the
Managing General Partners. 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. INVESTMENT INCOME Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis.
D. FEDERAL INCOME TAXES The Fund has met the qualifications to be classified as
a partnership for federal income tax purposes and intends to maintain this
qualification in the future. A partnership is not subject to federal income tax.
12
VAN KAMPEN EXCHANGE FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED) continued
At June 30, 2005, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $ 3,440,641
-----------
Gross tax unrealized appreciation........................... $61,288,159
Gross tax unrealized depreciation........................... -0-
-----------
Net tax unrealized appreciation on investments.............. $61,288,159
===========
</Table>
E. DISTRIBUTION OF INCOME AND GAINS Quarterly distributions to partners are
recorded on the record date. Net investment income is allocated daily to each
partner, relative to the total number of units held. Capital gains or losses
will be allocated equally among units outstanding on the day recognized.
F. EXPENSE REDUCTIONS During the six months ended June 30, 2005, the Fund's
custody fee was reduced by $1,014 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 facilities and investment advice to the Fund for an annual fee payable
monthly of .30% based on the average daily net assets of the Fund.
For the six months ended June 30, 2005, the Fund recognized expenses of
approximately $3,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund
is a partner of such firm and he and his law firm provide legal services as
legal counsel to the Fund.
Under separate Accounting Services and Chief Compliance Officer ("CCO")
Employment agreements, the Adviser provides accounting services and the CCO
provides compliance services to the Fund. The costs of these services are
allocated to each fund. For the six months ended June 30, 2005, the Fund
recognized expenses of approximately $4,400 representing Van Kampen Investments
Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing
accounting services to the Fund, as well as, the salary, benefits and related
costs of the CCO and related support staff paid by Van Kampen. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" 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
June 30, 2005, the Fund recognized expenses of approximately $7,400 representing
transfer agency fees paid to VKIS. Transfer agency fees are determined through
negotiations with the Fund's Managing General Partners.
Managing general partners of the Fund who are not affiliated with the
Adviser are compensated by the Fund at the annual rate of approximately $500
plus a fee of $250 per Board meeting attended.
The Managing General Partners of the Fund instituted a Retirement Plan
effective April 1, 1996. The Plan is not funded, and obligations under the Plan
will be paid solely out of the Fund's general accounts. The Fund will not
reserve or set aside funds for the payment of its obligations under the Plan by
any form of trust or escrow. For the current Managing General Partners not
affiliated with the Adviser, the annual retirement benefit payable per
13
VAN KAMPEN EXCHANGE FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED) continued
year for a ten year period is based upon the highest total annual compensation
received in any of the three calendar years preceding retirement. Managing
General Partners with more than five but less than ten years of service at
retirement will receive a prorated reduced benefit. Under the Plan, for the
Managing General Partners retiring with the effectiveness of the Plan, the
annual retirement benefit payable per year for a ten year period is equal to 75%
of the total compensation received from the Fund during the 1995 calendar year.
At June 30, 2005, Van Kampen Funds Inc. and Van Kampen Exchange Corp., as
nonmanaging general partners of the Fund, owned 223 and 3,129 units of
partnership interest, respectively.
3. PARTNERSHIP UNIT TRANSACTIONS
Partners of the Fund may redeem units at any time. The net asset value of units
redeemed, other than redemptions under a systematic withdrawal plan, may be paid
in cash or securities, at the option of the Fund, and will ordinarily be paid in
whole or in part in securities. The Fund's valuation will determine the quantity
of securities tendered. The Fund will select securities for tender in
redemptions based on tax or investment considerations.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $-0- and $589,180, respectively.
5. NET ASSETS
At June 30, 2005, net assets include the following:
<Table>
Net paid in capital on units of beneficial interest......... $ 7,316,201
Net unrealized appreciation on investments.................. 57,378,069
-----------
Total net assets............................................ $64,694,270
===========
</Table>
6. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
14
VAN KAMPEN EXCHANGE FUND (A CALIFORNIA LIMITED PARTNERSHIP)
MANAGING GENERAL PARTNERS, OFFICERS, AND IMPORTANT ADDRESSES
MANAGING GENERAL PARTNERS
DAVID C. ARCH
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
OFFICERS
MITCHELL M. MERIN
President and Chief Executive Officer
RONALD E. ROBISON
Executive Vice President and Principal
Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief
Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, NY 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
NON-MANAGING GENERAL PARTNERS
VAN KAMPEN EXCHANGE CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
VAN KAMPEN FUNDS INC.
1221 Avenue of the Americas
New York, NY 10020
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606-4301
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
15
VAN KAMPEN EXCHANGE FUND
RESULTS OF PARTNER VOTES
The Annual Meeting of the Partners of the Fund was held on June 22, 2005, where
partners voted on the election of Managing General Partners. With regard to the
election of the following Managing General Partners of the Fund:
<Table>
<Caption>
# OF SHARES
----------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
David C. Arch............................................... 104,464 5,845
Jerry D. Choate............................................. 104,464 5,845
Rod Dammeyer................................................ 104,464 5,845
Linda Hutton Heagy.......................................... 104,464 5,845
R. Craig Kennedy............................................ 104,464 5,845
Howard J Kerr............................................... 104,464 5,845
Mitchell M. Merin........................................... 104,464 5,845
Jack E. Nelson.............................................. 104,464 5,845
Richard F. Powers, III...................................... 104,464 5,845
Hugo F. Sonnenschein........................................ 104,464 5,845
Wayne W. Whalen............................................. 104,464 5,845
Suzanne H. Woolsey.......................................... 104,464 5,845
</Table>
16
VAN KAMPEN EXCHANGE FUND
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors
Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van
Kampen Exchange Corp., as well as current and former individual investors in
Van Kampen mutual funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised
by us. This Policy is, however, applicable to individuals who select us to
be a custodian of securities or assets in individual retirement accounts,
401(k) accounts, 529 Educational Savings Accounts, accounts subject to the
Uniform Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we
help you achieve your financial objectives. This Policy describes what
non-public personal information we collect about you, why we collect it, and
when we may share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies
you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information
from applications and other forms you submit to us, from your dealings with
us, from consumer reporting agencies, from our Web sites and from third
parties and other sources.
(continued on next page)
VAN KAMPEN EXCHANGE FUND
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you
better and to manage our business, we may disclose personal information we
collect about you to our affiliated companies and to non-affiliated third
parties as required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise
required or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except
to enable them to provide services on our behalf, to perform joint marketing
agreements with
(continued on back)
VAN KAMPEN EXCHANGE FUND
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
EXCH SAR 8/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02050P-Y06/05
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund 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 12. 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 Exchange Fund
By: /s/ Ronald E. Robison
----------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 23, 2005
By: /s/ Phillip G. Goff
-------------------
Name: Phillip G. Goff
Title: Principal Financial Officer
Date: August 23, 2005