UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9279
Van Kampen Equity Trust II
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 8/31
Date of reporting period: 8/31/05
Item 1. Report to Shareholders.
The Trust's 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 annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of August 31,
2005.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE
FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND,
INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS
INVESTMENT OBJECTIVE. FUNDS ARE 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 FUND SHARES MAY THEREFORE BE LESS THAN WHAT
YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS
FUND.
<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 as of 8/31/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Pacific Stock
Exchange (PSE) Technology Index from 7/31/99 (the first month-end after
inception) through 8/31/05. Class A shares, adjusted for sales charges.
(LINE GRAPH)
<Table>
<Caption>
A SHARES B SHARES C SHARES
since 7/26/99 since 7/26/99 since 7/26/99
- ---------------------------------------------------------------------------------------------
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 -11.07% -11.93% -11.77% -11.77% -11.77% -11.77%
5-year -28.84 -29.68 -29.41 -29.62 -29.41 -29.41
1-year 26.03 18.69 24.93 19.93 24.93 23.93
- ---------------------------------------------------------------------------------------------
</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
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. 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 up to 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. Source for index
performance: Lipper Inc.
1
Fund Report
FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2005
Van Kampen Technology Fund is managed by the Adviser's Multi-Cap Growth team.(1)
Current members include Gary Lewis, Managing Director of the Adviser; Dudley
Brickhouse, Janet Luby, and David Walker, Executive Directors of the Adviser;
and Matthew Hart and Scott Miller, Vice Presidents of the Adviser.
MARKET CONDITIONS
Although the stock market continued to favor value stocks, growth stocks --
including those in the technology sector -- enjoyed increased recognition in the
market, helped by a variety of factors. Earnings growth remained strong and
balance sheets improved. Additionally, corporations became somewhat more willing
to spend their cash stockpiles, which translated into stock buy-backs, increased
dividends, and measured capital spending.
While the markets were more stable than in years past, the period was not
without volatility. For most of 2004, investors were apprehensive about the
unfolding of events in Iraq, the threat of terrorist attacks, rising oil prices,
and the possibility of another protracted outcome to the U.S. presidential
election. Sentiment improved as oil prices fell from their highs at the end of
October and the presidential election came to a quick and decisive close,
setting the stage for a stock rally in November and December.
After a brisk close to 2004, the equity market gave back gains in the first
quarter of 2005 as investors took profits and energy prices resumed their climb.
The misfortunes of the auto industry cast a shadow across the market overall,
and raised new questions about economic growth. The environment brightened
somewhat during June and July. Generally positive corporate earnings, better
economic data, improved consumer confidence, and merger-and-acquisition activity
bolstered the markets, helping offset some concerns about spiking oil prices.
The reporting period closed on a downbeat note, however. The Fed tightened rates
once again, while investors grew increasingly concerned with the effects of
rising energy prices on the economy. This anxiety was exacerbated when oil
prices topped $70 per barrel in the aftermath of Hurricane Katrina. Retail data
showed signs of waning consumer spending. It remained to be seen whether the
consumer is merely pausing or on the verge of a protracted retreat.
Against this backdrop, science and technology stocks faced some headwinds. The
long awaited surge in corporate technology spending remained elusive. With
energy prices and interest rates both rising, investors sought stocks in the
utility, energy and other more defensive areas of the market. The economy
(1)Team members may change without notice from time to time.
2
began slowing at the margins and a lack of new job growth also fuelled
investors' more defensive mood.
PERFORMANCE ANALYSIS
The fund returned 26.03 percent for the 12 months ended August 31, 2005 (Class A
shares, unadjusted for sales charges). In comparison, the fund's benchmark, the
Pacific Stock Exchange Technology Index, returned 24.14 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2005
<Table>
<Caption>
- ----------------------------------------------------------------
PACIFIC STOCK EXCHANGE
CLASS A CLASS B CLASS C TECHNOLOGY INDEX
26.03% 24.93% 24.93% 24.14%
- ----------------------------------------------------------------
</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.
Although technology stocks as a group remained largely out of favor with
investors, the fund generated compelling absolute returns by investing in a
broad array of science and technology companies. Healthcare stocks played an
important role in the portfolio. Specifically, several biotechnology stocks
contributed robust gains as company-specific positive news helped these holdings
deliver unusually strong results.
Some of the fund's Internet-related stocks were also positive contributors,
boosted by increases in online advertising spending. A sharp rise in broadband
subscription rates and a high-profile initial public offering signaled a growing
opportunity for online advertising. As a result, companies across many
industries, including entertainment, automobiles, and consumer goods, scrambled
to ramp up their advertising presence on the Internet.
Detractors from the fund's overall return were largely due to negative surprises
from individual companies, including those in the Internet and biotechnology
areas. The fund also lost ground in the computer storage and peripherals group.
We had identified potential opportunities at certain companies, but were unable
to trade the positions to their fullest advantage prior to the market turning
away from them. Negative sentiment hurt the fund's enterprise software group, as
merger and acquisition activity prompted skepticism among investors.
3
With oil prices high and interest rates continuing to rise, we think a modestly
defensive portfolio orientation is warranted. We have been seeking to minimize
"tracking error" -- the fund's variance from its benchmark -- and take what we
believe are prudent risks. We have added to the fund's weighting in large-cap
technology stocks, which have tended to be less volatile than their smaller
counterparts, as well as in selected health care names. The fund also remains
overweighted in the Internet sector, which we believe includes many
fundamentally strong companies.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
4
<Table>
<Caption>
TOP 10 HOLDINGS AS OF 8/31/05
Google, Inc., Class A 3.9%
Yahoo!, Inc. 3.7
Genentech, Inc. 3.4
Amgen, Inc. 3.0
International Business Machines Corp. 2.9
Genzyme Corp. 2.7
Millipore Corp. 2.3
Medtronic, Inc. 2.3
Lockheed Martin Corp. 2.3
Electronic Arts, Inc. 2.1
<Caption>
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 8/31/05
Semiconductors 15.1%
Biotechnology 10.2
Communications Equipment 9.6
Computer Hardware 8.3
Internet Software & Services 7.7
Health Care Equipment 7.5
Systems Software 5.7
Semiconductor Equipment 5.6
Aerospace & Defense 5.3
Data Processing & Outsourcing Services 4.9
Application Software 4.2
IT Consulting & Other Services 2.6
Pharmaceuticals 2.5
Health Care Supplies 2.3
Computer Storage & Peripherals 2.3
Home Entertainment Software 2.1
Internet Retail 1.2
Integrated Telecommunication Services 1.2
Wireless Telecommunication Services 1.1
Electronic Equipment Manufacturers 1.1
-----
Total Investments 100.5%
Liabilities in Excess of Other Assets (0.5)
-----
Net Assets 100.0%
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the industries shown above. All percentages are as a percentage of
net assets. Van Kampen is a wholly owned subsidiary of a global securities firm
which is engaged in a wide range of financial services including, for example,
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
5
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings in its
semiannual and annual reports within 60 days of the end of the fund's second and
fourth fiscal quarters by filing the schedule electronically with the Securities
and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS
and the annual reports are filed on Form N-CSR. Van Kampen also delivers the
semiannual and annual reports to fund shareholders, and makes these reports
available on its public Web site, www.vankampen.com. In addition to the
semiannual and annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each fund files a complete
schedule of portfolio holdings with the SEC for the fund's first and third
fiscal quarters on Form N-Q. Van Kampen does not deliver the reports for the
first and third fiscal quarters to shareholders, nor are the reports posted to
the Van Kampen public Web site. You may, however, obtain the Form N-Q filings
(as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site,
http://www.sec.gov. You may also review and copy them at the SEC's Public
Reference Room in Washington, DC. Information on the operation of the SEC's
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating fee,
by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by
writing the Public Reference section of the SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting Van
Kampen Client Relations at 1-800-847-2424.
6
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 1-800-341-2911 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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures without
charge, upon request, by calling toll free 1-800-847-2424 or by visiting our Web
site at www.vankampen.com. It is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 by
visiting our Web site at www.vankampen.com. This information is also available
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
7
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) ongoing costs, including management fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing cost (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 3/1/05 - 8/31/05.
ACTUAL EXPENSE
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------------------------------------------
3/1/05 8/31/05 3/1/05-8/31/05
Class A
Actual...................................... $1,000.00 $1,101.35 $12.45
Hypothetical................................ 1,000.00 1,013.41 11.93
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,096.47 16.49
Hypothetical................................ 1,000.00 1,009.51 15.80
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,096.47 16.49
Hypothetical................................ 1,000.00 1,009.51 15.80
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 2.35%, 3.12%,
and 3.12% for Class A, B, and C Shares, respectively, multiplied by the
average account value over the period, multiplied by 184/365 (to reflect the
one-half year period).
Assumes all dividends and distributions were reinvested.
8
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees 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 Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the 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. The Board of Trustees considered the contract over a
period of several months and the non-management trustees 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 Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees 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 Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees,
9
evaluated all of the foregoing and does not believe any single factor or group
of factors control or dominate the review process, and, after considering all
factors together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, 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
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. 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 trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put
10
together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees 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 Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected 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 Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
11
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
COMMON STOCKS 100.5%
AEROSPACE & DEFENSE 5.4%
Goodrich Corp. ............................................. 110,000 $ 5,040,200
Lockheed Martin Corp. ...................................... 105,000 6,535,200
Raytheon Co. ............................................... 100,000 3,922,000
------------
15,497,400
------------
APPLICATION SOFTWARE 4.2%
Autodesk, Inc. (a).......................................... 105,000 4,536,000
Mercury Interactive Corp. (a)............................... 75,000 2,750,250
SAP AG--ADR (Germany)....................................... 115,000 4,907,050
------------
12,193,300
------------
BIOTECHNOLOGY 10.2%
Amgen, Inc. (a)............................................. 110,000 8,789,000
Genentech, Inc. (a)......................................... 105,000 9,863,700
Genzyme Corp. (a)........................................... 110,000 7,828,700
MedImmune, Inc. (a)......................................... 100,000 2,993,000
------------
29,474,400
------------
COMMUNICATIONS EQUIPMENT 9.6%
ADC Telecommunications, Inc. (a)............................ 100,000 2,094,000
Cisco Systems, Inc. (a)..................................... 105,000 1,850,100
Corning, Inc. (a)........................................... 175,000 3,493,000
Harris Corp. ............................................... 115,000 4,440,150
Juniper Networks, Inc. (a).................................. 110,000 2,501,400
Motorola, Inc. ............................................. 125,000 2,735,000
Nokia Corp.--ADR (Finland).................................. 100,000 1,577,000
QUALCOMM, Inc. ............................................. 125,000 4,963,750
Scientific-Atlanta, Inc. ................................... 105,000 4,017,300
------------
27,671,700
------------
COMPUTER HARDWARE 8.3%
Apple Computer, Inc. (a).................................... 105,000 4,927,650
Dell Computer Corp. (a)..................................... 110,000 3,916,000
Hewlett-Packard Co. ........................................ 115,000 3,192,400
International Business Machines Corp. ...................... 105,000 8,465,100
NCR Corp. (a)............................................... 100,000 3,422,000
------------
23,923,150
------------
COMPUTER STORAGE & PERIPHERALS 2.3%
American Power Conversion Corp. ............................ 100,000 2,617,000
EMC Corp. (a)............................................... 125,000 1,607,500
Network Appliance, Inc. (a)................................. 100,000 2,374,000
------------
6,598,500
------------
DATA PROCESSING & OUTSOURCING SERVICES 4.9%
Automatic Data Processing, Inc. ............................ 105,000 4,488,750
DST Systems, Inc. (a)....................................... 105,000 5,638,500
First Data Corp. ........................................... 75,000 3,116,250
Heartland Payment Systems, Inc. (a)......................... 39,200 994,896
------------
14,238,396
------------
</Table>
12 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS 1.1%
Agilent Technologies, Inc. (a).............................. 100,000 $ 3,216,000
------------
HEALTH CARE EQUIPMENT 7.5%
Fisher Scientific International, Inc. (a)................... 50,000 3,224,000
Medtronic, Inc. ............................................ 115,000 6,555,000
Mentor Corp. ............................................... 50,000 2,630,000
St. Jude Medical, Inc. (a).................................. 110,000 5,049,000
Stryker Corp. .............................................. 80,000 4,364,000
------------
21,822,000
------------
HEALTH CARE SUPPLIES 2.3%
Millipore Corp. (a)......................................... 105,000 6,714,750
------------
HOME ENTERTAINMENT SOFTWARE 2.1%
Electronic Arts, Inc. (a)................................... 105,000 6,014,400
------------
INTEGRATED TELECOMMUNICATION SERVICES 1.2%
NeuStar, Inc., Class A (a).................................. 125,000 3,438,750
------------
INTERNET RETAIL 1.2%
eBay, Inc. (a).............................................. 85,000 3,441,650
------------
INTERNET SOFTWARE & SERVICES 7.7%
Google, Inc., Class A (a)................................... 40,000 11,440,000
Yahoo!, Inc. (a)............................................ 325,000 10,835,500
------------
22,275,500
------------
IT CONSULTING & OTHER SERVICES 2.6%
Cognizant Technology Solutions Corp., Class A (a)........... 50,000 2,276,500
Infosys Technologies Ltd.--ADR (India)...................... 75,000 5,309,250
------------
7,585,750
------------
PHARMACEUTICALS 2.5%
Allergan, Inc. ............................................. 25,000 2,301,250
Johnson & Johnson........................................... 50,000 3,169,500
Omnicare, Inc. (b) ......................................... 35,000 1,839,250
------------
7,310,000
------------
SEMICONDUCTOR EQUIPMENT 5.6%
Applied Materials, Inc. .................................... 125,000 2,288,750
KLA-Tencor Corp. ........................................... 115,000 5,837,400
Lam Research Corp. (a)...................................... 100,000 3,170,000
Novellus Systems, Inc. (a).................................. 105,000 2,815,050
Teradyne, Inc. (a).......................................... 125,000 2,100,000
------------
16,211,200
------------
SEMICONDUCTORS 15.1%
Advanced Micro Devices, Inc. (a)............................ 125,000 2,596,250
Altera Corp. (a)............................................ 125,000 2,733,750
Analog Devices, Inc. ....................................... 115,000 4,191,750
Broadcom Corp., Class A (a)................................. 110,000 4,785,000
</Table>
See Notes to Financial Statements 13
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
SEMICONDUCTORS (CONTINUED)
Cypress Semiconductor Corp. (a)............................. 100,000 $ 1,563,000
Intel Corp. ................................................ 115,000 2,957,800
Linear Technology Corp. .................................... 125,000 4,741,250
Marvell Technology Group Ltd. (Bermuda) (a)................. 65,000 3,067,350
Maxim Integrated Products, Inc. ............................ 115,000 4,904,750
Micron Technology, Inc. (a)................................. 125,000 1,488,750
National Semiconductor Corp. ............................... 125,000 3,116,250
Texas Instruments, Inc. .................................... 125,000 4,085,000
Xilinx, Inc. ............................................... 125,000 3,511,250
------------
43,742,150
------------
SYSTEMS SOFTWARE 5.6%
Adobe Systems, Inc. ........................................ 105,000 2,839,200
Check Point Software Technologies Ltd. (Israel) (a)......... 100,000 2,256,000
McAfee, Inc. (a)............................................ 100,000 3,065,000
Microsoft Corp. ............................................ 215,000 5,891,000
Symantec Corp. (a).......................................... 110,000 2,307,800
------------
16,359,000
------------
WIRELESS TELECOMMUNICATION SERVICES 1.1%
Nextel Partners, Inc., Class A (a).......................... 125,000 3,280,000
------------
TOTAL INVESTMENTS 100.5%
(Cost $235,595,410).................................................. 291,007,996
LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%).......................... (1,314,302)
------------
NET ASSETS 100.0%..................................................... $289,693,694
============
</Table>
Percentages are calculated as a percentage of net assets.
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Security purchased on a when-issued or delayed delivery basis.
ADR--American Depositary Receipt
14 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2005
<Table>
ASSETS:
Total Investments (Cost $235,595,410)....................... $ 291,007,996
Receivables:
Investments Sold.......................................... 3,028,834
Dividends................................................. 159,235
Fund Shares Sold.......................................... 113,589
Other....................................................... 62,576
--------------
Total Assets............................................ 294,372,230
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,818,649
Custodian Bank............................................ 920,118
Fund Shares Repurchased................................... 659,091
Distributor and Affiliates................................ 509,287
Investment Advisory Fee................................... 222,875
Accrued Expenses............................................ 456,974
Trustees' Deferred Compensation and Retirement Plans........ 91,542
--------------
Total Liabilities....................................... 4,678,536
--------------
NET ASSETS.................................................. $ 289,693,694
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,809,706,254
Net Unrealized Appreciation................................. 55,412,586
Accumulated Net Investment Loss............................. (82,913)
Accumulated Net Realized Loss............................... (1,575,342,233)
--------------
NET ASSETS.................................................. $ 289,693,694
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $113,104,894 and 23,150,877 shares of
beneficial interest issued and outstanding)............. $ 4.89
Maximum sales charge (5.75%* of offering price)......... .30
--------------
Maximum offering price to public........................ $ 5.19
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $144,815,035 and 31,092,765 shares of
beneficial interest issued and outstanding)............. $ 4.66
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $31,773,765 and 6,821,077 shares of
beneficial interest issued and outstanding)............. $ 4.66
==============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 15
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended August 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $12,444)..... $ 2,046,388
Interest.................................................... 18,968
-----------
Total Income............................................ 2,065,356
-----------
EXPENSES:
Shareholder Services........................................ 3,269,272
Investment Advisory Fee..................................... 2,676,142
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $281,129, $1,498,147 and $340,981,
respectively)............................................. 2,120,257
Legal....................................................... 74,134
Custody..................................................... 37,501
Trustees' Fees and Related Expenses......................... 22,843
Other....................................................... 406,922
-----------
Total Expenses.......................................... 8,607,071
Less Credits Earned on Cash Balances.................... 5,119
-----------
Net Expenses............................................ 8,601,952
-----------
NET INVESTMENT LOSS......................................... $(6,536,596)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $44,721,331
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,403,135
End of the Period......................................... 55,412,586
-----------
Net Unrealized Appreciation During the Period............... 29,009,451
-----------
NET REALIZED AND UNREALIZED GAIN............................ $73,730,782
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $67,194,186
===========
</Table>
16 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 2005 AUGUST 31, 2004
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss....................................... $ (6,536,596) $ (8,999,653)
Net Realized Gain......................................... 44,721,331 66,812,421
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 29,009,451 (60,741,399)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 67,194,186 (2,928,631)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................. 23,480,547 46,861,256
Cost of Shares Repurchased................................ (91,076,789) (95,116,672)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS........ (67,596,242) (48,255,416)
------------ ------------
TOTAL DECREASE IN NET ASSETS.............................. (402,056) (51,184,047)
NET ASSETS:
Beginning of the Period................................... 290,095,750 341,279,797
------------ ------------
End of the Period (Including accumulated net investment
loss of $82,913 and $70,884, respectively).............. $289,693,694 $290,095,750
============ ============
</Table>
See Notes to Financial Statements 17
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
YEAR ENDED AUGUST 31,
CLASS A SHARES ------------------------------------------------
2005 2004 2003 2002 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.88 $ 3.93 $ 2.90 $ 5.49 $ 26.81
------ ------ ------ ------- -------
Net Investment Loss (a)................ (.08) (.09) (.08) (.11) (.18)
Net Realized and Unrealized
Gain/Loss............................ 1.09 .04 1.11 (2.48) (21.14)
------ ------ ------ ------- -------
Total from Investment Operations......... 1.01 (.05) 1.03 (2.59) (21.32)
------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE PERIOD....... $ 4.89 $ 3.88 $ 3.93 $ 2.90 $ 5.49
====== ====== ====== ======= =======
Total Return (b)......................... 26.03% -1.27% 35.52% -47.18% -79.51%
Net Assets at End of the Period (In
millions).............................. $113.1 $108.7 $125.3 $ 103.5 $ 198.8
Ratio of Expenses to Average Net
Assets................................. 2.42% 2.34% 2.88% 2.39% 1.65%
Ratio of Net Investment Loss to Average
Net Assets............................. (1.72%) (2.13%) (2.73%) (2.31%) (1.48%)
Portfolio Turnover....................... 93% 180% 152% 142% 274%
</Table>
(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 eighteen months of purchase. With
respect to shares purchased prior to December 1, 2004, 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.
18 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
YEAR ENDED AUGUST 31,
CLASS B SHARES ------------------------------------------------
2005 2004 2003 2002 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.73 $ 3.81 $ 2.83 $ 5.41 $ 26.59
------ ------ ------ ------- -------
Net Investment Loss (a)................ (.11) (.12) (.10) (.14) (.28)
Net Realized and Unrealized
Gain/Loss............................ 1.04 .04 1.08 (2.44) (20.90)
------ ------ ------ ------- -------
Total from Investment Operations......... .93 (.08) .98 (2.58) (21.18)
------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE PERIOD....... $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41
====== ====== ====== ======= =======
Total Return (b)......................... 24.93% -2.10% 34.63% -47.69% -79.65%
Net Assets at End of the Period (In
millions).............................. $144.8 $146.7 $172.7 $ 133.8 $ 288.4
Ratio of Expenses to Average Net
Assets................................. 3.19% 3.11% 3.65% 3.16% 2.40%
Ratio of Net Investment Loss to Average
Net Assets............................. (2.49%) (2.91%) (3.50%) (3.08%) (2.24%)
Portfolio Turnover....................... 93% 180% 152% 142% 274%
</Table>
(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 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.
See Notes to Financial Statements 19
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
YEAR ENDED AUGUST 31,
CLASS C SHARES ------------------------------------------------
2005 2004 2003 2002 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.73 $ 3.81 $ 2.83 $ 5.41 $ 26.59
------ ------ ------ ------- -------
Net Investment Loss (a)................ (.11) (.12) (.10) (.14) (.28)
Net Realized and Unrealized
Gain/Loss............................ 1.04 .04 1.08 (2.44) (20.90)
------ ------ ------ ------- -------
Total from Investment Operations......... .93 (.08) .98 (2.58) (21.18)
------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE PERIOD....... $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41
====== ====== ====== ======= =======
Total Return (b)......................... 24.93% -2.10% 34.63% -47.69% -79.65%
Net Assets at End of the Period (In
millions).............................. $ 31.8 $ 34.7 $ 43.4 $ 34.7 $ 80.3
Ratio of Expenses to Average Net
Assets................................. 3.19% 3.11% 3.66% 3.16% 2.40%
Ratio of Net Investment Loss to Average
Net Assets............................. (2.49%) (2.91%) (3.51%) (3.08%) (2.23%)
Portfolio Turnover....................... 93% 180% 152% 142% 274%
</Table>
(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 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.
20 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005
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 Fund registered Class I Shares on December 30, 2004. There
were no sales of Class I Shares for the period ended August 31, 2005.
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 U.S. generally accepted
accounting principles 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 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 incremental 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 Subchapter M of the Internal Revenue Code applicable to regulated investment
companies
21
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
and to distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. During the current fiscal year, the Fund utilized capital losses carried
forward of $41,469,212. At August 31, 2005, the Fund had an accumulated capital
loss carryforward for tax purposes of $1,571,660,948, which will expire
according to the following schedule.
<Table>
<Caption>
AMOUNT EXPIRATION
$ 143,534,095.............................................. August 31, 2009
1,245,430,493.............................................. August 31, 2010
182,696,360.............................................. August 31, 2011
</Table>
At August 31, 2005, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $239,276,697
============
Gross tax unrealized appreciation........................... $ 59,666,201
Gross tax unrealized depreciation........................... (7,934,902)
------------
Net tax unrealized appreciation on investments.............. $ 51,731,299
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting for the 2005 fiscal year have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent book to tax
basis difference relating to a net operating loss totaling $6,524,170 was
reclassified from accumulated net investment loss to capital. Additionally, a
permanent book to tax basis difference related to the Fund's investment in other
regulated investment companies totaling $397 was reclassified from accumulated
net investment loss to accumulated net realized loss.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses related to wash sale
transactions.
F. EXPENSE REDUCTIONS During the year ended August 31, 2005, the Fund's custody
fee was reduced by $5,119 as a result of credits earned on cash balances.
22
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .90%
Next $500 million........................................... .85%
Over $1 billion............................................. .80%
</Table>
For the year ended August 31, 2005, the Fund recognized expenses of
approximately $23,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, 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 Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended August 31, 2005,
the Fund recognized expenses of approximately $62,100 representing Van Kampen
Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal 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 Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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 year ended
August 31, 2005, the Fund recognized expenses of approximately $2,720,000,
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 trustees of
Van Kampen. The Fund does not compensate its officers or trustees who are also
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation.
Amounts deferred are retained by the Fund, and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of $49,998 are included in
"Other" assets on the Statement of Assets and Liabilities at August 31, 2005.
Appreciation/ depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund. Benefits under the
retirement plan are payable upon retirement for a ten-year period and are based
upon each trustee's years of service to the Fund. The maximum annual benefit per
trustee under the plan is $2,500.
For the year ended August 31, 2005, the Fund paid brokerage commissions to
Morgan Stanley DW Inc. (Morgan Stanley), an affiliate of the Adviser, totaling
$190,591.
23
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
3. CAPITAL TRANSACTIONS
At August 31, 2005, capital aggregated $681,903,763, $861,948,413, and
$265,854,078 for Classes A, B and C, respectively. For the year ended August 31,
2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 3,114,080 $ 13,893,091
Class B................................................... 1,905,158 8,110,653
Class C................................................... 348,186 1,476,803
----------- ------------
Total Sales................................................. 5,367,424 $ 23,480,547
=========== ============
Repurchases:
Class A................................................... (7,975,539) $(35,579,787)
Class B................................................... (10,177,343) (43,436,122)
Class C................................................... (2,824,822) (12,060,880)
----------- ------------
Total Repurchases........................................... (20,977,704) $(91,076,789)
=========== ============
</Table>
At August 31, 2004, capital aggregated $706,137,686, $900,535,250, and
$277,153,730 for Classes A, B and C, respectively. For the year ended August 31,
2004, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 6,150,421 $ 25,762,027
Class B................................................... 4,247,442 17,108,738
Class C................................................... 998,901 3,990,491
----------- ------------
Total Sales................................................. 11,396,764 $ 46,861,256
=========== ============
Repurchases:
Class A................................................... (10,011,554) $(41,639,851)
Class B................................................... (10,250,621) (41,029,111)
Class C................................................... (3,094,335) (12,447,710)
----------- ------------
Total Repurchases........................................... (23,356,510) $(95,116,672)
=========== ============
</Table>
Class B Shares and any dividend reinvestment plan Class B Shares received
thereon automatically convert to Class A Shares eight years after the end of the
calendar month in which the shares were purchased. For the years ended August
31, 2005 and 2004, 377,118 and 124,894 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
24
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
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 year ended August 31, 2005, Van Kampen, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A Shares of approximately
$43,000 and CDSC on redeemed shares of approximately $310,100. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $274,999,940 and $347,502,630,
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, 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 up to 1.00% each of Class B and Class C average daily net assets are
accrued daily. The annual fees for Class A Shares are paid quarterly and the
annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the
annual fees are paid monthly, while 25% of the annual fees are paid quarterly.
The amount of distribution expenses incurred by Van Kampen and not yet
reimbursed ("unreimbursed receivable") was approximately $26,534,500 and
$207,900 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 year ended August 31, 2005, are payments
retained by Van Kampen of approximately $1,132,500 and payments made to Morgan
Stanley, an affiliate of the Adviser, of approximately $190,300.
25
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
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 similar class action complaints which were recently
consolidated. The consolidated action also names as defendants certain
individual Trustees and Directors of certain investment companies advised by
affiliates of the Adviser; the complaint does not, however, name the individual
Trustees of any Van Kampen funds. The consolidated amended complaint generally
alleges that defendants 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 complaint seeks, among other things, unspecified
compensatory damages, rescissionary damages, fees and costs. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
The Adviser and certain affiliates of the Adviser are also named as
defendants in a derivative suit which additionally names as defendants certain
individual Trustees of certain Van Kampen funds; the named investment companies,
including the Fund, are listed as nominal defendants. The complaint alleges that
defendants caused the Van Kampen funds to pay economic incentives to a
proprietary sales force to promote the sale of proprietary mutual funds. The
complaint also alleges that the Van Kampen funds paid excessive commissions to
Morgan Stanley and its affiliates in connection with the sales of the funds. The
complaint seeks, among other things, the removal of the current Trustees of the
funds, rescission of the management contracts for the funds, disgorgement of
profits by Morgan Stanley and its affiliates and monetary damages. This
complaint has been coordinated with the consolidated complaint described in the
preceding paragraph. Plaintiff has sought leave to file a second amended
derivative complaint that alleges that the Adviser permitted or recklessly
disregarded market timing and late trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, the plaintiff's proposed second amended
derivative complaint was withdrawn and the allegations regarding market timing
and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
The defendants have moved to dismiss each of these actions and otherwise
intend to defend them vigorously. While the defendants believe that they have
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.
7. 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.
26
VAN KAMPEN TECHNOLOGY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of Van Kampen Technology Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Technology Fund (the "Fund"), including the portfolio of investments, as
of August 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Van Kampen Technology Fund at August 31, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended in conformity with U.S. generally accepted accounting
principles.
-s- Ernst & Young LLP
Chicago, Illinois
October 12, 2005
27
VAN KAMPEN TECHNOLOGY FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
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
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
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
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER, & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
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.
28
VAN KAMPEN TECHNOLOGY FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser as of the date of this Annual Report. Trustees serve until reaching
their retirement age or until their successors are duly elected and qualified.
Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (60) Trustee Trustee Chairman and Chief 78 Trustee/Director/Managing
Blistex Inc. since 2003 Executive Officer of General Partner of
1800 Swift Drive Blistex Inc., a consumer funds in the Fund
Oak Brook, IL 60523 health care products Complex.
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 76 Trustee/Director/Managing
33971 Selva Road since 1999 Chairman and Chief General Partner of
Suite 130 Executive Officer of the funds in the Fund
Dana Point, CA 92629 Allstate Corporation Complex. Director of
("Allstate") and Allstate Amgen Inc., a
Insurance Company. Prior biotechnological
to January 1995, company, and Director
President and Chief of Valero Energy
Executive Officer of Corporation, an
Allstate. Prior to August independent refining
1994, various management company.
positions at Allstate.
</Table>
29
<Table>
<Caption>
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 78 Trustee/Director/Managing
CAC, L.L.C. since 2003 a private company General Partner of
4350 LaJolla Village Drive offering capital funds in the Fund
Suite 980 investment and management Complex. Director of
San Diego, CA 92122-6223 advisory services. Prior Stericycle, Inc.,
to February 2001, Vice Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and
Inc., a global Trustee of The Scripps
distributor of wire, Research Institute.
cable and communications Prior to January 2005,
connectivity products. Trustee of the
Prior to July 2000, University of Chicago
Managing Partner of Hospitals and Health
Equity Group Corporate Systems. Prior to April
Investment (EGI), a 2004, Director of
company that makes TheraSense, Inc. Prior
private investments in to January 2004,
other companies. Director of TeleTech
Holdings Inc. and Arris
Group, Inc. Prior to
May 2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Director of IMC Global
Inc. Prior to July
2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero
Mexico (GAM).
</Table>
30
<Table>
<Caption>
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of 76 Trustee/Director/Managing
Heidrick & Struggles since 1999 Heidrick & Struggles, an General Partner of
233 South Wacker Drive executive search firm. funds in the Fund
Suite 7000 Trustee on the University Complex.
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 76 Trustee/Director/Managing
1744 R Street, NW since 1999 the German Marshall Fund General Partner of
Washington, DC 20009 of the United States, an funds in the Fund
independent U.S. Complex.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 78 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of
Galena, IL 61036 Officer of Pocklington funds in the Fund
Corporation, Inc., an Complex. Director of
investment holding the Lake Forest Bank &
company. Director of the Trust.
Marrow Foundation.
</Table>
31
<Table>
<Caption>
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (69) Trustee Trustee President of Nelson 76 Trustee/Director/Managing
423 Country Club Drive since 1999 Investment Planning General Partner of
Winter Park, FL 32789 Services, Inc., a funds in the Fund
financial planning Complex.
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 78 Trustee/Director/Managing
1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of
Chicago, IL 60637 University of Chicago and funds in the Fund
the Adam Smith Complex. Director of
Distinguished Service Winston Laboratories,
Professor in the Inc.
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications 76 Trustee/Director/Managing
815 Cumberstone Road since 1999 Officer of the National General Partner of
Harwood, MD 20776 Academy of funds in the Fund
Sciences/National Complex. Director of
Research Council, an Fluor Corp., an
independent, federally engineering,
chartered policy procurement and
institution, from 2001 to construction
November 2003 and Chief organization, since
Operating Officer from January 2004 and
1993 to 2001. Director of Director of Neurogen
the Institute for Defense Corporation, a
Analyses, a federally pharmaceutical company,
funded research and since January 1998.
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
32
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 78 Trustee/Director/Managing
333 West Wacker Drive since 1999 of Skadden, Arps, Slate, General Partner of
Chicago, IL 60606 Meagher & Flom LLP, legal funds in the Fund
counsel to funds in the Complex. Director of
Fund Complex. the Abraham Lincoln
Presidential Library
Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
33
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005,
1221 Avenue of the Americas Principal Executive since 2003 Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since 2003, and previously Executive Vice President of funds
in the Fund Complex from 2003-2005. Managing Director of
Morgan Stanley and Morgan Stanley & Co. Incorporated.
Managing Director of Morgan Stanley Investment Management
Inc. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer of Morgan Stanley Investment Management Inc.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
</Table>
34
<Table>
<Caption>
VAN KAMPEN TECHNOLOGY FUND
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1999 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (41) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza Officer and since 2005 since June 2005. Chief Financial Officer and Treasurer of
Oakbrook Terrace, IL 60181 Treasurer funds in the Fund Complex since August 2005. Prior to June
2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
35
Van Kampen Technology 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 Technology 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 Technology 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.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
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.
77, 177, 277
TECH ANR 10/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02482P-Y08/05
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
International Advantage Fund performed during the annual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of August 31, 2005.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE
FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND,
INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
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 THEREFORE 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 as of 8/31/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the MSCI AC World Free
Index ex-USA from 9/30/2001 (the first month-end after inception) through
8/31/2005. Class A shares, adjusted for sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL MSCI ALL COUNTRY WORLD FREE INDEX
ADVANTAGE FUND EX-USA
------------------------ ---------------------------------
9/01 9428 10000
12/01 10137 10889
10308 11068
10089 10774
8024 8695
12/02 8538 9291
7756 8613
9392 10323
10093 11219
12/03 11547 13138
11964 13773
11679 13678
11252 13816
12/04 12927 15945
12853 15998
12576 15996
8/05 13397 17010
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 9/26/01 since 9/26/01 since 9/26/01 since 8/12/05
- ------------------------------------------------------------------------------------------------------------
W/MAX W/MAX W/MAX
5.75% 5.00% 1.00%
AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES W/O SALES W/SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 9.96% 8.32% 9.19% 8.69% 9.47% 9.47% -1.64% -1.64%
1 Year 21.36 14.41 20.57 15.57 20.54 19.54 N/A N/A
- ------------------------------------------------------------------------------------------------------------
</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
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. 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 up to 1.00 percent for Class B and C
shares. Class I Shares are offered without any sales charges on purchases or
sales and without any distribution (12b-1) fee and service fee. Class I Shares
are available for purchase exclusively by investors through (i) tax-exempt
retirement plans with assets of at least one million dollars (including 401(k)
plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money
purchase plans, defined benefit plans and non-qualified deferred compensation
plans), (ii) fee-based investment programs with assets of at least one million
dollars and (iii) institutional clients with assets of at least one million
dollars. 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. Source for index
performance: Lipper Inc.
1
Fund Report
FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2005
Van Kampen International Advantage Fund is managed by the Adviser's Global Core
Team.(1) Current members include Sandra Yeager, Managing Director of the
Adviser; and Mark Laskin, Vice President of the Adviser.
MARKET CONDITIONS
International stock markets generated strong returns for the 12-month period
ended August 31, 2005 and significantly outperformed domestic stocks. Although
soaring energy prices did cast a shadow, solid consumer trends, industrial
production and positive corporate earnings propelled economic growth and buoyed
the equity markets. That said, the pace of the markets was not necessarily even.
Significant gains were earned during the final months of 2004, when the U.S.
equity markets sparked a global rally, only to be followed by flat performance
in the first months of 2005. The annual period ended on a strong note, however,
as renewed optimism surrounding the U.S. economy rippled across the globe.
In Asia, continued expansion in China supported the region during the annual
period. While government directed measures did moderate growth, the effects were
not as severe as some had feared. Japan showed steady signs of improvement,
particularly during the latter portion of the reporting period. The Japanese
export market advanced, helped by demand from China. This strength in exports
gave a much-needed lift to consumer sectors. Real estate spending picked up and
deflation abated. Banks made significant progress in clearing problem loans from
their books, and other reforms gained momentum.
During the annual period, export driven markets such as Germany and France
benefited from demand from Eastern Europe, Asia and the United States. Consumer
sentiment and spending remained subdued overall, however. While a pickup in
France's real estate market bolstered spending and Germany also showed
improvement, not all countries fared so well. In the United Kingdom, spending
flagged markedly as the annual period progressed. Protracted weakness in the
real estate market, decreased industrial production and increasing unemployment
weighed heavily on consumers. Against this backdrop, the Bank of England moved
to stimulate growth and decreased interest rates. The economic climate was
sluggish in Italy as well, as recessionary pressures loomed.
Emerging markets continued to demonstrate impressive strength. Accelerating
global growth, appreciating currencies, economic policies and corporate earnings
were among the factors supporting gains in many markets. Rising commodity prices
proved advantageous; historically, emerging markets have been well represented
among the world's leading commodity producers.
(1)Team members may change without notice from time to time.
2
Within the fund's benchmark index, energy stocks rode the wave of rising
commodity prices to generate standout returns during the reporting period.
Capital goods outperformed due to export demand and industrial growth, while the
utilities sector benefited from rising energy costs and from investors' penchant
for more defensive, yield-oriented investments. Diversified financials stocks
posted brisk gains as merger and acquisitions fuelled capital markets activity.
In contrast, technology hardware stocks struggled amid price deflation and
increased competition. The stock prices of European auto manufacturers declined
as the travails of their U.S. counterparts exacerbated pricing and capacity
issues. Patent challenges and slowing approvals hurt pharmaceutical stocks,
while competition and waning consumer spending drove retailers downward.
PERFORMANCE ANALYSIS
The fund returned 21.36 percent for the 12 months ended August 31, 2005 (Class A
shares, unadjusted for sales charges). In comparison, the fund's benchmark, the
MSCI All Country (AC) World Free Index ex-USA returned 23.61 percent for the
period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2005
<Table>
<Caption>
- ------------------------------------------------------------
MSCI AC WORLD FREE
CLASS A CLASS B CLASS C INDEX EX-USA
21.36% 20.57% 20.54% 23.61%
- ------------------------------------------------------------
</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.
Although the fund's energy holdings performed very well in absolute terms, our
energy stock strategy hindered performance relative to the benchmark. Based on a
view that oil prices would fall, we underweighted energy versus the benchmark
index. This positioning tempered gains as oil prices soared to unprecedented
heights. We also favored large-cap integrated energy companies. These stocks are
more defensive than other areas of the energy sector, in that they typically
decline less steeply when oil prices drop. However, they also rise less
dramatically when prices rise, as was the case during the period.
European bank stocks clipped the fund's pace, as the expansion activities of
certain holdings failed to win favor with the market. Additionally, concerns
about the deterioration of the Italian economy prompted us to underweight that
country's banking industry. This positioning slowed relative performance, as
Italian banking stocks continued to advance on the back of increased M&A
speculation. Meanwhile, waning consumer trends combined with company-specific
events drove down the stocks of certain European retailers. Also on the
downside, an underweighting in emerging markets and Canada
3
proved disadvantageous. Both areas performed strongly, due to their energy and
materials focused markets.
In contrast, the fund benefited from strong stock selection in enterprise
software where increases in sales licensing and revenues resulted in solid share
price appreciation. Although the technology hardware sector lagged in the broad
market, the fund included stocks that bucked the trend; favorable
company-specific trends in demand and pricing led to gains. Semiconductors
stocks also contributed upside performance, due to demand and pricing. As global
growth fuelled demand for metals and chemicals, the fund's materials holdings
were a boon to performance as well. Relative performance also benefited from an
underweighting in European auto stocks. Our caution proved well founded. As the
U.S. auto industry slashed prices to boost profits, European companies faced
increased challenges to their own near- and long-term profitability. Positions
in European food, beverage and tobacco stocks also benefited performance due to
industry consolidation trends.
Throughout the fiscal year, we followed a disciplined bottom-up investment
process, focusing on the merits of individual companies throughout the
international marketplace. To do this, we leveraged our extensive global
proprietary research capabilities. We look forward to following this course in
the coming year.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Portfolio in the future.
4
<Table>
<Caption>
TOP TEN HOLDINGS AS OF 8/31/05
Banco Bilbao Vizcaya, SA 2.8%
Total, SA 2.8
Vodafone Group Plc 2.8
William Morrison Supermarkets Plc 2.8
BNP Paribas, SA 2.3
GlaxoSmithKline Plc 2.2
Toyota Motor Corp. 2.2
Canon, Inc. 2.2
Samsung Electronics Co., Ltd. 2.2
BP Plc 2.1
<Caption>
SUMMARY OF INVESTMENTS BY COUNTRY CLASSIFICATION AS OF 8/31/2005
United Kingdom 24.5%
Japan 14.6
France 10.1
Netherlands 9.9
Switzerland 8.4
Germany 7.4
Republic of Korea 5.3
Spain 5.1
Italy 2.5
Taiwan-Republic of China 2.4
Sweden 2.2
Australia 1.5
United States 1.5
Brazil 0.7
Hong Kong 0.7
Singapore 0.6
Ireland 0.6
Israel 0.4
-----
Total Long-Term Investments 98.4%
Short-Term Investments 1.2
Foreign Currency 0.4
Liabilities in Excess of Other Assets -0.0
-----
Net Assets 100.0%
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the industries shown above. All percentages are as a percentage of
total net assets. Van Kampen is a wholly owned subsidiary of a global securities
firm which is engaged in a wide range of financial services including, for
example, securities trading and brokerage activities, investment banking,
research and analysis, financing and financial advisory services.
5
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
fund's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to fund shareholders, and makes these reports available on its
public Web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each fund files a
complete schedule of portfolio holdings with the SEC for the fund's first
and third fiscal quarters on Form N-Q. Van Kampen does not deliver the
reports for the first and third fiscal quarters to shareholders, nor are
the reports posted to the Van Kampen public Web site. You may, however,
obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS
filings) by accessing the SEC's Web site, http://www.sec.gov. You may
also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at 1-800-847-2424.
6
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 1-800-341-2911 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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free 1-800-847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 by visiting our Web site at www.vankampen.com. This information
is also available on the Securities and Exchange Commission's Web site at
http://www.sec.gov.
7
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs : (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) ongoing costs, including management fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing cost (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 3/01/05 - 8/31/05.
ACTUAL EXPENSE
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
--------------------------------------------------
3/1/05 8/31/05 3/1/05-8/31/05
Class A
Actual.................................... $1,000.00 $1,010.46 $ 8.36
Hypothetical.............................. 1,000.00 1,017.21 8.39
(5% annual return before expenses)
Class B
Actual.................................... 1,000.00 1,006.54 12.14
Hypothetical.............................. 1,000.00 1,013.11 12.18
(5% annual return before expenses)
Class C
Actual.................................... 1,000.00 1,006.47 12.14
Hypothetical.............................. 1,000.00 1,013.11 12.18
(5% annual return before expenses)
Class I
Actual.................................... 1,000.00 983.56 0.65
Hypothetical.............................. 1,000.00 1,018.11 7.12
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 1.65%, 2.40%,
2.40% and 1.40% for Class A, B, C and I Shares, respectively, multiplied by
the average account value over the period, multiplied by 184/365 (to reflect
the one-half year period) except for Class I Shares "Actual" information
which reflects the period from Commencement of Operations through 8/31/05.
These ratios reflect an expense cap.
Assumes all dividends and distributions were reinvested.
8
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement with the investment adviser and the related investment
sub-advisory agreement with an affiliate of the investment adviser (together
referred to as the "investment advisory agreements") require that such
investment advisory agreements be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreements are
fair and reasonable and approved the continuance of the investment advisory
agreements as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser on behalf of itself and its
affiliate, the Fund's investment sub-adviser (together the investment adviser
and investment sub-adviser are referred to as the "investment advisers") 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. The Board of Trustees considered the
contract over a period of several months and the non-management trustees held
sessions both with the investment advisers and separate from the investment
advisers in reviewing and considering the investment advisory agreements.
In approving the investment advisory agreements, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment advisers, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
advisers' expenses in providing the services and the profitability of the
investment advisers and their affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment advisers are shared with the Fund's shareholders, and the propriety
of existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees also reviewed the benefit to the investment
advisers of receiving research paid for by Fund assets and the propriety of such
arrangements. The Board of Trustees evaluated other benefits the investment
advisers and their affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the
9
investment advisers and their affiliated companies and the capability of the
personnel of the investment advisers, and specifically the strength and
background of their portfolio management personnel. The Board of Trustees
reviewed the statutory and regulatory requirements for approval and disclosure
of investment advisory agreements. The Board of Trustees, including the
independent trustees, 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 agreements is in the
best interests of the Fund and its shareholders. The following summary provides
more detail on certain matters considered but does not detail all matters
considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
advisers as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
advisers the resources available and used in managing the Fund and changes made
in the Fund's portfolio management team over time. The Fund discloses
information about its portfolio management team members and their experience in
its prospectus. The trustees also discuss certain other services which are
provided on a cost-reimbursement basis by the investment advisers or their
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 advisers support its decision to
approve the investment advisory agreements.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, 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
trustees discuss with the investment advisers the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment advisers 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 trustees discuss with
the investment advisers the level of advisory fees for this Fund relative to
comparable funds and other products advised by the investment advisers and
others in the marketplace. The trustees review not only the advisory fees but
other fees and expenses (whether paid to the investment advisers, their
affiliates or others) and the Fund's overall expense ratio. The Fund discloses
more information about its fees and expenses in its
10
prospectus. The Board has determined that the performance, fees and expenses of
the Fund support its decision to approve the investment advisory agreements.
Investment Advisers' Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment advisers' expenses in
providing services to the Fund and other funds advised by the investment
advisers and the profitability of the investment advisers. These profitability
reports are put together by the investment advisers with the oversight of a
special ad hoc committee of the Board. The trustees discuss with the investment
advisers their 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 advisers'
expenses and profitability support its decision to approve the investment
advisory agreements.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects 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 advisers' profitability, the trustees discuss with the
investment advisers 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 and projected 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 agreements.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment advisers and their affiliates derived
from their relationship with the Fund and other funds advised by the investment
advisers. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
advisers generated from commission dollars spent on funds' portfolio trading,
and in certain cases distribution or service related fees related to funds'
sales. The trustees review with the investment advisers each of these
arrangements and the reasonableness of their costs relative to the services
performed. The Board has determined that the other benefits received by the
investment advisers or their affiliates support its decision to approve the
investment advisory agreements.
11
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
COMMON STOCKS 96.9%
AUSTRALIA 1.5%
National Australia Bank, Ltd. .............................. 69,930 $ 1,656,440
------------
BRAZIL 0.7%
Petroleo Brasileiro SA--ADR................................. 12,509 782,563
------------
FRANCE 10.1%
BNP Paribas, SA............................................. 35,188 2,575,008
France Telecom, SA.......................................... 58,270 1,761,480
Gaz de France, SA (a)....................................... 8,156 272,682
Sanofi-Aventis, SA.......................................... 20,395 1,750,274
Schneider Electric, SA...................................... 24,111 1,903,271
Total, SA................................................... 12,105 3,189,261
------------
11,451,976
------------
GERMANY 7.4%
Allianz, AG................................................. 16,937 2,199,670
BMW, AG..................................................... 19,149 865,809
Commerzbank, AG............................................. 59,400 1,551,139
Deutsche Bank, AG........................................... 25,209 2,194,377
Siemens, AG................................................. 19,755 1,500,830
------------
8,311,825
------------
HONG KONG 0.7%
Sun Hung Kai Properties, Ltd. .............................. 77,000 780,396
------------
IRELAND 0.6%
Bank of Ireland............................................. 43,101 680,535
------------
ISRAEL 0.4%
Teva Pharmaceutical Industries, Ltd.--ADR................... 13,389 434,339
------------
ITALY 2.5%
ENI S.p.A. ................................................. 68,004 2,016,359
Telecom Italia S.p.A. ...................................... 310,495 818,542
------------
2,834,901
------------
JAPAN 14.6%
Canon, Inc. ................................................ 49,100 2,485,769
Joyo Bank, Ltd. ............................................ 205,000 1,126,155
JSR Corp. .................................................. 45,900 1,032,701
Kao Corp. .................................................. 32,000 763,263
Millea Holdings, Inc. ...................................... 82 1,209,072
Shin-Etsu Chemical Co., Ltd. ............................... 38,100 1,547,289
SMC Corp. .................................................. 13,300 1,653,079
Sumitomo Trust and Banking Co., Ltd. ....................... 156,000 1,088,847
Takeda Chemical Industries, Ltd. ........................... 29,300 1,587,658
</Table>
12 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
JAPAN (CONTINUED)
Tokyo Electric Power Co., Inc. ............................. 61,100 $ 1,503,274
Toyota Motor Corp. ......................................... 61,100 2,501,486
------------
16,498,593
------------
NETHERLANDS 9.9%
Aegon, NV................................................... 76,909 1,084,762
ASML Holding, NV (a)........................................ 114,629 1,930,509
Royal KPN, NV............................................... 175,476 1,661,982
Royal Numico, NV (a)........................................ 26,964 1,118,602
TNT, NV..................................................... 46,468 1,196,267
VNU, NV..................................................... 62,185 1,912,987
Wolters Kluwer, NV CVA...................................... 121,624 2,290,686
------------
11,195,795
------------
REPUBLIC OF KOREA 5.3%
Kookmin Bank................................................ 15,048 757,134
Kookmin Bank--ADR (a)....................................... 42,892 2,173,767
Samsung Electronics Co., Ltd. .............................. 4,620 2,441,338
SK Telecom Co., Ltd.--ADR................................... 26,540 564,240
------------
5,936,479
------------
SINGAPORE 0.6%
United Overseas Bank, Ltd. ................................. 86,000 727,962
United Overseas Land, Ltd. ................................. 8,600 11,897
------------
739,859
------------
SPAIN 5.1%
Altadis, SA................................................. 18,971 824,982
Banco Bilbao Vizcaya Argentaria, SA......................... 192,802 3,211,173
Banco Santander Central Hispano, SA......................... 136,347 1,672,301
------------
5,708,456
------------
SWEDEN 2.2%
ForeningsSparbanken AB...................................... 34,403 846,715
Sandvik AB.................................................. 36,182 1,610,225
------------
2,456,940
------------
SWITZERLAND 8.4%
Compagnie Financiere Richemont, AG, Class A................. 29,678 1,128,678
Credit Suisse Group......................................... 48,203 2,098,941
Nestle, SA.................................................. 6,266 1,762,552
Novartis, AG................................................ 45,114 2,195,266
Roche Holding, AG........................................... 9,935 1,377,841
UBS, AG..................................................... 10,923 897,152
------------
9,460,430
------------
TAIWAN-REPUBLIC OF CHINA 2.4%
Chunghwa Telecom Co., Ltd.--ADR (a)......................... 57,220 1,101,485
Hon Hai Precision Industry Co., Ltd. ....................... 309,000 1,598,529
------------
2,700,014
------------
UNITED KINGDOM 24.5%
AstraZeneca Group Plc....................................... 24,101 1,104,517
BOC Group Plc............................................... 63,076 1,196,206
</Table>
See Notes to Financial Statements 13
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
BP Plc...................................................... 212,536 $ 2,422,080
Cadbury Schweppes Plc....................................... 114,306 1,131,537
Carnival Plc................................................ 27,884 1,449,125
GlaxoSmithKline Plc......................................... 103,796 2,520,581
International Power Plc..................................... 305,598 1,286,473
O2 Plc...................................................... 369,195 1,019,853
Prudential Corp. Plc........................................ 214,105 1,963,812
Reckitt Benckiser Plc....................................... 35,888 1,115,337
Royal Bank of Scotland Group Plc............................ 46,004 1,344,883
Royal Dutch Shell Plc, Class A (a).......................... 61,025 1,990,576
Standard Chartered Plc...................................... 78,177 1,675,863
Tesco Plc................................................... 185,781 1,096,086
Vodafone Group Plc.......................................... 1,159,772 3,187,882
William Morrison Supermarkets Plc........................... 950,399 3,108,722
------------
27,613,533
------------
TOTAL COMMON STOCKS 96.9%.............................................. 109,243,074
------------
INVESTMENT COMPANY 1.5%
UNITED STATES 1.5%
Ishares Tr MSCI EAFE Index Fd............................... 21,176 1,654,269
------------
TOTAL LONG-TERM INVESTMENTS 98.4%
(Cost $98,393,322)................................................... 110,897,343
SHORT-TERM INVESTMENT 1.2%
(Cost $1,382,000).................................................... 1,382,000
------------
TOTAL INVESTMENTS 99.6%
(Cost $99,775,322)................................................... 112,279,343
FOREIGN CURRENCY 0.4%
(Cost $491,697)...................................................... 489,696
LIABILITIES IN EXCESS OF OTHER ASSETS 0.0%............................ (72,521)
------------
NET ASSETS 100.0%..................................................... $112,696,518
============
</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
CVA--Certification Van Aandelen
Securities with total market value equal to $101,923,422 at August 31, 2005 have
been valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees.
14 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------------------
Diversified Banks $ 19,961,767 17.7%
Pharmaceuticals 10,970,476 9.7
Integrated Oil & Gas 10,673,520 9.5
Integrated Telecommunication Services 5,343,489 4.7
Diversified Capital Markets 5,190,470 4.6
Wireless Telecommunication Services 4,771,975 4.2
Food Retail 4,204,808 3.7
Publishing 4,203,674 3.7
Packaged Foods & Meats 4,012,691 3.6
Automobile Manufacturers 3,367,295 3.0
Industrial Machinery 3,263,304 2.9
Life & Health Insurance 3,048,574 2.7
Specialty Chemicals 2,579,990 2.3
Office Electronics 2,485,769 2.2
Semiconductors 2,441,338 2.2
Multi-line Insurance 2,199,670 2.0
Semiconductor Equipment 1,930,509 1.7
Electrical Components & Equipment 1,903,271 1.7
Household Products 1,878,600 1.7
Financial 1,654,269 1.5
Electronic Manufacturing Services 1,598,529 1.4
Electric Utilities 1,503,274 1.3
Industrial Conglomerates 1,500,830 1.3
Hotels, Resorts & Cruise Lines 1,449,125 1.3
Traders 1,286,473 1.1
Property & Casualty 1,209,072 1.1
Air Freight & Logistics 1,196,267 1.1
Industrial Gases 1,196,206 1.1
Apparel, Accessories & Luxury Goods 1,128,678 1.0
Regional Banks 1,126,155 1.0
Tobacco 824,982 0.7
Real Estate Management & Development 792,293 0.7
------------ ----------
$110,897,343 98.4%
============ ==========
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2005
<Table>
ASSETS:
Total Investments (Cost $99,775,322)........................ $112,279,343
Foreign Currency (Cost $491,697)............................ 489,696
Cash........................................................ 59
Receivables:
Investments Sold.......................................... 566,737
Dividends................................................. 317,020
Fund Shares Sold.......................................... 271,609
Interest.................................................. 134
Other....................................................... 66,592
------------
Total Assets............................................ 113,991,190
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 755,427
Fund Shares Repurchased................................... 150,994
Distributor and Affiliates................................ 104,069
Investment Advisory Fee................................... 73,919
Accrued Expenses............................................ 115,724
Trustees' Deferred Compensation and Retirement Plans........ 94,539
------------
Total Liabilities....................................... 1,294,672
------------
NET ASSETS.................................................. $112,696,518
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $105,858,934
Net Unrealized Appreciation................................. 12,513,302
Accumulated Undistributed Net Investment Income............. 663,738
Accumulated Net Realized Loss............................... (6,339,456)
------------
NET ASSETS.................................................. $112,696,518
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net
assets of $70,339,737 and 5,602,398 shares of beneficial
interest issued and outstanding)........................ $ 12.56
Maximum sales charge (5.75%* of offering price)......... .77
------------
Maximum offering price to public........................ $ 13.33
============
Class B Shares:
Net asset value and offering price per share (Based on
net
assets of $25,340,087 and 2,057,130 shares of beneficial
interest
issued and outstanding)................................. $ 12.32
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets
of $7,631,255 and 613,001 shares of beneficial interest
issued and outstanding)................................. $ 12.45
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets
of $9,385,439 and 747,180 shares of beneficial interest
issued and outstanding)................................. $ 12.56
============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
16 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended August 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $295,417).... $2,206,801
Interest.................................................... 30,982
Other....................................................... 47
----------
Total Income............................................ 2,237,830
==========
EXPENSES:
Investment Advisory Fee..................................... 720,814
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $133,100, $194,398, $55,222 and $0,
respectively)............................................. 382,720
Shareholder Services........................................ 205,947
Shareholder Reports......................................... 84,073
Registration and Filing Fees................................ 73,136
Custody..................................................... 70,985
Legal....................................................... 63,370
Trustees' Fees and Related Expenses......................... 17,260
Other....................................................... 140,121
----------
Total Expenses.......................................... 1,758,426
Expense Reduction ($207,604 Investment Advisory and
$4,135 Other)......................................... 211,739
Less Credits Earned on Cash Balances.................... 1,620
----------
Net Expenses............................................ 1,545,067
----------
NET INVESTMENT INCOME....................................... $ 692,763
==========
REALIZED AND UNREALIZED GAIN/LOSS:..........................
Realized Gain/Loss:
Investments............................................... $5,340,953
Forward Foreign Currency Contracts........................ 111,427
Foreign Currency Transactions............................. 1,637
----------
Net Realized Gain........................................... 5,454,017
----------
Unrealized Appreciation/Depreciation During the Period:
Investments............................................... 3,742,583
Foreign Currency Translation.............................. (16,058)
Forward Foreign Currency Contracts........................ (31,566)
----------
Net Unrealized Appreciation During the Period............... 3,694,959
----------
NET REALIZED AND UNREALIZED GAIN............................ $9,148,976
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $9,841,739
==========
</Table>
See Notes to Financial Statements 17
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 2005 AUGUST 31, 2004
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 692,763 $ 40,607
Net Realized Gain......................................... 5,454,017 1,189,577
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 3,694,959 (739,391)
------------ -----------
Change in Net Assets from Operations...................... 9,841,739 490,793
------------ -----------
Distributions from Net Realized Gain:
Class A Shares........................................ (827,264) -0-
Class B Shares........................................ (177,352) -0-
Class C Shares........................................ (100,428) -0-
Class I Shares........................................ -0- -0-
------------ -----------
Total Distributions....................................... (1,105,044) -0-
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 8,736,695 490,793
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................. 125,154,430 14,371,201
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 1,086,482 -0-
Cost of Shares Repurchased................................ (40,471,985) (4,300,199)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS........ 85,768,927 10,071,002
------------ -----------
TOTAL INCREASE IN NET ASSETS.............................. 94,505,622 10,561,795
NET ASSETS:
Beginning of the Period................................... 18,190,896 7,629,101
------------ -----------
End of the Period (Including accumulated undistributed net
investment income of $663,738 and ($66,487),
respectively)........................................... $112,696,518 $18,190,896
============ ===========
</Table>
18 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS A SHARES -------------------------- OF OPERATIONS) TO
2005 2004 2003 AUGUST 31 2002
-------------------------- ------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $10.86 $ 9.83 $ 9.43 $10.00
------ ------ ------ ------
Net Investment Income (a).............. .13 .04 .09 .03
Net Realized and Unrealized
Gain/Loss............................ 2.14 .99 .88 (.28)
------ ------ ------ ------
Total from Investment Operations......... 2.27 1.03 .97 (.25)
------ ------ ------ ------
Less:
Distributions from Net Investment
Income............................... -0- -0- .57 .31
Distributions from Net Realized Gain... .57 -0- -0- .01
------ ------ ------ ------
Total Distributions...................... .57 -0- .57 .32
------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $12.56 $10.86 $ 9.83 $ 9.43
====== ====== ====== ======
Total Return (b) *....................... 21.36% 10.48% 11.20% -2.60%**
Net Assets at End of the Period (In
millions).............................. $ 70.3 $ 13.9 $ 5.6 $ 1.6
Ratio of Expenses to Average Net Assets
(c) *.................................. 1.70% 1.72% 1.75% 1.78%
Ratio of Net Investment Income to Average
Net Assets*............................ 1.08% .38% .98% .33%
Portfolio Turnover....................... 69% 68% 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).......................... 1.97% 2.86% 4.85% 15.81%
Ratio of Net Investment Income/Loss to
Average Net Assets.................. .81% (.76%) (2.11%) (13.70%)
</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 eighteen months of purchases.
With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If sales
charges were included, total returns would be lower. These returns included
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.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .03% for the period ended August 31,
2002.
See Notes to Financial Statements 19
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS B SHARES -------------------------- OF OPERATIONS) TO
2005 2004 2003 AUGUST 31, 2002
-------------------------- ------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $10.73 $ 9.77 $ 9.38 $ 10.00
------ ------ ------ -------
Net Investment Income/Loss (a)......... .05 (.03) -0-(d) (.04)
Net Realized and Unrealized
Gain/Loss............................ 2.11 .99 .89 (.27)
------ ------ ------ -------
Total from Investment Operations......... 2.16 .96 .89 (.31)
------ ------ ------ -------
Less:
Distributions from Net Investment
Income............................... -0- -0- .50 .30
Distributions from Net Realized Gain... .57 -0- -0- .01
------ ------ ------ -------
Total Distributions...................... .57 -0- .50 .31
------ ------ ------ -------
NET ASSET VALUE, END OF THE PERIOD....... $12.32 $10.73 $ 9.77 $ 9.38
====== ====== ====== =======
Total Return (b)*........................ 20.57% 9.83% 10.40% -3.37%**
Net Assets at End of the Period (In
millions).............................. $ 25.3 $ 2.6 $ 1.2 $ .9
Ratio of Expenses to Average Net Assets
(c) *.................................. 2.41% 2.35% 2.50% 2.53%
Ratio of Net Investment Income/Loss to
Average Net Assets*.................... .42% (.28%) (.02%) (.45%)
Portfolio Turnover....................... 69% 68% 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).......................... 2.66% 3.30% 5.60% 16.56%
Ratio of Net Investment Income/Loss to
Average Net Assets.................. .17% (1.23%) (3.12%) (14.48%)
</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 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.
(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.
20 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SEPTEMBER 26, 2001
YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS C SHARES -------------------------------- OF OPERATIONS) TO
2005 2004 2003 AUGUST 31, 2002
-------------------------------- ------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................... $10.84 $ 9.77 $ 9.38 $10.00
------ ------ ------ ------
Net Investment Income/Loss (a)....... .04 .07 -0-(d) (.04)
Net Realized and Unrealized
Gain/Loss.......................... 2.14 1.00 .89 (.27)
------ ------ ------ ------
Total from Investment Operations....... 2.18 1.07 .89 (.31)
------ ------ ------ ------
Less:
Distributions from Net Investment
Income............................. -0- -0- .50 .30
Distributions from Net Realized
Gain............................... .57 -0- -0- .01
------ ------ ------ ------
Total Distributions.................... .57 -0- .50 .31
------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD..... $12.45 $10.84 $ 9.77 $ 9.38
====== ====== ====== ======
Total Return (b) *..................... 20.54% 10.95%(e)(f) 10.40%(e) -3.37%**
Net Assets at End of the Period (In
millions)............................ $ 7.6 $ 1.7 $ .8 $ .6
Ratio of Expenses to Average Net Assets
(c) *................................ 2.40%(e) 1.77%(e) 2.50%(e) 2.53%
Ratio of Net Investment Income/Loss to
Average Net Assets*.................. .34%(e) .59%(e)(f) .00%(e) (.44%)
Portfolio Turnover..................... 69% 68% 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)........................ 2.67%(e) 2.92%(e) 5.60%(e) 16.56%
Ratio of Net Investment Income/Loss
to Average Net Assets............. .07%(e) (.56%)(e)(f) (3.09%)(e) (14.47%)
</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 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.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on cash balances. If these credits were reflected as a reduction of
expenses, the ratios would decrease by .03% for the period ended August 31,
2002.
(d) Amount is less than $.01.
(e) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net
Investment Income/Loss to Average Net Assets reflect actual 12b-1 fees of
less than 1% (See footnote 7).
(f) Certain non-recurring payments were made to Class C Shares, resulting in an
increase to the Total Return and Ratio of Net Investment Income/Loss to
Average Net Assets of 0.31%.
See Notes to Financial Statements 21
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
AUGUST 12, 2005
(COMMENCEMENT
CLASS I SHARES OF OPERATIONS) TO
AUGUST 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $12.77
------
Net Investment Income..................................... .01
Net Realized and Unrealized Loss.......................... (.22)
------
Total from Investment Operations............................ (.21)
------
NET ASSET VALUE, END OF THE PERIOD.......................... $12.56
======
Total Return*............................................... -1.64%**
Net Assets at End of the Period (In millions)............... $ 9.4
Ratio of Expenses to Average Net Assets*.................... 1.40%
Ratio of Net Investment Income to Average Net Assets*....... 1.00%
Portfolio Turnover.......................................... 69%
* 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.................. 1.52%
Ratio of Net Investment Income to Average Net Assets..... .88%
</Table>
** Non-Annualized
22 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005
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 distribution of the Fund's
Class I shares commenced on August 12, 2005.
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 U.S. generally accepted
accounting principles 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. 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.
23
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 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 incremental
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 Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The 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 loss and offset such losses against any future realized capital gains.
During the current fiscal year, the Fund utilized capital losses carried forward
of $3,524,233. At August 31, 2005, the Fund had an accumulated capital loss
carryforward for tax purposes of $6,709,028 which will expire according to the
following schedule:
<Table>
<Caption>
AMOUNT EXPIRATION
$6,473,761.................................................. June 30, 2011
$ 235,267................................................... June 30, 2012
</Table>
Part (All) of this CLCF was acquired due to a merger with another regulated
investment company, please see Footnote 3 for details.
At August 31, 2005, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $100,886,261
============
Gross tax unrealized appreciation........................... $ 12,362,144
Gross tax unrealized depreciation........................... (969,062)
------------
Net tax unrealized appreciation on investments.............. $ 11,393,082
============
</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 years ended August 31,
2005 and 2004 was as follows:
<Table>
<Caption>
2005 2004
Distribution paid from:
Ordinary income............................................. $ 567,257 $-0-
Long-term capital gain...................................... 537,787 -0-
---------- ----
$1,105,044 $-0-
========== ====
</Table>
24
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
Due to inherent differences in the recognition of income, expenses and
realized gains/ losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities. Permanent book and tax differences relating to the
recognition of net realized gains on foreign currency transactions totaling
$113,064 were reclassified from accumulated undistributed net investment income
to accumulated net realized loss. A permanent book and tax difference relating
to the Fund's investment in other regulated investment companies totaling $426
was reclassified from accumulated undistributed net investment income to
accumulated net realized loss. Additionally, a permanent book and tax difference
relating to a distribution reclass of $7,201 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain.
As of August 31, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 751,468
Undistributed long-term capital gain........................ $1,480,511
</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. The cost of securities is determined
using historical exchange rates. Gains and losses on the sale of securities are
not segregated for financial reporting purposes between amounts arising from
changes in exchange rates and amounts arising from changes in the market prices
of securities. Realized gain and loss on foreign currency includes the net
realized amount from the sale of foreign currency and the amount realized
between trade date and settlement date on securities transactions. Income and
expenses are translated at rates prevailing when accrued.
G. EXPENSE REDUCTIONS During the year ended August 31, 2005, the Fund's custody
fee was reduced by $1,620 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
25
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
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 year ended August 31, 2005, the Adviser waived approximately
$207,600 of its advisory fees. This waiver is voluntary and can be discontinued
at any time. This resulted in net expense ratios of 1.70%, 2.41%, 2.40%, and
1.40% for Classes A, B, C and I Shares, respectively.
For the year ended August 31, 2005, the Fund recognized expenses of
approximately $29,100 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 Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. With respect to the Accounting
Services agreement, the Adviser reimburses the cost of such services to each
fund with assets less than $25 million. The Adviser reimbursed $4,135 of these
fees. For the year ended August 31, 2005, the Fund recognized expenses of
approximately $39,700, representing Van Kampen Investment Inc.'s or its
affiliates' (collectively "Van Kampen") cost of providing accounting and legal
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 Legal Services agreement are reported as part of "Legal" expenses on the
Statement of Operations. Services provided pursuant to the Accounting Services
and CCO Employment agreement are reported as part of "Other" expenses 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 year ended
August 31, 2005, the Fund recognized expenses of approximately $157,700
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 also
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation.
Amounts deferred are retained by the Fund, and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of approximately $62,300 are
included in "Other" assets on the Statement of Assets and Liabilities at August
31, 2005. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
Benefits under the retirement plan are payable upon retirement for a ten-year
period and are based upon each trustee's years of service to the Fund. The
maximum annual benefit per trustee under the plan is $2,500.
For the year ended August 31, 2005, the Fund paid brokerage commissions to
Morgan Stanley DW Inc. (Morgan Stanley), an affiliate of the Adviser, totaling
$975.
26
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
3. CAPITAL TRANSACTIONS
At August 31, 2005, capital aggregated $62,933,546, $26,152,291, $6,250,554 and
$10,522,543 for Classes A, B, C and I, respectively. For the year ended August
31, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 6,633,520 $ 78,418,984
Class B................................................... 2,531,294 29,371,781
Class C................................................... 652,200 7,654,230
Class I................................................... 760,363 9,709,435
---------- ------------
Total Sales................................................. 10,577,377 $125,154,430
========== ============
Dividend Reinvestment:
Class A................................................... 70,723 $ 819,023
Class B................................................... 15,012 171,369
Class C................................................... 8,326 96,090
Class I................................................... -0- -0-
---------- ------------
Total Dividend Reinvestment................................. 94,061 $ 1,086,482
========== ============
Repurchases:
Class A................................................... (2,380,253) $(29,225,852)
Class B................................................... (733,945) (8,674,247)
Class C................................................... (201,965) (2,406,638)
Class I................................................... (13,183) (165,248)
---------- ------------
Total Repurchases........................................... (3,329,346) $(40,471,985)
========== ============
</Table>
At August 31, 2004, capital aggregated $12,964,690, $2,505,699 and
$1,574,106 for Classes A, B, and C, respectively. For the year ended August 31,
2004, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 1,056,044 $11,837,854
Class B................................................... 154,978 1,715,972
Class C................................................... 73,527 817,375
Class I................................................... -0- -0-
--------- -----------
Total Sales................................................. 1,284,549 $14,371,201
========= ===========
Repurchases:
Class A................................................... (347,556) $(3,894,120)
Class B................................................... (31,077) (343,120)
Class C................................................... (5,779) (62,959)
Class I................................................... -0- -0-
--------- -----------
Total Repurchases........................................... (384,412) $(4,300,199)
========= ===========
</Table>
27
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
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 year ended August 31, 2005, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A Shares of approximately
$33,800 and CDSC on redeemed shares of approximately $19,100. Sales charges do
not represent expenses of the Fund.
On December 17, 2004, the Fund acquired all of the assets and liabilities of
the Van Kampen International Magnum Fund ("VKIMF") through a tax free
reorganization approved by VKIMF shareholders on December 7, 2004. The Fund
issued 3,817,866, 1,929,366 and 509,323 shares of Classes A, B and C valued at
$44,745,385, $22,303,472 and $5,948,897, respectively, in exchange for VKIMF's
net assets. The shares of VKIMF were converted into Fund shares at a ratio 1.116
to 1, 1.102 to 1 and 1.095 to 1 for Classes A, B and C, respectively. Included
in these net assets was a capital loss carryforward of $10,231,261, deferred
compensation of $48,945, deferred pension of $34,256, and the deferral of losses
related to wash sales transactions of $1,431,233. Net unrealized appreciation of
VKIMF as of December 17, 2004 was $8,702,183. Shares issued in connection with
this reorganization are included in proceeds from shares sold for the year ended
August 31, 2005. Combined net assets on the day of reorganization were
$100,683,038.
4. REDEMPTION FEE
The Fund assesses 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 year ended August 31,
2005, the Fund received redemption fees of $1,152, which are reported as part of
"Cost of Shares Repurchased" in the Statement of Changes in Net Assets.
Effective September 26, 2005, the Fund began assessing a 2% redemption fee
on the proceeds of Fund Shares of all classes that are redeemed (either by sale
or exchange) within 30 days of purchase.
28
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $63,118,478 and $53,988,901,
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 or foreign currency 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 or
foreign currency 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. As of August 31, 2005,
there were no forward foreign commitments outstanding.
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 up to 1.00% each of Class B and Class C average daily net assets are
accrued daily. The annual fees for Class A Shares are paid quarterly and the
fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual
fees are paid monthly, while 25% of the annual fees are paid quarterly. The
amount of distribution expenses incurred by Van Kampen and not yet reimbursed
("unreimbursed receivable") was approximately $355,400 and $16,300 for Class B
and C Shares, respectively. This amount may be recovered from future payments
under the distribution plan or CDSC. To the extent the unreimbursed receivable
has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on
a quarterly basis.
Included in the fees for the year ended August 31, 2005, are payments
retained by Van Kampen of approximately $164,800 and payments made to Morgan
Stanley, an affiliate of the Adviser, of approximately $33,100.
29
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
8. 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.
9. 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 similar class action complaints which were recently
consolidated. The consolidated action also names as defendants certain
individual Trustees and Directors of certain investment companies advised by
affiliates of the Adviser; the complaint does not, however, name the individual
Trustees of any Van Kampen funds. The consolidated amended complaint generally
alleges that defendants 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 complaint seeks, among other things, unspecified
compensatory damages, rescissionary damages, fees and costs. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
The Adviser and certain affiliates of the Adviser are also named as
defendants in a derivative suit which additionally names as defendants certain
individual Trustees of certain Van Kampen funds; the named investment companies,
including the Fund, are listed as nominal defendants. The complaint alleges that
defendants caused the Van Kampen funds to pay economic incentives to a
proprietary sales force to promote the sale of proprietary mutual funds. The
complaint also alleges that the Van Kampen funds paid excessive commissions to
Morgan Stanley and its affiliates in connection with the sales of the funds. The
complaint seeks, among other things, the removal of the current Trustees of the
funds, rescission of the management contracts for the funds, disgorgement of
profits by Morgan Stanley and its affiliates and monetary damages. This
complaint has been coordinated with the consolidated complaint described in the
preceding paragraph. Plaintiff has sought leave to file a second amended
derivative compliant that alleges that the Adviser permitted or recklessly
disregarded market timing and late trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, the plaintiff's proposed second amended
derivative complaint was withdrawn and the allegations regarding market timing
and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
The defendants have moved to dismiss each of these actions and otherwise
intend to defend them vigorously. While the defendants believe that they have
meritorious defenses, the ultimate outcome of these matters is not presently
determinable at this early stage of litigation, and no provision has been made
in the Fund's financial statements for the effect, if any, of these matters.
30
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of Van Kampen International Advantage
Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen International Advantage Fund (the "Fund"), including the portfolio of
investments, as of August 31, 2005, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Van Kampen International Advantage Fund at August 31, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods indicated therein in conformity with U.S. generally accepted accounting
principles.
-s- Ernst & Young LLP
Chicago, Illinois
October 12, 2005
31
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
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
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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 1713
Boston, Massachusetts 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
August 31, 2005. The Fund designated and paid $537,787 as a long-term capital
gain distribution. Provided the Fund makes a distribution in December 2005,
the Fund may pass through foreign tax credits of $232,265 and has derived
gross income from sources within foreign countries amounting to $2,499,269.
Certain dividends paid by the Fund may be subject to a maximum tax rate of
15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of
2003. The Fund intends to designate up to a maximum of $567,257 as taxed at a
maximum of 15%. In January, the Fund provides tax information to shareholders
for the preceding calendar year.
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
32
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser as of the date of this Annual Report. Trustees serve until reaching
their retirement age or until their successors are duly elected and qualified.
Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (60) Trustee Trustee Chairman and Chief 78 Trustee/Director/Managing
Blistex Inc. since 2003 Executive Officer of General Partner of
1800 Swift Drive Blistex Inc., a consumer funds in the Fund
Oak Brook, IL 60523 health care products Complex.
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 76 Trustee/Director/Managing
33971 Selva Road since 2001 Chairman and Chief General Partner of
Suite 130 Executive Officer of the funds in the Fund
Dana Point, CA 92629 Allstate Corporation Complex. Director of
("Allstate") and Allstate Amgen Inc., a
Insurance Company. Prior biotechnological
to January 1995, company, and Director
President and Chief of Valero Energy
Executive Officer of Corporation, an
Allstate. Prior to August independent refining
1994, various management company.
positions at Allstate.
</Table>
33
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 78 Trustee/Director/Managing
CAC, L.L.C. since 2003 a private company General Partner of
4350 LaJolla Village Drive offering capital funds in the Fund
Suite 980 investment and management Complex. Director of
San Diego, CA 92122-6223 advisory services. Prior Stericycle, Inc.,
to February 2001, Vice Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and
Inc., a global Trustee of The Scripps
distributor of wire, Research Institute.
cable and communications Prior to January 2005,
connectivity products. Trustee of the
Prior to July 2000, University of Chicago
Managing Partner of Hospitals and Health
Equity Group Corporate Systems. Prior to April
Investment (EGI), a 2004, Director of
company that makes TheraSense, Inc. Prior
private investments in to January 2004,
other companies. Director of TeleTech
Holdings Inc. and Arris
Group, Inc. Prior to
May 2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Director of IMC Global
Inc. Prior to July
2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero
Mexico (GAM).
</Table>
34
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of 76 Trustee/Director/Managing
Heidrick & Struggles since 2001 Heidrick & Struggles, an General Partner of
233 South Wacker Drive executive search firm. funds in the Fund
Suite 7000 Trustee on the University Complex.
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 76 Trustee/Director/Managing
1744 R Street, NW since 2001 the German Marshall Fund General Partner of
Washington, DC 20009 of the United States, an funds in the Fund
independent U.S. Complex.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 78 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of
Galena, IL 61036 Officer of Pocklington funds in the Fund
Corporation, Inc., an Complex. Director of
investment holding the Lake Forest Bank &
company. Director of the Trust.
Marrow Foundation.
</Table>
35
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (69) Trustee Trustee President of Nelson 76 Trustee/Director/Managing
423 Country Club Drive since 2001 Investment Planning General Partner of
Winter Park, FL 32789 Services, Inc., a funds in the Fund
financial planning Complex.
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 78 Trustee/Director/Managing
1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of
Chicago, IL 60637 University of Chicago and funds in the Fund
the Adam Smith Complex. Director of
Distinguished Service Winston Laboratories,
Professor in the Inc.
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications 76 Trustee/Director/Managing
815 Cumberstone Road since 2001 Officer of the National General Partner of
Harwood, MD 20776 Academy of funds in the Fund
Sciences/National Complex. Director of
Research Council, an Fluor Corp., an
independent, federally engineering,
chartered policy procurement and
institution, from 2001 to construction
November 2003 and Chief organization, since
Operating Officer from January 2004 and
1993 to 2001. Director of Director of Neurogen
the Institute for Defense Corporation, a
Analyses, a federally pharmaceutical company,
funded research and since January 1998.
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
36
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 78 Trustee/Director/Managing
333 West Wacker Drive since 2001 of Skadden, Arps, Slate, General Partner of
Chicago, IL 60606 Meagher & Flom LLP, legal funds in the Fund
counsel to funds in the Complex. Director of
Fund Complex. the Abraham Lincoln
Presidential Library
Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
37
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005,
1221 Avenue of the Americas Principal Executive since 2003 Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since 2003, and previously Executive Vice President of funds
in the Fund Complex from 2003-2005. Managing Director of
Morgan Stanley and Morgan Stanley & Co. Incorporated.
Managing Director of Morgan Stanley Investment Management
Inc. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer of Morgan Stanley Investment Management Inc.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
</Table>
38
<Table>
<Caption>
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 2001 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (41) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza Officer and since 2005 since June 2005. Chief Financial Officer and Treasurer of
Oakbrook Terrace, IL 60181 Treasurer funds in the Fund Complex since August 2005. Prior to June
2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
39
Van Kampen International Advantage 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 International Advantage 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 International Advantage 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.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
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.
185, 285, 385
IA ANR 10/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02483P-Y08/05
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
American Franchise Fund performed during the annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of August 31,
2005.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE
FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND,
INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS
INVESTMENT OBJECTIVE. FUNDS ARE 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 FUND SHARES MAY THEREFORE BE LESS THAN WHAT
YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS
FUND.
<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 as of 8/31/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the S&P 500(R) Index from
6/30/2005 (the first month-end after inception) through 8/31/2005. Class A
shares, adjusted for sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN AMERICAN FRANCHISE
FUND S&P 500(R) INDEX
----------------------------- ----------------
6/05 9429 10000
7/05 9676 10371
8/05 9676 10277
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 6/23/05 since 6/23/05 since 6/23/05 since 6/23/05
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE W/MAX W/MAX W/MAX
ANNUAL 5.75% 5.00% 1.00%
TOTAL W/O SALES SALES W/O SALES SALES W/O SALES SALES W/O SALES
RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE CHARGES
Since Inception 1.70% -4.15% 1.50% -3.50% 1.50% 0.50% 1.60%
- ---------------------------------------------------------------------------------------------------------------------
</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
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. 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 up to 1.00 percent for Class B and C
shares. Class I shares are available for purchase exclusively by investors
through (i) tax-exempt retirement plans with assets of at least $1 million
(including 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit
sharing and money purchase plans, defined benefit plans and non-qualified
deferred compensation plans), (ii) fee-based investment programs with assets of
at least $1 million and (iii) institutional clients with assets of at least $1
million. Class I shares are offered without any sales charges on purchases or
sales and do not include combined 12b-1 fees and service fees. Figures shown
above assume reinvestment of all dividends and capital gains. 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 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. It is not possible to invest directly in an index. Index data
source: Lipper Inc.
1
Fund Report
FOR THE PERIOD ENDED AUGUST 31, 2005
Van Kampen American Franchise Fund is managed by the adviser's American
Franchise team.(1) Current team members include Hassan Elmasry, Managing
Director of the Adviser; Ewa Borowska, Executive Director of the Adviser;
Michael Allison and Paras Dodhia, Vice Presidents of the Adviser; and Jason
Vowles, Senior Associate of the Adviser.
NOTE: The fund commenced operations on June 23, 2005. This discussion covers the
period from the fund's inception through August 31, 2005.
MARKET CONDITIONS
The fund commenced operations in a generally favorable market climate. Concerns
about an economic "soft patch" had given way to greater optimism as data
suggested that the economy was on track. Consumers remained resilient, despite
the rising interest rate environment and protractedly high gasoline prices.
Although varying by company and sector, corporate earning reports were positive
overall.
During August, the markets were less upbeat. The Federal Open Market Committee
raised the federal funds target rate once more, squelching earlier speculation
that the tightening cycle begun in June of 2004 might be coming to an end.
Spiking oil prices heightened anxiety about future corporate profitability and
the upper limit of consumers' spending habits. This uncertainty rose even
further during the final days of the month, as Hurricane Katrina caused
immeasurable devastation to the Gulf Coast region.
PERFORMANCE ANALYSIS
The fund returned 1.70 percent since its inception on June 23, 2005 (Class A
shares, unadjusted for sales charges).
TOTAL RETURN SINCE INCEPTION THROUGH AUGUST 31, 2005
<Table>
<Caption>
- --------------------------------------------------------------
S&P 500(R)
CLASS A CLASS B CLASS C CLASS I INDEX
1.70% 1.50% 1.50% 1.60% 1.99%
- --------------------------------------------------------------
</Table>
THE PERFORMANCE FOR THE FOUR 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.
(1)Team members may change without notice from time to time.
2
We constructed this benchmark-unconstrained portfolio on a stock-by-stock basis,
according to a rigorous research-driven approach. Overall, consumer
discretionary holdings contributed most to the fund's performance during the
period, followed by consumer staples stocks. Also, a zero allocation to
financial stocks, which is consistent with our investment philosophy, further
added to relative performance.
Financial companies typically carry much more leverage on their balance sheets
than what we would look for in our investment universe. In our view, high
leverage is likely to increase the volatility of a company's returns, which is
inconsistent with our investment approach of searching for stable and durable
business models.
The fund's highest returning stocks included IMS Health, Thomson Corp. and
McGraw Hill. IMS Health is a leading provider of market data and consulting
services to healthcare and pharmaceutical companies, and recently has been a
target of a potential takeover by VNU. Shares of Thomson, a specialized data
provider serving the legal, education, financial, and science and healthcare
industries, appreciated on strong earnings results. McGraw Hill is among the
world's largest educational publishers and owns the financial ratings and index
services branded under the Standard and Poor's name. McGraw Hill's gains during
the period were driven by its broadening market share within the educational
publishing space and the strong performance of its S&P division.
In a market that has been driven by the performance of energy stocks, a sector
that we would not invest in because of its lack of intangible assets and the
cyclicality of oil prices, the fund underperformed on a relative basis. The
energy sector has been one of the broad market's best performing areas for some
time, as a supply and demand imbalance and geopolitical uncertainty have led to
soaring energy prices. Generally, in markets driven by a narrow rally in a
sector we do not own, we are likely to underperform. We seek companies with
intangible assets such as a patent, copyright, brand, license, or a distribution
network that are difficult to create or replicate. Energy companies and other
commodity businesses do not meet these criteria.
Pharmaceutical stocks Merck and Bristol-Myers Squibb lagged as well. Merck
declined after a Texas court ruled against the company in a case relating to its
Vioxx drug. While this ruling created poor publicity, we feel that this case may
provide limited predictive value for the other cases brought against Merck.
Having met with management and performed detailed financial scenarios on the
company's cash flow and its ability to meet reasonable liability payments, we
believe the market appears to be overly pessimistic. Uncertainty surrounding the
FDA approval of a joint venture diabetes drug has also contributed to the
volatility of both Merck and Bristol-Myers Squibb. Market speculation that
labeling requirements may reduce the drug's commercial potential has put further
pressure on the stocks.
We remain committed to the American Franchise philosophy of seeking exceptional
quality at compelling value. Consistent with our commitment to minimizing
3
business risk, we seek investment opportunities in companies with what we view
as strong business franchises protected by a dominant intangible asset.
Additionally, we seek sound management, substantial free cash flow and growth
potential.
There is no guarantee that any sectors or securities mentioned will continue to
perform well or that securities in such sectors will be held by the Portfolio in
the future.
4
<Table>
<Caption>
TOP TEN HOLDINGS AS OF 8/31/05
Altria Group, Inc. 6.2%
Kimberly-Clark Corp. 5.7
Bristol-Myers Squibb Co. 4.6
Merck & Co., Inc. 4.5
Kellogg Co. 4.5
Clear Channel Communications, Inc. 4.5
Brown-Forman Corp., Class B 4.5
Nestle, SA 4.4
The Thomson Corp. 4.4
Cadbury Schweppes Plc 4.3
<Caption>
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 8/31/05
Packaged Foods & Meats 16.3%
Tobacco 10.0
Household Products 9.2
Pharmaceuticals 9.1
Publishing 7.0
Broadcasting & Cable TV 4.5
Distillers & Vintners 4.5
Computer & Electronics Retail 4.4
IT Consulting & Other Services 4.3
Health Care Services 3.9
Motorcycle Manufacturers 3.9
Soft Drinks 3.2
Fertilizers & Agricultural Chemicals 0.2
-----
Total Long-Term Investments 80.5%
Short-Term Investments 16.3
Other Assets in Excess of Liabilities 3.2
-----
Total Net Assets 100.0%
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the industries shown above. All percentages are as a percentage of
net assets. Van Kampen is a wholly owned subsidiary of a global securities firm
which is engaged in a wide range of financial services including, for example,
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
5
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
fund's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to fund shareholders, and makes these reports available on its
public Web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public Web site, each fund files a
complete schedule of portfolio holdings with the SEC for the fund's first
and third fiscal quarters on Form N-Q. Van Kampen does not deliver the
reports for the first and third fiscal quarters to shareholders, nor are
the reports posted to the Van Kampen public Web site. You may, however,
obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS
filings) by accessing the SEC's Web site, http://www.sec.gov. You may
also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at 1-800-847-2424.
6
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 1-800-341-2911 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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free 1-800-847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 by visiting our Web site at www.vankampen.com. This information
is also available on the Securities and Exchange Commission's Web site at
http://www.sec.gov.
7
Expense Example
As a shareholder of the Fund, you incur two types of costs : (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B,C and I Shares;
and (2) ongoing costs, including management fees; distribution and service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing cost (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 6/23/05 - 8/31/05.
ACTUAL EXPENSE
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
-------------------------------------------------
6/23/05 8/31/05 6/23/05-8/31/05
Class A
Actual..................................... $1,000.00 $1,017.00 $ 2.63
Hypothetical............................... 1,000.00 1,018.21 7.02
(5% annual return before expenses)
Class B
Actual..................................... 1,000.00 1,015.00 4.06
Hypothetical............................... 1,000.00 1,014.51 10.82
(5% annual return before expenses)
Class C
Actual..................................... 1,000.00 1,015.00 4.06
Hypothetical............................... 1,000.00 1,014.51 10.82
(5% annual return before expenses)
Class I
Actual..................................... 1,000.00 1,016.00 2.15
Hypothetical............................... 1,000.00 1,019.51 5.75
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 1.38%, 2.13%,
2.13%, and 1.13%, for Class A, B, C and I Shares, respectively, multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period). "Actual" information reflects the period
from commencement of operations through August 31, 2005. These ratios
reflect an expense waiver.
Assumes all dividends and distributions were reinvested.
8
Investment Advisory Agreement Approval
The Investment Company Act of 1940 requires that the Fund's investment advisory
agreement with the investment adviser and the related investment sub-advisory
agreement with an affiliate of the investment adviser (together referred to as
the "investment advisory agreements") be approved both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On April 21, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreements are
fair and reasonable and approved the investment advisory agreements as being in
the best interests of the Fund and its shareholders. In making its
determination, the Board of Trustees considered materials that were specifically
prepared by the investment adviser on behalf of itself and its affiliate, the
Fund's investment sub-adviser (together the investment adviser and investment
sub-adviser are referred to as the "investment advisers"), at the request of the
Board and Fund counsel, relating to the contract review process. The Board also
considered information received about the model portfolio, the investment
strategy, portfolio management team and projected fees and expenses of the Fund.
In approving the investment advisory agreements, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
to be provided by the investment advisers, the projected fees and expenses of
the Fund compared to other similar funds and other products, the investment
advisers' projected expenses in providing the services and the profitability of
the investment advisers and their affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment advisers are to be shared with the Fund's shareholders, and the
propriety of proposed breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus projected assets of the Fund.
The Board of Trustees also reviewed the potential benefit to the investment
advisers of receiving research paid for by Fund assets and the propriety of such
arrangements. The Board of Trustees evaluated other benefits the investment
advisers and their affiliates may derive from their relationship with the Fund.
The Board of Trustees discussed the financial strength of the investment
advisers and their affiliated companies and the capability of the personnel of
the investment advisers, and specifically the strength and background of their
portfolio management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, 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 agreements is in
9
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 to be Provided. The Board of Trustees
considered the roles and responsibilities of the investment advisers as a whole
and for those specific portfolio management, support and trading functions
anticipated to be servicing the Fund. The trustees discussed with the investment
advisers the resources available in managing the Fund. The Fund discloses
information about its portfolio management team members and their experience in
its prospectus. The trustees also discussed certain other services which are to
be provided on a cost-reimbursement basis by the investment advisers or their
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 to be provided by the investment advisers support its decision
to approve the investment advisory agreements.
Projected Fees and Expenses of the Fund. The Board of Trustees reviewed the
projected fees and expenses of the Fund compared to its peers. The trustees
discussed with the investment advisers the performance goals in managing the
Fund. When considering a fund's performance, the trustees and the investment
advisers discussed emphasis on trends and longer-term returns (focusing on
one-year, three-year and five-year performance with special attention to three-
year performance). The Fund discloses more information about its performance
elsewhere in this report. The trustees discussed with the investment advisers
the level of advisory fees for this Fund relative to comparable funds and other
products advised by the investment advisers and others in the marketplace. The
trustees reviewed not only the advisory fees but other projected fees and
expenses (whether payable to the investment advisers, their affiliates or
others) and the Fund's overall projected expense ratio. The Fund discloses more
information about its fees and expenses in its prospectus. The Board has
determined that the projected fees and expenses of the Fund support its decision
to approve the investment advisory agreements.
Investment Advisers' Expenses in Providing the Service and Profitability. At
least annually, the trustees expect to review the investment advisers' expenses
in providing services to the Fund and other funds advised by the investment
advisers and the profitability of the investment advisers. These profitability
reports are put together by the investment advisers with the oversight of a
special ad hoc committee of the Board. In connection with the Fund, the trustees
discussed with the investment advisers their projected 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 advisers' projected expenses and profitability
support its decision to approve the investment advisory agreements.
10
Economies of Scale. The Board of Trustees considered the projected size and
growth prospects of the Fund and how that relates to the Fund's expense ratio
and particularly the Fund's advisory fee rate. The trustees discussed with the
investment advisers 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 projected 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 potential economies of scale of the
Fund support its decision to approve the investment advisory agreements.
Other Benefits of the Relationship. The Board of Trustees considered other
benefits to the investment advisers and their affiliates derived from their
relationship with the Fund and other funds advised by the investment advisers.
These benefits include, among other things, fees for transfer agency services
provided to the funds, in certain cases research received by the advisers
generated from commission dollars spent on funds' portfolio trading, and in
certain cases distribution or service related fees related to funds' sales. The
trustees reviewed with the investment advisers each of these arrangements and
the reasonableness of their costs relative to the services performed. The Board
has determined that the other benefits received by the investment advisers or
their affiliates support its decision to approve the investment advisory
agreements.
11
VAN KAMPEN AMERICAN FRANCHISE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
COMMON STOCKS 80.5%
BROADCASTING & CABLE TV 4.5%
Clear Channel Communications, Inc. ......................... 65,320 $ 2,175,156
-----------
DISTILLERS & VINTNERS 4.5%
Brown-Forman Corp., Class B................................. 38,085 2,156,754
-----------
FERTILIZERS & AGRICULTURAL CHEMICALS 0.2%
Scotts Miracle-Gro Co., Class A............................. 1,091 89,440
-----------
HEALTH CARE SERVICES 3.9%
IMS Health, Inc. ........................................... 69,289 1,884,661
-----------
HOUSEHOLD PRODUCTS 9.2%
Colgate-Palmolive Co. ...................................... 33,051 1,735,177
Kimberly-Clark Corp. ....................................... 43,956 2,739,338
-----------
4,474,515
-----------
IT CONSULTING & OTHER SERVICES 4.3%
Accenture, Ltd., Class A (Bermuda) (a)...................... 84,647 2,065,387
-----------
MOTORCYCLE MANUFACTURERS 3.9%
Harley-Davidson, Inc. ...................................... 38,000 1,871,880
-----------
PACKAGED FOODS & MEATS 16.3%
Cadbury Schweppes Plc (United Kingdom) (b).................. 210,536 2,084,137
Kellogg Co. ................................................ 48,052 2,178,197
McCormick & Co., Inc. ...................................... 44,734 1,516,930
Nestle, SA (Switzerland) (b)................................ 7,550 2,123,726
-----------
7,902,990
-----------
PHARMACEUTICALS 9.1%
Bristol-Myers Squibb Co. ................................... 90,394 2,211,941
Merck & Co., Inc. .......................................... 77,632 2,191,551
-----------
4,403,492
-----------
PUBLISHING 11.4%
McGraw-Hill Co., Inc. ...................................... 38,666 1,864,474
New York Times Co., Class A................................. 47,619 1,520,475
Thomson Corp. (Canada)...................................... 56,865 2,119,359
-----------
5,504,308
-----------
SOFT DRINKS 3.2%
PepsiCo, Inc. .............................................. 27,880 1,529,218
-----------
TOBACCO 10.0%
Altria Group, Inc. ......................................... 42,361 2,994,923
Reynolds American, Inc. .................................... 22,198 1,863,300
-----------
4,858,223
-----------
</Table>
12 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 2005 continued
<Table>
<Caption>
DESCRIPTION VALUE
- -------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS 80.5%
(Cost $38,583,979)..................................................... $38,916,024
REPURCHASE AGREEMENT 16.3%
State Street Bank & Trust Co. ($7,890,000 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of
3.50%, dated 08/31/05, to be sold on 09/01/05 at $7,890,767)
(Cost $7,890,000).................................................... 7,890,000
-----------
TOTAL INVESTMENTS 96.8%
(Cost $46,473,979)................................................... 46,806,024
FOREIGN CURRENCY 0.0%
(Cost $1,223)........................................................ 1,228
OTHER ASSETS IN EXCESS OF LIABILITIES 3.2%............................ 1,522,128
-----------
NET ASSETS 100.0%..................................................... $48,329,380
===========
</Table>
Percentages are calculated as a percentage of net assets.
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Securities with total market value equal to $4,207,863 have been valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Trustees.
See Notes to Financial Statements 13
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2005
<Table>
ASSETS:
Total Investments, including repurchase agreement of
$7,890,000 (Cost $46,473,979)............................. $46,806,024
Foreign Currency (Cost $1,223).............................. 1,228
Cash........................................................ 590
Receivables:
Fund Shares Sold.......................................... 3,623,727
Dividends................................................. 62,560
Interest.................................................. 767
Unamortized Offering Costs.................................. 158,137
Other....................................................... 101
-----------
Total Assets............................................ 50,653,134
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,084,267
Fund Shares Repurchased................................... 30,551
Distributor and Affiliates................................ 23,044
Accrued Expenses............................................ 183,118
Trustees' Deferred Compensation and Retirement Plans........ 2,774
-----------
Total Liabilities....................................... 2,323,754
-----------
NET ASSETS.................................................. $48,329,380
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $47,882,745
Net Unrealized Appreciation................................. 333,063
Accumulated Undistributed Net Investment Income............. 113,572
-----------
NET ASSETS.................................................. $48,329,380
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $40,186,119 and 3,952,061 shares of
beneficial interest issued and outstanding)............. $ 10.17
Maximum sales charge (5.75%* of offering price)......... .62
-----------
Maximum offering price to public........................ $ 10.79
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $4,052,087 and 399,371 shares of
beneficial interest issued and outstanding)............. $ 10.15
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,989,524 and 393,203 shares of
beneficial interest issued and outstanding)............. $ 10.15
===========
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $101,650 and 10,000 shares of beneficial
interest issued and outstanding)........................ $ 10.17
===========
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
14 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Period June 23, 2005 (Commencement of Operations) to August 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $1,135)...... $ 72,276
Interest.................................................... 32,750
--------
Total Income............................................ 105,026
--------
EXPENSES:
Offering.................................................... 36,863
Audit....................................................... 32,495
Investment Advisory Fee..................................... 31,128
Shareholder Reports......................................... 26,692
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $8,687, $4,077, $4,188 and $0,
respectively)............................................. 16,952
Registration and Filing Fees................................ 11,134
Legal....................................................... 10,551
Shareholder Services........................................ 8,710
Custody..................................................... 8,155
Trustees' Fees and Related Expenses......................... 4,137
Other....................................................... 8,410
--------
Total Expenses.......................................... 195,227
Expense Reduction ($31,128 Investment Advisory Fee and
$96,898 Other)........................................ 128,026
Less Credits Earned on Cash Balances.................... 1,334
--------
Net Expenses............................................ 65,867
--------
NET INVESTMENT INCOME....................................... $ 39,159
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain on Foreign Currency Transactions.......... $ 782
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... -0-
--------
End of the Period:
Investments............................................. 332,045
Foreign Currency Translation............................ 1,018
--------
333,063
--------
Net Unrealized Appreciation During the Period............... 333,063
--------
NET REALIZED AND UNREALIZED GAIN............................ $333,845
========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $373,004
========
</Table>
See Notes to Financial Statements 15
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
For the Period June 23, 2005 (Commencement of Operations) to August 31, 2005
<Table>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 39,159
Net Realized Gain........................................... 782
Net Unrealized Appreciation During the Period............... 333,063
-----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 373,004
-----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 52,945,901
Cost of Shares Repurchased.................................. (4,989,525)
-----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 47,956,376
-----------
TOTAL INCREASE IN NET ASSETS................................ 48,329,380
NET ASSETS:
Beginning of the Period..................................... -0-
-----------
End of the Period (Including accumulated undistributed net
investment income of $113,572)............................ $48,329,380
===========
</Table>
16 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
JUNE 23, 2005
(COMMENCEMENT
CLASS A SHARES OF OPERATIONS) TO
AUGUST 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $10.00
------
Net Investment Income (a)................................. .02
Net Realized and Unrealized Gain.......................... .15
------
Total from Investment Operations............................ .17
------
NET ASSET VALUE, END OF THE PERIOD.......................... $10.17
======
Total Return* (b)........................................... 1.70%**
Net Assets at End of the Period (In millions)............... $ 40.2
Ratio of Expenses to Average Net Assets (c)*................ 1.38%
Ratio of Net Investment Income to Average Net Assets*....... 1.03%
Portfolio Turnover.......................................... 0%**
* 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).............. 3.97%
Ratio of Net Investment Loss to Average Net Assets....... (1.56%)
</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 eighteen months 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 redemption of Fund shares.
(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,
2005.
See Notes to Financial Statements 17
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
JUNE 23, 2005
(COMMENCEMENT
CLASS B SHARES OF OPERATIONS) TO
AUGUST 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $10.00
------
Net Investment Income (a)................................. -0-(d)
Net Realized and Unrealized Gain.......................... .15
------
Total from Investment Operations............................ .15
------
NET ASSET VALUE, END OF THE PERIOD.......................... $10.15
======
Total Return* (b)........................................... 1.50%**
Net Assets at End of the Period (In millions)............... $ 4.1
Ratio of Expenses to Average Net Assets* (c)................ 2.13%
Ratio of Net Investment Income to Average Net Assets*....... .27%
Portfolio Turnover.......................................... 0%**
* If certain expenses had not been voluntarily assumed by Van Kampen, total
return would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (c).............. 5.69%
Ratio of Net Investment Loss to Average Net Assets....... (3.28%)
</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 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.
(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,
2005.
(d) Amount is less than $.01.
18 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
JUNE 23, 2005
(COMMENCEMENT
CLASS C SHARES OF OPERATIONS) TO
AUGUST 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $10.00
------
Net Investment Income (a)................................. -0-(d)
Net Realized and Unrealized Gain.......................... .15
------
Total from Investment Operations............................ .15
------
NET ASSET VALUE, END OF THE PERIOD.......................... $10.15
======
Total Return* (b)........................................... 1.50%**
Net Assets at End of the Period (In millions)............... $ 4.0
Ratio of Expenses to Average Net Assets* (c)................ 2.13%
Ratio of Net Investment Income to Average Net Assets*....... .25%
Portfolio Turnover.......................................... 0%**
* If certain expenses had not been voluntarily assumed by Van Kampen, total
return would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (c).............. 5.69%
Ratio of Net Investment Loss to Average Net Assets....... (3.31%)
</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 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.
(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,
2005.
(d) Amount is less than $.01.
See Notes to Financial Statements 19
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
JUNE 23, 2005
(COMMENCEMENT
CLASS I SHARES OF OPERATIONS) TO
AUGUST 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $10.00
------
Net Investment Income (a)................................. .01
Net Realized and Unrealized Gain.......................... .16
------
Total from Investment Operations............................ .17
------
NET ASSET VALUE, END OF THE PERIOD.......................... $10.17
======
Total Return*............................................... 1.60%**
Net Assets at End of the Period (In millions)............... $ .1
Ratio of Expenses to Average Net Assets* (b)................ 1.13%
Ratio of Net Investment Income to Average Net Assets*....... .76%
Portfolio Turnover.......................................... 0%**
* 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 (b).............. 6.94%
Ratio of Net Investment Loss to Average Net Assets....... (5.05%)
</Table>
** Non-Annualized
(a) Based on average shares outstanding.
(b) 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,
2005.
20 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Franchise Fund (the "Fund") is organized as a series of the
Van Kampen Equity Trust II (the "Trust"), a Delaware statutory trust, and is
registered as a non-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. The Fund invests
primarily in equity securities of U.S. issuers that, in the judgment of the
Fund's portfolio management team have, among other things, resilient business
franchises and growth potential. The Fund commenced investment operations on
June 23, 2005, with four classes of common shares: Class A, Class B, Class C and
Class I.
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 U.S. generally accepted
accounting principles 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 sales 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 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.
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 security 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.
21
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
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 incremental 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 Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
At August 31, 2005, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $46,473,979
===========
Gross tax unrealized appreciation........................... $ 682,868
Gross tax unrealized depreciation........................... (350,823)
-----------
Net tax unrealized appreciation on investments.............. $ 332,045
===========
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under U.S. generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities. Permanent book to tax basis differences relating to
net realized foreign currency gains totaling $782 was reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. A permanent book to tax basis difference relating to the Fund's
non-deductible start up costs totaling $36,768 was reclassified to capital from
accumulated undistributed net investment income. Additionally, a permanent book
to tax difference related to the Fund's non-deductible offering costs totaling
$36,863 was reclassified to capital from accumulated undistributed net
investment income.
As of August 31, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $116,346
</Table>
F. EXPENSE REDUCTIONS During the period ended August 31, 2005, the Fund's
custody fee was reduced by $1,334 as a result of credits earned on cash
balances.
G. 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. The cost of securities is determined
using historical exchange rates. Gains and losses on the sale of securities are
not
22
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
segregated for financial reporting purposes between amounts arising from changes
in the exchange rates and amounts arising from changes in the market prices of
securities. Realized gain and loss on foreign currency includes the net realized
amount from the sale of foreign currency and the amount realized between trade
date and settlement date on securities transactions. Income and expenses are
translated at rates prevailing when accrued.
H. OFFERING COSTS Offering costs are amortized, on a straight-line basis, over a
twelve-month period.
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.......................................... .70%
Next $500 million........................................... .65%
Over $1 billion............................................. .60%
</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. For the period ended August 31, 2005, the
Adviser waived approximately $31,100 of its advisory fees and $96,900 of other
expenses. The Adviser has agreed to waive all expenses in excess of 1.35% of
Class A average net assets, 2.10% of Class B average net assets, 2.10% of Class
C average net assets and 1.10% of Class I average nets assets. This waiver is
voluntary and can be discontinued at any time.
For the period ended August 31, 2005, the Fund recognized expenses of
approximately $900 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom LLP, 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 Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the period ended August 31, 2005,
the Fund recognized expenses of approximately $13,200, representing Van Kampen
Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal 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 Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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 period ended
August 31, 2005, the Fund recognized expenses of approximately $6,900,
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
23
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
also officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation.
Amounts deferred are retained by the Fund, and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. There were no investments in such funds at August 31,
2005. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
Benefits under the retirement plan are payable upon retirement for a ten-year
period and are based upon each trustee's years of service to the Fund. The
maximum annual benefit per trustee under the plan is $2,500.
At August 31, 2005, Morgan Stanley Investment Management Inc., an affiliate
of the Adviser, owned no shares of Class A, 10,695 shares of Class B, 10,990
shares of Class C, and 10,000 shares of Class I.
3. CAPITAL TRANSACTIONS
At August 31, 2005, capital aggregated $39,833,313, $4,015,626, $3,951,403, and
$82,403 for Classes A, B, C, and I, respectively. For the period ended August
31, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 4,092,277 $41,312,018
Class B................................................... 517,033 5,207,870
Class C................................................... 513,803 5,176,205
Class I................................................... 125,000 1,249,808
--------- -----------
Total Sales................................................. 5,248,113 $52,945,901
========= ===========
Repurchases:
Class A................................................... (140,216) $(1,417,480)
Class B................................................... (117,662) (1,186,071)
Class C................................................... (120,600) (1,218,724)
Class I................................................... (115,000) (1,167,250)
--------- -----------
Total Repurchases........................................... (493,478) $(4,989,525)
========= ===========
</Table>
Class B Shares, including 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 period
ended August 31, 2005, no Class B Shares automatically converted to Class A
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
24
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
will be imposed on most redemptions made within five years of the purchase for
Class B Shares and 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 period ended August 31, 2005, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $114,700 and CDSC on redeemed shares of Classes B and C of
approximately $400. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $38,583,979 and $0, 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, 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 up to 1.00% each of Class B and Class C average daily net assets are
accrued daily. The annual fees for Class A Shares are paid quarterly and the
annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the
annual fees are paid monthly, while 25% of the annual fees are paid quarterly.
The amount of distribution expenses incurred by Van Kampen and not yet
reimbursed ("unreimbursed receivable") was approximately $35,500 and $8,200 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 period ended August 31, 2005, are payments
retained by Van Kampen of approximately $7,200 and payments made to Morgan
Stanley, an affiliate of the Adviser, of approximately $200.
25
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- AUGUST 31, 2005 continued
6. LEGAL MATTERS
The Adviser, certain affiliates of the Adviser, and certain investment companies
advised by the Adviser or its affiliates are named as defendants in a number of
similar class action complaints which were recently consolidated. The
consolidated action also names as defendants certain individual Trustees and
Directors of certain investment companies advised by affiliates of the Adviser;
the complaint does not, however, name the individual Trustees of any Van Kampen
funds. The consolidated amended complaint generally alleges that defendants
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 allegedly paid excessive commissions to brokers in return for their
alleged efforts to steer investors to these funds. The complaint seeks, among
other things, unspecified compensatory damages, rescissionary damages, fees and
costs. Plaintiffs have filed a Motion for Leave to file a Supplemental Pleading
that would, among other things, expand the allegations and alleged class.
The Adviser and certain affiliates of the Adviser are also named as
defendants in a derivative suit which additionally names as defendants certain
individual Trustees of certain Van Kampen funds; the named investment companies
are listed as nominal defendants. The complaint alleges that defendants caused
the Van Kampen funds to pay economic incentives to a proprietary sales force to
promote the sale of proprietary mutual funds. The complaint also alleges that
the Van Kampen funds paid excessive commissions to Morgan Stanley and its
affiliates in connection with the sales of the funds. The complaint seeks, among
other things, the removal of the current Trustees of the funds, rescission of
the management contracts for the funds, disgorgement of profits by Morgan
Stanley and its affiliates and monetary damages. This complaint has been
coordinated with the consolidated complaint described in the preceding
paragraph. Plaintiff has sought leave to file a second amended derivative
complaint that alleges that the Adviser permitted or recklessly disregarded
market timing and late trading in its proprietary mutual funds in order to
increase assets under management and fees. However, pursuant to an agreement
between the parties, the plaintiff's proposed second amended derivative
complaint was withdrawn and the allegations regarding market timing and late
trading asserted therein were filed in a separate complaint and coordinated with
other cases related to market timing that have been centralized in a federal
court.
The defendants have moved to dismiss each of these actions and otherwise
intend to defend them vigorously. While the defendants believe that they have
meritorious defenses, the ultimate outcome of these matters is not presently
determinable at this early stage of litigation, and no provision has been made
in the Fund's financial statements for the effect, if any, of these matters.
7. 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.
26
VAN KAMPEN AMERICAN FRANCHISE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Van Kampen American Franchise Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Franchise Fund (the "Fund"), including the portfolio of
investments, as of August 31, 2005, and the related statement of operations,
statement of changes in net assets, and the financial highlights for the period
from June 23, 2005 (commencement of operations) to August 31, 2005. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Van Kampen American Franchise Fund at August 31, 2005, the results of its
operations, the changes in its net assets, and the financial highlights for the
period from June 23, 2005 (commencement of operations) to August 31, 2005, in
conformity with U.S. generally accepted accounting principles.
-s- Ernst & Young LLP
Chicago, Illinois
October 12, 2005
27
VAN KAMPEN AMERICAN FRANCHISE FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
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
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
INVESTMENT SUBADVISER
MORGAN STANLEY INVESTMENT
MANAGEMENT LIMITED
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 1713
Boston, Massachusetts 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
28
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser as of the date of this Annual Report. Trustees serve until reaching
their retirement age or until their successors are duly elected and qualified.
Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (60) Trustee Trustee Chairman and Chief 78 Trustee/Director/Managing
Blistex Inc. since 2005 Executive Officer of General Partner of
1800 Swift Drive Blistex Inc., a consumer funds in the Fund
Oak Brook, IL 60523 health care products Complex.
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 76 Trustee/Director/Managing
33971 Selva Road since 2005 Chairman and Chief General Partner of
Suite 130 Executive Officer of the funds in the Fund
Dana Point, CA 92629 Allstate Corporation Complex. Director of
("Allstate") and Allstate Amgen Inc., a
Insurance Company. Prior biotechnological
to January 1995, company, and Director
President and Chief of Valero Energy
Executive Officer of Corporation, an
Allstate. Prior to August independent refining
1994, various management company.
positions at Allstate.
</Table>
29
<Table>
<Caption>
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 78 Trustee/Director/Managing
CAC, L.L.C. since 2005 a private company General Partner of
4350 LaJolla Village Drive offering capital funds in the Fund
Suite 980 investment and management Complex. Director of
San Diego, CA 92122-6223 advisory services. Prior Stericycle, Inc.,
to February 2001, Vice Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and
Inc., a global Trustee of The Scripps
distributor of wire, Research Institute.
cable and communications Prior to January 2005,
connectivity products. Trustee of the
Prior to July 2000, University of Chicago
Managing Partner of Hospitals and Health
Equity Group Corporate Systems. Prior to April
Investment (EGI), a 2004, Director of
company that makes TheraSense, Inc. Prior
private investments in to January 2004,
other companies. Director of TeleTech
Holdings Inc. and Arris
Group, Inc. Prior to
May 2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Director of IMC Global
Inc. Prior to July
2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero
Mexico (GAM).
</Table>
30
<Table>
<Caption>
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of 76 Trustee/Director/Managing
Heidrick & Struggles since 2005 Heidrick & Struggles, an General Partner of
233 South Wacker Drive executive search firm. funds in the Fund
Suite 7000 Trustee on the University Complex.
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 76 Trustee/Director/Managing
1744 R Street, NW since 2005 the German Marshall Fund General Partner of
Washington, DC 20009 of the United States, an funds in the Fund
independent U.S. Complex.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 78 Trustee/Director/Managing
14 Huron Trace since 2005 and Chief Executive General Partner of
Galena, IL 61036 Officer of Pocklington funds in the Fund
Corporation, Inc., an Complex. Director of
investment holding the Lake Forest Bank &
company. Director of the Trust.
Marrow Foundation.
</Table>
31
<Table>
<Caption>
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (69) Trustee Trustee President of Nelson 76 Trustee/Director/Managing
423 Country Club Drive since 2005 Investment Planning General Partner of
Winter Park, FL 32789 Services, Inc., a funds in the Fund
financial planning Complex.
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 78 Trustee/Director/Managing
1126 E. 59th Street since 2005 Honorary Trustee of the General Partner of
Chicago, IL 60637 University of Chicago and funds in the Fund
the Adam Smith Complex. Director of
Distinguished Service Winston Laboratories,
Professor in the Inc.
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications 76 Trustee/Director/Managing
815 Cumberstone Road since 2005 Officer of the National General Partner of
Harwood, MD 20776 Academy of funds in the Fund
Sciences/National Complex. Director of
Research Council, an Fluor Corp., an
independent, federally engineering,
chartered policy procurement and
institution, from 2001 to construction
November 2003 and Chief organization, since
Operating Officer from January 2004 and
1993 to 2001. Director of Director of Neurogen
the Institute for Defense Corporation, a
Analyses, a federally pharmaceutical company,
funded research and since January 1998.
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
32
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 78 Trustee/Director/Managing
333 West Wacker Drive since 2005 of Skadden, Arps, Slate, General Partner of
Chicago, IL 60606 Meagher & Flom LLP, legal funds in the Fund
counsel to funds in the Complex. Director of
Fund Complex. the Abraham Lincoln
Presidential Library
Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
33
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005,
1221 Avenue of the Americas Principal Executive since 2005 Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since 2003, and previously Executive Vice President of funds
in the Fund Complex from 2003-2005. Managing Director of
Morgan Stanley and Morgan Stanley & Co. Incorporated.
Managing Director of Morgan Stanley Investment Management
Inc. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer of Morgan Stanley Investment Management Inc.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2005 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2005 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2005 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
</Table>
34
<Table>
<Caption>
VAN KAMPEN AMERICAN FRANCHISE FUND
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 2005 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (41) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza Officer and since 2005 since June 2005. Chief Financial Officer and Treasurer of
Oakbrook Terrace, IL 60181 Treasurer funds in the Fund Complex since August 2005. Prior to June
2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
35
Van Kampen American Franchise 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 American Franchise 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 American Franchise 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.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
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.
146, 246, 346
AMFR ANR 10/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02595P-Y08/05
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Trust or
a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Trust has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Further, due to personnel changes at the Adviser, the list of Covered Officers
set forth in Exhibit B and the General Counsel designee to whom questions about
the application of the Code should be referred in Exhibit C were amended during
the period. Exhibit B was then amended again in March 2005 and a third time in
August 2005 and a fourth time in September 2005. All four editions of Exhibit B
are attached. Additionally, Exhibit B was amended to remove Mitchell M. Merin as
a covered officer.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 12A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : Jerry Choate and R. Craig Kennedy. Under applicable
securities laws, a person who is determined to be an audit committee financial
expert will not be deemed an "expert" for any purpose, including without
limitation for the purposes of Section 11 of the Securities Act of 1933, as a
result of being designated or identified as an audit committee financial expert.
The designation or identification of a person as an audit committee financial
expert does not impose on such person any duties, obligations, or liabilities
that are greater than the duties, obligations, and liabilities imposed on such
person as a member of the audit committee and Board of Trustees in the absence
of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES........................ $82,600 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES...... $0 $280,000(2)
TAX FEES................... $7,000(3) $58,688(4)
ALL OTHER FEES........... $0 $655,125(5)
TOTAL NON-AUDIT FEES.......... $7,000 $993,813
TOTAL.............................. $89,600 $993,813
</Table>
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES........................ $54,500 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES..... $0 $159,500(2)
TAX FEES.................. $3,500(3) $42,141(4)
ALL OTHER FEES........... $0 $222,168(6)
TOTAL NON-AUDIT FEES......... $3,500 $423,809
TOTAL.............................. $58,000 $423,809
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors)
and any entity controlling, controlled by or under common
control with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically
attestation services provided in connection with a SAS 70
Report.
(3) Tax Fees represent tax advice and compliance services provided
in connection with the review of the Registrant's tax.
(4) Tax Fees represent tax advice services provided to Covered
Entities, including research and identification of PFIC
entities.
(5) All Other Fees represent attestation services provided in
connection with performance presentation standards and
assistance with compliance policies and procedures.
(6) All Other Fees represent attestation services provided in
connection with performance presentation standards, general
industry education seminars provided, and a regulatory review
project performed.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
JOINT AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
VAN KAMPEN FUNDS
AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider
whether such services are consistent with the SEC's rules on auditor
independence. The Audit Committee will also consider whether the Independent
Auditors are best positioned to provide the most effective and efficient
services, for reasons such as its familiarity with the Fund's business, people,
culture, accounting systems, risk profile and other factors, and whether the
service might enhance the Fund's ability to manage or control risk or improve
audit quality. All such factors will be considered as a whole, and no one factor
should necessarily be determinative.
The Audit Committee is also mindful of the relationship between fees
for audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the general pre-approval of the Audit
Committee. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers and provides a different
period and states otherwise. The Audit Committee will annually review and
pre-approve the services that may be provided by the Independent Auditors
without obtaining specific pre-approval from the Audit Committee. The Audit
Committee will add to or subtract from the list of general pre-approved services
from time to time, based on subsequent determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
- ----------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval
Policy and Procedures (the "Policy"), amended as of the date above,
supercedes and replaces all prior versions that may have been
amended from time to time.
(2) Terms used in this Policy and not otherwise defined herein shall have
the meanings as defined in the Joint Audit Committee Charter.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant general pre-approval to other
Audit services, which are those services that only the Independent Auditors
reasonably can provide. Other Audit services may include statutory audits and
services associated with SEC registration statements (on Forms N-1A, N-2, N-3,
N-4, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix
B.1. All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services. Hence, the Audit Committee
believes it may grant general pre-approval to those Tax services that have
historically been provided by the Independent Auditors, that the Audit Committee
has reviewed and believes would not impair the independence of the Independent
Auditors, and that are consistent with the SEC's rules on auditor independence.
The Audit Committee will not permit the retention of the
Independent Auditors in connection with a transaction initially recommended by
the Independent Auditors, the sole business purpose of which may be tax
avoidance and the tax treatment of which may not be supported in the Internal
Revenue Code and related regulations. The Audit Committee will consult with
Director of Tax or outside counsel to determine that the tax planning and
reporting positions are consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the Tax Services in Appendix B.3. All Tax services involving large
and complex transactions not listed in Appendix B.3 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated), including tax services proposed to be
provided by the Independent Auditors to any executive officer or
trustee/director/managing general partner of the Fund, in his or her individual
capacity, where such services are paid for by the Fund (generally applicable
only to internally managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer
to monitor the performance of all services provided by the Independent Auditors
and to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after
May 6, 2003, the audit committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined to have a direct
impact on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: R.
Craig Kennedy, Jerry Choate, Rod Dammeyer.
(b) Not applicable.
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 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 12. Exhibits.
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(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: October 20, 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: October 20, 2005
By: /s/ Phillip G. Goff
---------------------
Name: Phillip G. Goff
Title: Principal Financial Officer
Date: October 20, 2005