UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9279
Van Kampen Equity Trust II
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 8/31
Date of reporting period: 2/28/06
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 semiannual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of February 28,
2006.
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 2/28/06
<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 -9.15% -9.96% -9.84% -9.84% -9.84% -9.84%
5-year -9.79 -10.85 -10.47 -10.74 -10.47 -10.47
1-year 19.59 12.74 18.82 13.82 18.82 17.82
6-month 8.59 2.31 8.37 3.37 8.37 7.37
- ---------------------------------------------------------------------------------------------
</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 SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
MARKET CONDITIONS
As the reporting period opened, technology investors faced a "doom and gloom"
environment. Rising interest rates and high energy prices stoked investor demand
for energy, utilities, and other more "defensive" stocks. The Gulf Coast
hurricanes drove the commodity prices of oil and natural gas to record highs,
contributing to diminished expectations for the U.S. economy. However, as
consumer confidence rebounded and the economy proved more resilient than
expected, investor sentiment appeared to trough in October, setting the stage
for a strong broad market rally in November. Consumers' enthusiasm for digital
MP3 players also supported investor interest in technology stocks, as did
seasonal corporate spending. (Typically, company managements will spend more on
technology in the fourth quarter of a calendar year to avoid losing the
allocation in next year's budget.)
In January, investors renewed their interest in higher risk stocks, contributing
to a marked "January Effect," a historical trend in which the market rallies
strongly in the first month of the year. Technology stocks were among the groups
leading the charge, with semiconductors and semiconductor capital equipment,
software, and Internet-related stocks advancing with particular strength. The
market's upward momentum slowed in February, as investors paused to consider
disappointing economic data and less positive corporate earnings news.
PERFORMANCE ANALYSIS
The fund returned 8.59 percent for the six months ended February 28, 2006 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Pacific Stock Exchange (PSE) Technology Index, returned 7.57 percent for the
period.
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
<Table>
<Caption>
- ----------------------------------------------------------------
PACIFIC STOCK EXCHANGE
CLASS A CLASS B CLASS C TECHNOLOGY INDEX
8.59% 8.37% 8.37% 7.57%
- ----------------------------------------------------------------
</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.
2
Select Internet, computer hardware and semiconductor holdings were among the
fund's notable contributors to gains during the period. Positive
company-specific factors helped drive these companies' growth, and many
continued to be leaders in their product markets. In addition, key industry
trends bolstered investors' enthusiasm. For example, Internet-related companies
have been the beneficiaries of increased advertising spending, as companies move
their advertising dollars away from traditional print and broadcast media. In
the semiconductor industry, seasonal year-end budget spending boosted demand for
chips.
On the negative side, biotechnology stocks slowed the fund's pace. Although they
performed very well earlier in 2005, biotechnology stocks gave back some of
their gains in the second half of the calendar year. However, we continue to
believe in the long-term prospects for health care companies developing cutting
edge drugs and other medical advancements. In addition, consistent with the
fund's focus on technology, science, and communications, we believe these health
care companies are an important source of growth potential and diversification.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the fund in
the future.
3
<Table>
TOP 10 HOLDINGS AS OF 2/28/06
Google, Inc., Class A 3.2%
Hewlett-Packard Co. 3.1
Genentech, Inc. 3.0
eBay, Inc. 2.8
Amgen, Inc. 2.6
Genzyme Corp. 2.4
Millipore Corp. 2.4
Lockheed Martin Corp. 2.4
Apple Computer, Inc. 2.4
Broadcom Corp., Class A 2.4
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 2/28/06
Semiconductors 15.2%
Biotechnology 12.9
Computer Hardware 8.8
Communications Equipment 7.9
Application Software 7.0
Data Processing & Outsourced Services 6.8
Internet Software & Services 5.4
Semiconductor Equipment 5.4
Aerospace & Defense 5.3
Health Care Equipment 4.7
Internet Retail 3.7
Systems Software 3.3
Computer Storage & Peripherals 2.6
Health Care Supplies 2.4
Electronic Equipment Manufacturers 2.2
Home Entertainment Software 1.7
Managed Health Care 1.4
Electronic Manufacturing Services 1.3
IT Consulting & Other Services 0.9
Specialized Finance 0.7
Health Care Services 0.7
-----
Total Investments 100.3%
Liabilities in Excess of Other Assets (0.3)
-----
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.
4
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 (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 (800) 847-2424.
5
HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate
mailings to the same address. The fund delivers a single copy of certain
shareholder documents to investors who share an address, even if the
accounts are registered under different names. The fund's prospectuses
and shareholder reports (including annual privacy notices) will be
delivered to you in this manner indefinitely unless you instruct us
otherwise. You can request multiple copies of these documents by either
calling (800) 341-2911 or writing to Van Kampen Investor Services at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor
Services has received your instructions, we will begin sending individual
copies for each account within 30 days.
Proxy Voting 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 (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 without charge 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.
6
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 9/1/05 - 2/28/06.
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*
------------------------------------------------
9/1/05 2/28/06 9/1/05-2/28/06
Class A
Actual...................................... $1,000.00 $1,085.89 $11.90
Hypothetical................................ 1,000.00 1,013.39 11.48
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,083.69 15.91
Hypothetical................................ 1,000.00 1,009.49 15.35
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,083.69 15.91
Hypothetical................................ 1,000.00 1,009.49 15.35
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 2.30%, 3.08%
and 3.08% for Class A, B and C Shares, respectively, multiplied by the
average account value over the period, multiplied by 181/365 (to reflect the
one-half year period).
Assumes all dividends and distributions were reinvested.
7
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
COMMON STOCKS 100.3%
AEROSPACE & DEFENSE 5.3%
Goodrich Corp. ............................................. 100,000 $ 4,184,000
Lockheed Martin Corp. ...................................... 95,000 6,922,650
Raytheon Co. ............................................... 95,000 4,123,000
------------
15,229,650
------------
APPLICATION SOFTWARE 7.0%
Adobe Systems, Inc. (a)..................................... 100,000 3,862,000
Autodesk, Inc. (a).......................................... 100,000 3,765,000
Citrix Systems, Inc. (a).................................... 50,000 1,618,000
Cognos, Inc. (Canada) (a)................................... 95,000 3,633,750
SAP AG--ADR (Germany)....................................... 100,000 5,110,000
Synopsys, Inc. (a).......................................... 100,000 2,187,000
------------
20,175,750
------------
BIOTECHNOLOGY 12.9%
Amgen, Inc. (a)............................................. 100,000 7,549,000
Biogen Idec, Inc. (a)....................................... 75,000 3,543,750
Celgene Corp. (a)........................................... 100,000 3,800,000
Genentech, Inc. (a)......................................... 100,000 8,569,000
Genzyme Corp. (a)........................................... 100,000 6,934,000
Gilead Sciences, Inc. (a)................................... 50,000 3,113,500
MedImmune, Inc. (a)......................................... 95,000 3,466,550
------------
36,975,800
------------
COMMUNICATIONS EQUIPMENT 7.9%
ADC Telecommunications, Inc. (a)............................ 100,000 2,532,000
Cisco Systems, Inc. (a)..................................... 125,000 2,530,000
Corning, Inc. (a)........................................... 100,000 2,441,000
Harris Corp. ............................................... 100,000 4,568,000
Juniper Networks, Inc. (a).................................. 100,000 1,839,000
Motorola, Inc. ............................................. 100,000 2,140,000
Nokia Corp.--ADR (Finland).................................. 100,000 1,858,000
QUALCOMM, Inc. ............................................. 100,000 4,721,000
------------
22,629,000
------------
COMPUTER HARDWARE 8.8%
Apple Computer, Inc. (a).................................... 100,000 6,854,000
Dell Computer Corp. (a)..................................... 200,000 5,800,000
Hewlett-Packard Co. ........................................ 275,000 9,022,750
NCR Corp. (a)............................................... 90,000 3,608,100
------------
25,284,850
------------
COMPUTER STORAGE & PERIPHERALS 2.6%
Network Appliance, Inc. (a)................................. 100,000 3,316,000
QLogic Corp. (a)............................................ 100,000 4,114,000
------------
7,430,000
------------
DATA PROCESSING & OUTSOURCED SERVICES 6.8%
Automatic Data Processing, Inc. ............................ 100,000 4,619,000
Computer Sciences Corp. (a)................................. 95,000 5,162,300
</Table>
8 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (CONTINUED)
DST Systems, Inc. (a)....................................... 95,000 $ 5,341,850
First Data Corp. ........................................... 100,000 4,513,000
------------
19,636,150
------------
ELECTRONIC EQUIPMENT MANUFACTURERS 2.2%
Agilent Technologies, Inc. (a).............................. 100,000 3,600,000
Sunpower Corp., Class A (a)................................. 65,000 2,853,500
------------
6,453,500
------------
ELECTRONIC MANUFACTURING SERVICES 1.3%
Jabil Circuit, Inc. (a)..................................... 100,000 3,785,000
------------
HEALTH CARE EQUIPMENT 4.7%
Medtronic, Inc. ............................................ 100,000 5,395,000
St. Jude Medical, Inc. (a).................................. 100,000 4,560,000
Thermo Electron Corp. (a)................................... 100,000 3,462,000
------------
13,417,000
------------
HEALTH CARE SERVICES 0.7%
Allscripts Healthcare Solutions, Inc. (a)................... 100,000 1,875,000
------------
HEALTH CARE SUPPLIES 2.4%
Millipore Corp. (a)......................................... 100,000 6,933,000
------------
HOME ENTERTAINMENT SOFTWARE 1.7%
Electronic Arts, Inc. (a)................................... 95,000 4,937,150
------------
INTERNET RETAIL 3.7%
eBay, Inc. (a).............................................. 200,000 8,012,000
VistaPrint Ltd. (Bermuda) (a)............................... 75,000 2,712,000
------------
10,724,000
------------
INTERNET SOFTWARE & SERVICES 5.4%
Google, Inc., Class A (a)................................... 25,000 9,065,500
Yahoo!, Inc. (a)............................................ 200,000 6,412,000
------------
15,477,500
------------
IT CONSULTING & OTHER SERVICES 0.9%
Satyam Computer Services Ltd.--ADR (India).................. 60,000 2,469,000
------------
MANAGED HEALTH CARE 1.4%
Healthspring, Inc. (a)...................................... 165,000 3,894,000
------------
SEMICONDUCTOR EQUIPMENT 5.4%
Applied Materials, Inc. .................................... 100,000 1,834,000
KLA-Tencor Corp. ........................................... 95,000 4,961,850
Lam Research Corp. (a)...................................... 95,000 4,094,500
</Table>
See Notes to Financial Statements 9
VAN KAMPEN TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (CONTINUED)
Novellus Systems, Inc. (a).................................. 105,000 $ 2,806,650
Teradyne, Inc. (a).......................................... 100,000 1,679,000
------------
15,376,000
------------
SEMICONDUCTORS 15.2%
Advanced Micro Devices, Inc. (a)............................ 105,000 4,060,350
Altera Corp. (a)............................................ 110,000 2,204,400
Analog Devices, Inc. ....................................... 100,000 3,814,000
Broadcom Corp., Class A (a)................................. 150,000 6,763,500
Cypress Semiconductor Corp. (a)............................. 100,000 1,776,000
Integrated Device Technology, Inc. (a)...................... 125,000 1,856,250
Intel Corp. ................................................ 100,000 2,060,000
Linear Technology Corp. .................................... 100,000 3,686,000
Marvell Technology Group Ltd. (Bermuda) (a)................. 55,000 3,367,100
Maxim Integrated Products, Inc. ............................ 105,000 4,104,450
Micron Technology, Inc. (a)................................. 100,000 1,551,000
National Semiconductor Corp. ............................... 100,000 2,805,000
Texas Instruments, Inc. .................................... 100,000 2,985,000
Xilinx, Inc. ............................................... 100,000 2,728,000
------------
43,761,050
------------
SPECIALIZED FINANCE 0.7%
Chicago Mercantile Exchange Holdings, Inc. ................. 5,000 2,128,000
------------
SYSTEMS SOFTWARE 3.3%
McAfee, Inc. (a)............................................ 100,000 2,326,000
Microsoft Corp. ............................................ 200,000 5,380,000
Symantec Corp. (a).......................................... 100,000 1,689,000
------------
9,395,000
------------
TOTAL INVESTMENTS 100.3%
(Cost $227,319,733).................................................. 287,986,400
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%).......................... (956,070)
------------
NET ASSETS 100.0%..................................................... $287,030,330
============
</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
10 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2006 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $227,319,733)....................... $ 287,986,400
Receivables:
Investments Sold.......................................... 1,424,758
Fund Shares Sold.......................................... 196,921
Dividends................................................. 100,300
Other....................................................... 64,301
---------------
Total Assets............................................ 289,772,680
---------------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 683,088
Fund Shares Repurchased................................... 629,114
Custodian Bank............................................ 602,033
Investment Advisory Fee................................... 199,848
Accrued Expenses............................................ 525,247
Trustees' Deferred Compensation and Retirement Plans........ 103,020
---------------
Total Liabilities....................................... 2,742,350
---------------
NET ASSETS.................................................. $ 287,030,330
===============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 1,783,566,302
Net Unrealized Appreciation................................. 60,666,667
Accumulated Net Investment Loss............................. (3,486,259)
Accumulated Net Realized Loss............................... (1,553,716,380)
---------------
NET ASSETS.................................................. $ 287,030,330
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $116,503,300 and 21,923,645 shares of
beneficial interest issued and outstanding)............. $ 5.31
Maximum sales charge (5.75%* of offering price)......... .32
---------------
Maximum offering price to public........................ $ 5.63
===============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $140,001,913 and 27,741,026 shares of
beneficial interest issued and outstanding)............. $ 5.05
===============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $30,525,117 and 6,047,563 shares of
beneficial interest issued and outstanding)............. $ 5.05
===============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 11
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $88)......... $ 544,911
Interest.................................................... 7,668
-----------
Total Income............................................ 552,579
-----------
EXPENSES:
Shareholder Services........................................ 1,384,279
Investment Advisory Fee..................................... 1,286,848
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $140,367, $706,342 and $154,134,
respectively)............................................. 1,000,843
Custody..................................................... 33,665
Legal....................................................... 27,199
Trustees' Fees and Related Expenses......................... 12,861
Other....................................................... 214,540
-----------
Total Expenses.......................................... 3,960,235
Less Credits Earned on Cash Balances.................... 4,310
-----------
Net Expenses............................................ 3,955,925
-----------
NET INVESTMENT LOSS......................................... $(3,403,346)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $21,625,853
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 55,412,586
End of the Period......................................... 60,666,667
-----------
Net Unrealized Appreciation During the Period............... 5,254,081
-----------
NET REALIZED AND UNREALIZED GAIN............................ $26,879,934
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $23,476,588
===========
</Table>
12 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss..................................... $ (3,403,346) $ (6,536,596)
Net Realized Gain....................................... 21,625,853 44,721,331
Net Unrealized Appreciation During the Period........... 5,254,081 29,009,451
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 23,476,588 67,194,186
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................... 12,650,904 23,480,547
Cost of Shares Repurchased.............................. (38,790,856) (91,076,789)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...... (26,139,952) (67,596,242)
------------ ------------
TOTAL DECREASE IN NET ASSETS............................ (2,663,364) (402,056)
NET ASSETS:
Beginning of the Period................................. 289,693,694 290,095,750
------------ ------------
End of the Period (Including accumulated net investment
loss of $3,486,259 and $82,913, respectively)......... $287,030,330 $289,693,694
============ ============
</Table>
See Notes to Financial Statements 13
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS A SHARES FEBRUARY 28, -----------------------------------------------
2006 2005 2004 2003 2002 2001
---------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 4.89 $ 3.88 $ 3.93 $ 2.90 $ 5.49 $ 26.81
------ ------ ------ ------ ------- -------
Net Investment Loss (a)... (.05) (.08) (.09) (.08) (.11) (.18)
Net Realized and
Unrealized Gain/Loss.... .47 1.09 .04 1.11 (2.48) (21.14)
------ ------ ------ ------ ------- -------
Total from Investment
Operations................ .42 1.01 (.05) 1.03 (2.59) (21.32)
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 5.31 $ 4.89 $ 3.88 $ 3.93 $ 2.90 $ 5.49
====== ====== ====== ====== ======= =======
Total Return (b)............ 8.59%* 26.03% -1.27% 35.52% -47.18% -79.51%
Net Assets at End of the
Period (In millions)...... $116.5 $113.1 $108.7 $125.3 $ 103.5 $ 198.8
Ratio of Expenses to Average
Net Assets................ 2.30% 2.42% 2.34% 2.88% 2.39% 1.65%
Ratio of Net Investment Loss
to Average Net Assets..... (1.91%) (1.72%) (2.13%) (2.73%) (2.31%) (1.48%)
Portfolio Turnover.......... 43%* 93% 180% 152% 142% 274%
</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 the redemption of Fund shares.
14 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS B SHARES FEBRUARY 28, -----------------------------------------------
2006 2005 2004 2003 2002 2001
---------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41 $ 26.59
------ ------ ------ ------ ------- -------
Net Investment Loss (a)... (.06) (.11) (.12) (.10) (.14) (.28)
Net Realized and
Unrealized Gain/Loss.... .45 1.04 .04 1.08 (2.44) (20.90)
------ ------ ------ ------ ------- -------
Total from Investment
Operations................ .39 .93 (.08) .98 (2.58) (21.18)
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 5.05 $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41
====== ====== ====== ====== ======= =======
Total Return (b)............ 8.37%* 24.93% -2.10% 34.63% -47.69% -79.65%
Net Assets at End of the
Period (In millions)...... $140.0 $144.8 $146.7 $172.7 $ 133.8 $ 288.4
Ratio of Expenses to Average
Net Assets................ 3.08% 3.19% 3.11% 3.65% 3.16% 2.40%
Ratio of Net Investment Loss
to Average Net Assets..... (2.69%) (2.49%) (2.91%) (3.50%) (3.08%) (2.24%)
Portfolio Turnover.......... 43%* 93% 180% 152% 142% 274%
</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.
See Notes to Financial Statements 15
VAN KAMPEN TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS C SHARES FEBRUARY 28, -----------------------------------------------
2006 2005 2004 2003 2002 2001
---------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41 $ 26.59
------ ------ ------ ------ ------- -------
Net Investment Loss (a)... (.06) (.11) (.12) (.10) (.14) (.28)
Net Realized and
Unrealized Gain/Loss.... .45 1.04 .04 1.08 (2.44) (20.90)
------ ------ ------ ------ ------- -------
Total from Investment
Operations................ .39 .93 (.08) .98 (2.58) (21.18)
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 5.05 $ 4.66 $ 3.73 $ 3.81 $ 2.83 $ 5.41
====== ====== ====== ====== ======= =======
Total Return (b)............ 8.37%* 24.93% -2.10% 34.63% -47.69% -79.65%
Net Assets at End of the
Period (In millions)...... $ 30.5 $ 31.8 $ 34.7 $ 43.4 $ 34.7 $ 80.3
Ratio of Expenses to Average
Net Assets................ 3.08% 3.19% 3.11% 3.66% 3.16% 2.40%
Ratio of Net Investment Loss
to Average Net Assets..... (2.69%) (2.49%) (2.91%) (3.51%) (3.08%) (2.23%)
Portfolio Turnover.......... 43%* 93% 180% 152% 142% 274%
</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.
16 See Notes to Financial Statements
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Technology Fund (the "Fund") is organized as a series of Van Kampen
Equity Trust II (the "Trust"), a Delaware statutory trust, and is registered as
a diversified, open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment
objective is to seek capital appreciation. The Fund commenced investment
operations on July 26, 1999. The Fund offers Class A shares, Class B shares and
Class C shares. Each class of shares differs by its initial sales load,
contingent deferred sales charges, the allocation of class-specific expenses and
voting rights on matters affecting a single class.
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
17
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) 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. 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 February 28, 2006, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $230,361,691
============
Gross tax unrealized appreciation........................... $ 64,426,942
Gross tax unrealized depreciation........................... (6,802,233)
------------
Net tax unrealized appreciation on investments.............. $ 57,624,709
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are included as ordinary income for tax purposes.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
F. EXPENSE REDUCTIONS During the six months ended February 28, 2006, the Fund's
custody fee was reduced by $4,310 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>
For the six months ended February 28, 2006, the Fund recognized expenses of
approximately $3,900 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.
18
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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 six months ended February 28,
2006, the Fund recognized expenses of approximately $36,000 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 six months ended
February 28, 2006, the Fund recognized expenses of approximately $1,233,300,
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and trustees of the Fund are also officers and 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 $55,073 are included in
"Other" assets on the Statement of Assets and Liabilities at February 28, 2006.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund. Benefits under the
retirement plan are payable upon retirement for a ten-year period and are based
upon each trustee's years of service to the Fund. The maximum annual benefit per
trustee under the plan is $2,500.
For the six months ended February 28, 2006, the Fund paid brokerage
commissions to Morgan Stanley DW Inc., an affiliate of the Adviser, totaling
$58,682.
For the six months ended February 28, 2006, Van Kampen, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $25,100 and CDSC on redeemed shares of approximately $83,400.
Sales charges do not represent expenses to the Fund.
19
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
3. CAPITAL TRANSACTIONS
For the six months ended February 28, 2006 and the year ended August 31, 2005,
transactions were as follows:
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- ---------------------------
SHARES VALUE SHARES VALUE
Sales:
Class A................... 1,635,948 $ 8,343,226 3,114,080 $ 13,893,091
Class B................... 700,418 3,434,693 1,905,158 8,110,653
Class C................... 178,712 872,985 348,186 1,476,803
---------- ------------ ----------- ------------
Total Sales................. 2,515,078 $ 12,650,904 5,367,424 $ 23,480,547
========== ============ =========== ============
Repurchases:
Class A................... (2,863,180) $(14,574,532) (7,975,539) $(35,579,787)
Class B................... (4,052,157) (19,619,074) (10,177,343) (43,436,122)
Class C................... (952,226) (4,597,250) (2,824,822) (12,060,880)
---------- ------------ ----------- ------------
Total Repurchases........... (7,867,563) $(38,790,856) (20,977,704) $(91,076,789)
========== ============ =========== ============
</Table>
4. REDEMPTION FEE
The Fund will assess a 2% redemption fee on the proceeds of Fund shares that are
redeemed (either by sale or exchange) within 30 days of purchase. The redemption
fee is paid directly to the Fund. For the six months ended February 28, 2006,
the Fund received redemption fees of approximately $1,700, which are reported as
part of "Cost of Shares Repurchased" in the Statement of Changes in Net Assets.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $124,628,365 and $154,529,895,
respectively.
6. DISTRIBUTION AND SERVICE PLANS
Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"),
an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively,
the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate
the Distributor for the distribution, shareholder servicing and maintenance of
shareholder accounts for these shares. Under the Plans, the Fund will incur
annual fees 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. These fees are accrued
daily and paid to the Distributor monthly.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed receivable") was approximately $26,672,900 and
$211,000 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, the distribution
fee is reduced.
20
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
7. 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
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 defendants have moved to dismiss this action and otherwise intend to
defend it vigorously.
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. Defendants moved to dismiss the complaint and intend
otherwise to vigorously defend it. Plaintiff 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 moved to dismiss this matter, which motion
was granted in part and denied in part. Defendants moved for reconsideration of
those claims that were denied. Plaintiff subsequently dismissed the trustee
defendants from the action, in exchange for the execution of a tolling agreement
by the trustees permitting plaintiff to bring the same claims against the
trustees at a later date should plaintiff deem necessary.
While the defendants believe that they have meritorious defenses, the
ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of these matters.
21
VAN KAMPEN TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) 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.
22
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
AMY R. DOBERMAN
Vice President
J. DAVID GERMANY
Vice President
DENNIS SHEA
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
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
One Lincoln Street
Boston, Massachusetts 02111
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.
23
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.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2006 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
77, 177, 277
TECH SAR 4/06
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-00908P-Y02/06
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
International Advantage Fund performed during the semiannual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of February 28, 2006.
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 02/28/06
<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
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE CHARGES
Since Inception 12.27% 10.78% 11.48% 11.24% 11.73% 11.73% 13.21%
1-year 16.11 9.42 15.25 10.25 15.26 14.26 NA
6-month 14.91 8.27 14.50 9.50 14.52 13.52 15.10
- ---------------------------------------------------------------------------------------------------
</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 Index ex-USA is 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 SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
MARKET CONDITIONS
Although global economic growth began to show signs of slowing, stock markets
performed well in the six-month period. Mounting inflationary pressures were
also a cause for concern, given the high commodity prices for energy and raw
materials and rising global interest rates. The U.S. economy remained on a
moderate pace, withstanding the Gulf Coast hurricanes without falling into
recession. This resilience helped sustain international economies, which rely to
a considerable extent on the spending appetites of the U.S. consumer.
Japan's economy showed further improvements during the period. While conditions
had been progressing for most of 2005, the reelection of Prime Minister Koizumi
in September prompted a sharp advance in Japan's stock market. Koizumi's postal
privatization bill and the prospects for additional reforms bolstered investor
confidence and attracted foreign investment. In fact, by the end of the
reporting period, Japan's market began to appear overvalued relative to other
international markets.
In Europe, a sluggish economy began to gain momentum. After leaving interest
rates untouched for nearly two years, the European Central Bank acknowledged the
pick-up in economic activity with an interest rate hike. Export strength was a
key driver of growth, due to robust demand from Eastern Europe, Asia and the
United States. Germany's stock market initially reflected disappointment in its
election results, but the new administration gradually came to be accepted as a
potential long-term positive. In the United Kingdom, consumer trends, which had
been weak since the collapse of the U.K. real estate market, did stabilize.
Emerging markets continued to generate very strong gains. High commodity prices
bolstered many economies, as some emerging market countries are among the
world's leaders in the production of certain commodities. The region continued
to attract foreign investment, given the strong fundamentals, cheap valuations,
and rising corporate earnings.
2
PERFORMANCE ANALYSIS
The fund returned 14.91 percent for the six months ended February 28, 2006
(Class A shares, unadjusted for sales charges), underperforming its benchmark,
the MSCI All Country (AC) World Free Index ex-USA, which returned 16.98 percent
for the period.
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
<Table>
<Caption>
- -----------------------------------------------------------------
MSCI AC
WORLD FREE
CLASS A CLASS B CLASS C CLASS I INDEX EX-USA
14.91% 14.50% 14.52% 15.10% 16.98%
- -----------------------------------------------------------------
</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, and
index definition.
Relative to the benchmark, significant contributors to positive performance came
from strong stock selection among the financials, transportation, and health
care sectors. In financials, Asian banks generated outsized gains as many Asian
economies were strengthening or were already strong relative to other world
economies. Within the transportation sector, the fund's exposure to airline
stocks in Asia and Latin America benefited from key trends. Increased
competition from budget carriers had less impact on the Asian legacy carriers
than on legacy carriers in other countries. In Latin America, sentiment improved
regarding the damage caused by the 2005 hurricane season, and tourism
rebuilding -- especially in Mexico-- provided a positive backdrop for
airline-related holdings in the region. Health care holdings that added to
relative gains were primarily small health care companies involved in drug
discovery and other cutting-edge developments. These more nimble innovators
produced better growth than their large-cap counterparts, as the smaller
companies' prospects have not been dampened by ongoing patent litigation and
generic competition.
In contrast, the fund lost ground in its telecommunications holdings, as
European telecom carriers continued to struggle in a changing industry
landscape. Rising competition from wireless and cable providers continued to
stifle growth at the large, landline carriers. The fund's capital goods stocks,
whose performance is tied strongly to economic cycles, languished in a slowing
global economy. Another area of weakness for the fund was in food and staples
retailing. The rising costs of energy, transportation, and packaging--combined
with the inability to pass these costs through to consumers--resulted in
compressed profit margins for companies in this industry.
In December 2005, a new management team took the fund's helm. As outlined in the
prospectus, our team uses a bottom-up investment approach that
3
emphasizes security selection and disposition on an individual company basis. We
seek growth companies, focusing on securities believed to offer strong business
fundamentals at an attractive valuation.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the fund in
the future.
4
<Table>
<Caption>
TOP 10 HOLDINGS AS OF 2/28/06
Standard Chartered Plc 3.2%
Esprit Holdings, Ltd. 3.0
Singapore Airlines, Ltd. 2.5
SABMiller Plc 2.5
UniCredito Italiano S.p.A. 2.4
Angiotech Pharmaceuticals, Inc. 2.4
Hypo Real Estate Holding, AG 2.4
Shire Plc 2.3
Li & Fung, Ltd. 2.3
Gestevision Telecinco, SA 2.3
<Caption>
SUMMARY OF INVESTMENTS BY COUNTRY CLASSIFICATION AS OF 2/28/06
United Kingdom 15.9%
Spain 11.1
Bermuda 9.2
Germany 8.3
Australia 7.1
Singapore 6.3
Canada 4.5
Taiwan-Republic of China 3.9
Japan 3.8
Mexico 3.7
Italy 3.4
Switzerland 3.2
Greece 3.1
Denmark 2.1
British Virgin Islands 1.8
South Africa 1.5
Hong Kong 1.5
Israel 1.5
Cayman Islands 1.5
Ireland 1.1
Brazil 0.8
-----
Total Long-Term Investments 95.3%
Short-Term Investments 3.5
Foreign Currency 1.1
Other Assets in Excess of Liabilities 0.1
-----
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 (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 (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 (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 (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 without charge 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 Class 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 costs (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 9/01/05 - 2/28/06.
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 cost would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------------------------------------------
9/1/05 2/28/06 9/1/05-2/28/06
Class A
Actual...................................... $1,000.00 $1,149.07 $8.79
Hypothetical................................ 1,000.00 1,016.59 8.25
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,145.00 12.76
Hypothetical................................ 1,000.00 1,012.89 11.98
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,145.22 12.77
Hypothetical................................ 1,000.00 1,012.89 11.98
(5% annual return before expenses)
Class I
Actual...................................... 1,000.00 1,150.98 7.47
Hypothetical................................ 1,000.00 1,017.79 7.00
(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 181/365 (to reflect
the one-half year period). These ratios reflect an expense waiver.
Assumes all dividends and distributions were reinvested.
8
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCKS 95.3%
AUSTRALIA 7.1%
A.B.C. Learning Centres, Ltd. .............................. 435,923 $ 2,445,401
Computershare, Ltd. ........................................ 571,800 2,864,475
DCA Group, Ltd. ............................................ 809,800 2,104,230
McGuigan Simeon Wines, Ltd. ................................ 871,100 1,991,313
------------
9,405,419
------------
BERMUDA 9.2%
Axis Capital Holdings, Ltd. ................................ 77,144 2,388,378
Esprit Holdings, Ltd. ...................................... 511,000 3,922,355
Li & Fung, Ltd. ............................................ 1,540,000 3,105,243
Willis Group Holdings, Ltd. ................................ 80,700 2,779,308
------------
12,195,284
------------
BRAZIL 0.8%
Petroleo Brasileiro, SA--ADR (a)............................ 12,509 1,095,038
------------
BRITISH VIRGIN ISLANDS 1.8%
Nam Tai Electronics, Inc. .................................. 109,000 2,395,820
------------
CANADA 4.5%
Angiotech Pharmaceuticals, Inc. (a)......................... 208,100 3,231,793
SunOpta, Inc. (a)........................................... 365,400 2,751,462
------------
5,983,255
------------
CAYMAN ISLANDS 1.5%
Global Bio-chem Technology Group Co., Ltd. ................. 3,542,000 1,996,417
------------
DENMARK 2.1%
Danske Bank A/S............................................. 76,600 2,731,376
------------
GERMANY 8.3%
Adidas-Salomon, AG.......................................... 14,716 2,876,406
Grenkeleasing, AG........................................... 13,512 805,645
Hypo Real Estate Holding, AG................................ 47,869 3,145,308
Schering, AG................................................ 37,600 2,700,963
United Internet, AG......................................... 29,550 1,460,985
------------
10,989,307
------------
GREECE 3.1%
Cosmote Mobile Telecommunications, SA....................... 82,910 1,777,162
Germanos, SA................................................ 112,890 2,355,973
------------
4,133,135
------------
HONG KONG 1.5%
Lenovo Group, Ltd. ......................................... 5,002,000 2,051,973
------------
IRELAND 1.1%
ICON Plc--ADR (a)........................................... 29,800 1,430,400
------------
</Table>
See Notes to Financial Statements 9
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------
ISRAEL 1.5%
Teva Pharmaceutical Industries, Ltd.--ADR................... 48,668 $ 2,043,569
------------
ITALY 3.4%
Banca Monte dei Paschi di Siena S.p.A. (a).................. 253,816 1,312,356
UniCredito Italiano S.p.A. ................................. 446,039 3,243,117
------------
4,555,473
------------
JAPAN 3.8%
DAITO Trust Construction Co., Ltd. ......................... 60,100 2,820,730
OSG Corp. .................................................. 122,700 2,277,008
------------
5,097,738
------------
MEXICO 3.7%
Fomento Economico Mexicano SA de CV, Class B--ADR........... 25,400 2,209,546
Grupo Aeroportuario del Sureste SA de CV, Class B--ADR...... 80,600 2,719,444
------------
4,928,990
------------
SINGAPORE 6.3%
Cosco Corp., Ltd. .......................................... 3,560,000 2,595,000
Flextronics International, Ltd. (a)......................... 230,083 2,482,596
Singapore Airlines, Ltd. ................................... 363,000 3,291,349
------------
8,368,945
------------
SOUTH AFRICA 1.5%
Aspen Pharmacare Holdings, Ltd. (a)......................... 317,600 2,053,078
------------
SPAIN 11.1%
Antena 3 de Television, SA.................................. 110,300 2,925,358
Banco Bilbao Vizcaya Argentaria, SA......................... 98,502 2,005,228
Banco Santander Central Hispano, SA......................... 142,300 2,077,907
Gestevision Telecinco, SA................................... 123,941 3,023,551
Industria de Diseno Textil, SA.............................. 76,259 2,736,030
Telefonica, SA.............................................. 124,764 1,923,340
------------
14,691,414
------------
SWITZERLAND 3.2%
Kudelski, SA................................................ 57,100 1,607,766
UBS, AG..................................................... 24,823 2,631,559
------------
4,239,325
------------
TAIWAN-REPUBLIC OF CHINA 3.9%
Hon Hai Precision Industry Co., Ltd. ....................... 416,493 2,630,785
Taiwan Semiconductor Manufacturing Co., Ltd.--ADR........... 262,200 2,551,206
------------
5,181,991
------------
UNITED KINGDOM 15.9%
BP Plc...................................................... 262,336 2,894,783
Carnival Plc................................................ 33,758 1,856,080
Man Group Plc............................................... 71,667 2,904,486
Royal Bank of Scotland Group Plc............................ 85,018 2,845,444
SABMiller Plc............................................... 164,600 3,272,064
</Table>
10 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
Shire Plc................................................... 197,428 $ 3,109,157
Standard Chartered Plc...................................... 160,608 4,194,605
------------
21,076,619
------------
TOTAL LONG-TERM INVESTMENTS 95.3%
(Cost $120,599,423).................................................. 126,644,566
REPURCHASE AGREEMENT 3.5%
State Street Bank & Trust Co. ($4,635,000 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of
4.49%, dated 02/28/06, to be sold on 03/01/06 at $4,635,578)
(Cost $4,635,000).................................................... 4,635,000
------------
TOTAL INVESTMENTS 98.8%
(Cost $125,234,423).................................................. 131,279,566
FOREIGN CURRENCY 1.1%
(Cost $1,477,642).................................................... 1,482,747
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%............................ 105,910
------------
NET ASSETS 100.0%..................................................... $132,868,223
============
</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
Securities with total market value equal to $98,566,006 at February 28, 2006
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 11
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
Diversified Banks........................................... $ 18,410,033 13.9%
Pharmaceuticals............................................. 9,906,767 7.5
Electronic Manufacturing Services........................... 7,509,201 5.6
Apparel Retail.............................................. 6,658,386 5.0
Broadcasting & Cable TV..................................... 5,948,909 4.5
Integrated Oil & Gas........................................ 3,989,821 3.0
Airlines.................................................... 3,291,349 2.5
Brewers..................................................... 3,272,064 2.5
Biotechnology............................................... 3,231,793 2.4
Thrifts & Mortgage Finance.................................. 3,145,308 2.4
Distributors................................................ 3,105,243 2.3
Asset Management & Custody Banks............................ 2,904,486 2.2
Apparel, Accessories & Luxury Goods......................... 2,876,406 2.2
Data Processing & Outsourced Services....................... 2,864,475 2.2
Homebuilding................................................ 2,820,730 2.1
Insurance Brokers........................................... 2,779,308 2.1
Packaged Foods & Meats...................................... 2,751,462 2.1
Airport Services............................................ 2,719,444 2.0
Diversified Capital Markets................................. 2,631,559 2.0
Marine...................................................... 2,595,000 1.9
Semiconductors.............................................. 2,551,206 1.9
Education Services.......................................... 2,445,401 1.8
Property & Casualty Insurance............................... 2,388,378 1.8
Computer & Electronics Retail............................... 2,355,973 1.8
Industrial Machinery........................................ 2,277,008 1.7
Soft Drinks................................................. 2,209,546 1.7
Health Care Facilities...................................... 2,104,230 1.6
Computer Hardware........................................... 2,051,973 1.5
Agricultural Products....................................... 1,996,417 1.5
Distillers & Vintners....................................... 1,991,313 1.5
Integrated Telecommunication Services....................... 1,923,339 1.4
Hotels, Resorts & Cruise Lines.............................. 1,856,080 1.4
Wireless Telecommunication Services......................... 1,777,162 1.3
Electronic Equipment Manufacturers.......................... 1,607,766 1.2
Internet Software & Services................................ 1,460,985 1.1
Health Care Services........................................ 1,430,400 1.1
Specialized Finance......................................... 805,645 0.6
------------ ----
$126,644,566 95.3%
============ ====
</Table>
12 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2006 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $125,234,423)....................... $131,279,566
Foreign Currency (Cost $1,477,642).......................... 1,482,747
Cash........................................................ 701
Receivables:
Fund Shares Sold.......................................... 404,175
Dividends................................................. 169,717
Interest.................................................. 578
Other....................................................... 70,947
------------
Total Assets............................................ 133,408,431
------------
LIABILITIES:
Payables:
Distributor and Affiliates................................ 103,556
Investment Advisory Fee................................... 93,636
Fund Shares Repurchased................................... 92,993
Accrued Expenses............................................ 142,875
Trustees' Deferred Compensation and Retirement Plans........ 107,148
------------
Total Liabilities....................................... 540,208
------------
NET ASSETS.................................................. $132,868,223
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $111,334,244
Accumulated Net Realized Gain............................... 16,034,802
Net Unrealized Appreciation................................. 6,055,786
Accumulated Undistributed Net Investment Income............. (556,609)
------------
NET ASSETS.................................................. $132,868,223
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $89,246,042 and 6,306,658 shares of
beneficial interest issued and outstanding)............. $ 14.15
Maximum sales charge (5.75%* of offering price)......... .86
------------
Maximum offering price to public........................ $ 15.01
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $25,284,102 and 1,817,442 shares of
beneficial interest issued and outstanding)............. $ 13.91
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $8,881,849 and 632,174 shares of
beneficial interest issued and outstanding)............. $ 14.05
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $9,456,230 and 668,274 shares of
beneficial interest issued
and outstanding)........................................ $ 14.15
============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 13
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $48,399)..... $ 551,818
Interest.................................................... 81,858
-----------
Total Income............................................ 633,676
-----------
EXPENSES:
Investment Advisory Fee..................................... 541,025
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $97,059, $123,899, $40,160 and $0,
respectively)............................................. 261,118
Shareholder Services........................................ 115,355
Legal....................................................... 41,311
Custody..................................................... 35,256
Trustees' Fees and Related Expenses......................... 12,439
Other....................................................... 133,299
-----------
Total Expenses.......................................... 1,139,803
Investment Advisory Fee Reduction....................... 34,169
Less Credits Earned on Cash Balances.................... 2,921
-----------
Net Expenses............................................ 1,102,713
-----------
NET INVESTMENT LOSS......................................... $ (469,037)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $23,741,893
Foreign Currency Transactions............................. 113,767
-----------
Net Realized Gain........................................... 23,855,660
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 12,513,302
-----------
End of the Period:
Investments............................................. 6,045,143
Foreign Currency Translation............................ 10,643
-----------
6,055,786
-----------
Net Unrealized Depreciation During the Period............... (6,457,516)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $17,398,144
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $16,929,107
===========
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income/Loss.............................. $ (469,037) $ 692,763
Net Realized Gain....................................... 23,855,660 5,454,017
Net Unrealized Appreciation/Depreciation During the
Period................................................ (6,457,516) 3,694,959
------------ ------------
Change in Net Assets from Operations.................... 16,929,107 9,841,739
------------ ------------
Distributions from Net Investment Income:
Class A Shares........................................ (603,189) -0-
Class B Shares........................................ (41,489) -0-
Class C Shares........................................ (19,701) -0-
Class I Shares........................................ (86,931) -0-
------------ ------------
(751,310) -0-
------------ ------------
Distributions from Net Realized Gain:
Class A Shares........................................ (961,950) (827,264)
Class B Shares........................................ (308,151) (177,352)
Class C Shares........................................ (97,846) (100,428)
Class I Shares........................................ (113,455) -0-
------------ ------------
(1,481,402) (1,105,044)
------------ ------------
Total Distributions..................................... (2,232,712) (1,105,044)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 14,696,395 8,736,695
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................... 28,011,063 125,154,430
Net Asset Value of Shares Issued Through Dividend
Reinvestment.......................................... 2,148,825 1,086,482
Cost of Shares Repurchased.............................. (24,684,578) (40,471,985)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...... 5,475,310 85,768,927
------------ ------------
TOTAL INCREASE IN NET ASSETS............................ 20,171,705 94,505,622
NET ASSETS:
Beginning of the Period................................. 112,696,518 18,190,896
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of ($556,609) and $663,738,
respectively)......................................... $132,868,223 $112,696,518
============ ============
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS SEPTEMBER 26, 2001
ENDED YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS A SHARES FEBRUARY 28, ------------------------ OF OPERATIONS) TO
2006 2005 2004 2003 AUGUST 31, 2002
------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $12.56 $10.86 $ 9.83 $ 9.43 $ 10.00
------ ------ ------ ------ -------
Net Investment Income/Loss (a)... (.04) .13 .04 .09 .03
Net Realized and Unrealized
Gain/Loss...................... 1.89 2.14 .99 .88 (.28)
------ ------ ------ ------ -------
Total from Investment Operations... 1.85 2.27 1.03 .97 (.25)
------ ------ ------ ------ -------
Less:
Distributions from Net Investment
Income......................... .10 -0- -0- .57 .31
Distributions from Net Realized
Gain........................... .16 .57 -0- -0- .01
------ ------ ------ ------ -------
Total Distributions................ .26 .57 -0- .57 .32
------ ------ ------ ------ -------
NET ASSET VALUE, END OF THE
PERIOD........................... $14.15 $12.56 $10.86 $ 9.83 $ 9.43
====== ====== ====== ====== =======
Total Return (b)*.................. 14.91%** 21.36% 10.48% 11.20% -2.60%**
Net Assets at End of the Period (In
millions)........................ $ 89.2 $ 70.3 $ 13.9 $ 5.6 $ 1.6
Ratio of Expenses to Average Net
Assets (c)*...................... 1.65% 1.70% 1.72% 1.75% 1.78%
Ratio of Net Investment Income/Loss
to Average Net Assets*........... (.59%) 1.08% .38% .98% .33%
Portfolio Turnover................. 113%** 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)....................... 1.71% 1.97% 2.86% 4.85% 15.81%
Ratio of Net Investment Income/Loss
to Average Net Assets............ (.65%) .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. 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.
16 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS SEPTEMBER 26, 2001
ENDED YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS B SHARES FEBRUARY 28, ------------------------ OF OPERATIONS) TO
2006 2005 2004 2003 AUGUST 31, 2002
------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $12.32 $10.73 $ 9.77 $ 9.38 $ 10.00
------ ------ ------ ------ --------
Net Investment Income/Loss (a).... (.09) .05 (.03) -0-(d) (.04)
Net Realized and Unrealized
Gain/Loss....................... 1.86 2.11 .99 .89 (.27)
------ ------ ------ ------ --------
Total from Investment Operations.... 1.77 2.16 .96 .89 (.31)
------ ------ ------ ------ --------
Less:
Distributions from Net Investment
Income.......................... .02 -0- -0- .50 .30
Distributions from Net Realized
Gain............................ .16 .57 -0- -0- .01
------ ------ ------ ------ --------
Total Distributions................. .18 .57 -0- .50 .31
------ ------ ------ ------ --------
NET ASSET VALUE, END OF THE
PERIOD............................ $13.91 $12.32 $10.73 $ 9.77 $ 9.38
====== ====== ====== ====== ========
Total Return (b)*................... 14.50%** 20.57% 9.83% 10.40% -3.37%**
Net Assets at End of the Period (In
millions)......................... $ 25.3 $ 25.3 $ 2.6 $ 1.2 $ .9
Ratio of Expenses to Average Net
Assets (c)*....................... 2.40% 2.41% 2.35% 2.50% 2.53%
Ratio of Net Investment Income/Loss
to Average Net Assets*............ (1.34%) .42% (.28%) (.02%) (.45%)
Portfolio Turnover.................. 113%** 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)........................ 2.46% 2.66% 3.30% 5.60% 16.56%
Ratio of Net Investment Income/Loss
to Average Net Assets............. (1.40%) .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.
See Notes to Financial Statements 17
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS SEPTEMBER 26, 2001
ENDED YEAR ENDED AUGUST 31, (COMMENCEMENT
CLASS C SHARES FEBRUARY 28, ----------------------------- OF OPERATIONS) TO
2006 2005 2004 2003 AUGUST 31, 2002
-----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $12.45 $10.84 $ 9.77 $ 9.38 $ 10.00
------ ------ ------ ------ --------
Net Investment Income/Loss
(a)...................... (.09) .04 .07 -0-(d) (.04)
Net Realized and Unrealized
Gain/Loss................ 1.88 2.14 1.00 .89 (.27)
------ ------ ------ ------ --------
Total from Investment
Operations................. 1.79 2.18 1.07 .89 (.31)
------ ------ ------ ------ --------
Less:
Distributions from Net
Investment Income........ .03 -0- -0- .50 .30
Distributions from Net
Realized Gain............ .16 .57 -0- -0- .01
------ ------ ------ ------ --------
Total Distributions.......... .19 .57 -0- .50 .31
------ ------ ------ ------ --------
NET ASSET VALUE, END OF THE
PERIOD..................... $14.05 $12.45 $10.84 $ 9.77 $ 9.38
====== ====== ====== ====== ========
Total Return (b)*............ 14.52%** 20.54% 10.95%(e)(f) 10.40%(e) -3.37%**
Net Assets at End of the
Period (In millions)....... $ 8.9 $ 7.6 $ 1.7 $ .8 $ .6
Ratio of Expenses to Average
Net Assets (c)*............ 2.40% 2.40%(e) 1.77%(e) 2.50%(e) 2.53%
Ratio of Net Investment
Income/Loss to Average Net
Assets*.................... (1.34%) .34%(e) .59%(e)(f) .00%(e) (.44%)
Portfolio Turnover........... 113%** 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)............. 2.46% 2.67%(e) 2.92%(e) 5.60%(e) 16.56%
Ratio of Net Investment
Income/Loss to Average Net
Assets..................... (1.40%) .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%.
18 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS AUGUST 12, 2005
ENDED (COMMENCEMENT
CLASS I SHARES FEBRUARY 28, OF OPERATIONS) TO
2006 AUGUST 31, 2005
---------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $12.56(a) $12.77
------ ------
Net Investment Income/Loss............................... (.02) .01
Net Realized and Unrealized Gain/Loss.................... 1.90 (.22)
------ ------
Total from Investment Operations........................... 1.88 (.21)
------ ------
Less:
Distributions from Net Investment Income................. .13 -0-
Distributions from Net Realized Gain..................... .16 -0-
------ ------
Total Distributions........................................ .29 -0-
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $14.15 $12.56
====== ======
Total Return*.............................................. 15.10%** -1.64%**
Net Assets at End of the Period (In millions).............. $ 9.5 $ 9.4
Ratio of Expenses to Average Net Assets*................... 1.40% 1.40%
Ratio of Net Investment Income/Loss to Average Net
Assets*.................................................. (.34%) 1.00%
Portfolio Turnover......................................... 113%** 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.................... 1.46% 1.52%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................... (.40%) .88%
</Table>
** Non-Annualized
(a) Based on average shares outstanding.
See Notes to Financial Statements 19
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen International Advantage Fund (the "Fund") is organized as a series of
the Van Kampen Equity Trust II, a Delaware statutory trust, and is registered as
a diversified, open-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment
objective is to seek long-term capital appreciation through investments in a
diversified portfolio of equity securities of foreign issuers. The Fund
commenced investment operations on September 26, 2001. The Fund offers Class A
Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares
differs by its initial sales load, contingent deferred sales charges, the
allocation of class-specific expenses and voting rights on matters affecting a
single class.
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.
20
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
C. INCOME AND EXPENSES Dividend income is recorded net of applicable withholding
taxes on the ex-dividend date and interest income is recorded on an accrual
basis. Income and expenses of the Fund are allocated on a pro rata basis to each
class of shares, except for distribution and service fees and 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.
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 or all of this capital loss carryforward was acquired due to merger
with another regulated investment company, please see Footnote 3 for details.
At February 28, 2006, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $125,243,776
============
Gross tax unrealized appreciation........................... $ 8,090,961
Gross tax unrealized depreciation........................... (2,055,171)
------------
Net tax unrealized appreciation on investments.............. $ 6,035,790
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains, which are included in ordinary income for tax purposes.
The tax character of distributions paid during the year ended August 31,
2005 was as follows:
<Table>
Distribution paid from:
Ordinary income........................................... $ 567,257
Long-term capital gain.................................... 537,787
----------
$1,105,044
==========
</Table>
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>
21
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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 six months ended February 28, 2006, the Fund's
custody fee was reduced by $2,921 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 had entered into a subadvisory agreement with Morgan Stanley
Investment Management Ltd. (the "Subadviser", a wholly owned subsidiary of
Morgan Stanley) to provide advisory services to the Fund and the Adviser with
respect to the Fund's investments. The Adviser paid 50% of its investment
advisory fee to the Subadviser. Effective December 20, 2005 the Adviser
terminated the subadvisory agreement between the Adviser and the Subadviser. For
the six months ended February 28, 2006, the Adviser waived approximately $34,200
of its advisory fees. This waiver is voluntary and can be discontinued at any
time. This resulted in net expense ratios of 1.65%, 2.40%, 2.40%, and 1.40% for
Classes A, B, C and I Shares, respectively.
For the six months ended February 28, 2006, the Fund recognized expenses of
approximately $7,600 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 cost of these
services is allocated to each fund. For the six months ended February 28, 2006,
the fund recognized expenses of approximately $44,300 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,
22
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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 six months ended
February 28, 2006, the Fund recognized expenses of approximately $100,100
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are 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 $67,900 are
included in "Other" assets on the Statement of Assets and Liabilities at
February 28, 2006. Appreciation/depreciation and distributions received from
these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Fund. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Fund.
The maximum annual benefit per trustee under the plan is $2,500.
For the six months ended February 28, 2006, the Fund paid brokerage
commissions to Morgan Stanley DW Inc., an affiliate of the Adviser, totaling
$5,729.
For the six months ended February 28, 2006, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A Shares of
approximately $29,000 and CDSC on redeemed shares of approximately $14,300.
Sales charges do not represent expenses of the Fund.
23
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
3. CAPITAL TRANSACTIONS
For the six months ended February 28, 2006 and the year ended August 31, 2005,
transactions were as follows:
<Table>
<Caption>
FOR THE FOR THE
SIX MONTH ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
Sales:
Class A........................... 1,759,593 $ 23,464,945 6,633,520 $ 78,418,984
Class B........................... 225,144 2,969,398 2,531,294 29,371,781
Class C........................... 107,500 1,447,444 652,200 7,654,230
Class I........................... 9,683 129,276 760,363 9,709,435
---------- ------------ ---------- ------------
Total Sales......................... 2,101,920 $ 28,011,063 10,577,377 $125,154,430
========== ============ ========== ============
Dividend Reinvestment:
Class A........................... 113,734 $ 1,516,078 70,723 $ 819,023
Class B........................... 24,868 326,520 15,012 171,369
Class C........................... 7,982 105,841 8,326 96,090
Class I........................... 15,033 200,386 -0- -0-
---------- ------------ ---------- ------------
Total Dividend Reinvestment......... 161,617 $ 2,148,825 94,061 $ 1,086,482
========== ============ ========== ============
Repurchases:
Class A........................... (1,169,067) $(15,625,694) (2,380,253) $(29,225,852)
Class B........................... (489,700) (6,392,377) (733,945) (8,674,247)
Class C........................... (96,309) (1,286,013) (201,965) (2,406,638)
Class I........................... (103,622) (1,380,494) (13,183) (165,248)
---------- ------------ ---------- ------------
Total Repurchases................... (1,858,698) $(24,684,578) (3,329,346) $(40,471,985)
========== ============ ========== ============
</Table>
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
Prior to September 26, 2005, the Fund assessed a 2% redemption fee on the
proceeds of Class A Shares of the Fund that were redeemed (either by sale or
exchange) within 60 days of purchase. Effective September 26, 2005, the Fund
assesses a 2% redemption fee on the proceeds of Fund shares that are redeemed
(either by sale or exchange) within 30 days of purchase. The redemption fee is
paid directly to the Fund. For the six months ended February 28, 2006, the Fund
received redemption fees of approximately $1,100, which are reported as part of
"Cost of Shares Repurchased" in the Statement of Changes in Net Assets.
24
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $131,642,668 and $133,178,460,
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 February 28, 2006,
there were no forward foreign commitments outstanding.
7. DISTRIBUTION AND SERVICE PLANS
Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"),
an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively,
the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate
the Distributor for the distribution, shareholder servicing and maintenance of
shareholder accounts for these shares. Under the Plans, the Fund will incur
annual fees 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. These fees are accrued
daily and paid to the Distributor monthly.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed receivable") was approximately $295,200 and $15,300
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, the distribution fee is
reduced.
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.
25
VAN KAMPEN INTERNATIONAL ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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
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 defendants have moved to dismiss this action and otherwise intend to
defend it vigorously.
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. Defendants moved to dismiss the complaint and intend
otherwise to vigorously defend it. Plaintiff 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 moved to dismiss this matter, which motion
was granted in part and denied in part. Defendants moved for reconsideration of
those claims that were denied. Plaintiff subsequently dismissed the trustee
defendants from the action, in exchange for the execution of a tolling agreement
by the trustees permitting plaintiff to bring the same claims against the
trustees at a later date should plaintiff deem necessary.
While the defendants believe that they have meritorious defenses, the
ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of these matters.
26
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
J. DAVID GERMANY
Vice President
DENNIS SHEA
Vice President
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
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
One Lincoln Street
Boston, Massachusetts 02111
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.
27
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.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2006 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
185, 285, 385
IA SAR 4/06
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-00980P-Y02/06
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
American Franchise Fund performed during the semiannual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of February 28, 2006.
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 2/28/2006
<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
- -----------------------------------------------------------------------------------------------------------
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
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE CHARGES
Since Inception 8.48% 2.25% 7.85% 2.85% 7.86% 6.86% 8.59%
6-Month 6.67% 0.54% 6.26% 1.26% 6.26% 5.26% 6.88%
- -----------------------------------------------------------------------------------------------------------
</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 SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
MARKET CONDITIONS
The U.S. stock market's advance during the six-month period was moderated by a
number of factors. High oil prices, rising interest rates, and a slowing housing
market fuelled investors' concerns about decelerating economic growth and
inflationary pressures. The Gulf Coast hurricanes exacerbated fears of slowing
consumer spending, as oil and natural gas prices skyrocketed. The Federal Open
Market Committee (the Fed) continued raising its federal funds target rate.
These moves were unsurprising to the markets, but remained in the foreground of
investors' minds, particularly as the yield curve flattened and eventually
inverted. (An inverted yield curve means that the yields of short-term rates
exceed those of long-term rates, a condition that some believe portends economic
recession.)
Nonetheless, stronger periods of performance--particularly in November, as
post-hurricane sentiment brightened, and in January--offset declining periods
during the six months. Although fourth quarter gross domestic product was below
expectations, the economy remained on moderate pace and corporate profits
continued to be healthy.
In this environment, the broad market's best performing sectors for the six-
month period were materials, financials, and telecommunication services. The
most lagging sectors were consumer discretionary, utilities, and consumer
staples.
PERFORMANCE ANALYSIS
The fund returned 6.67 percent for the six months ended February 28, 2006 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the S&P 500(R) Index, returned 5.93 percent for the period.
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 2006
<Table>
<Caption>
- ------------------------------------------------------------
S&P
500(R)
CLASS A CLASS B CLASS C CLASS I INDEX
6.67% 6.26% 6.26% 6.88% 5.93%
- ------------------------------------------------------------
</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.
On a sector basis, the largest contributor to the fund's return was information
technology. The fund's exposure here is minimal, composed of a single holding in
Accenture. While most technology companies do not meet our stringent
2
investment criteria, Accenture has generated the quality franchise
characteristics we seek through its service-oriented--rather than high
technology oriented--business model. The consumer staples sector, in which the
fund holds a substantial collection of bottom-up stock picks, further added to
results. Positive performance came from individual stocks. In contrast, the
fund's sector allocation to consumer staples proved disadvantageous to returns.
Strong selection in pharmaceuticals stocks also drove gains. The fund's position
in U.S. wines and spirits manufacturer Brown-Forman benefited from a consumer
trend toward upgrading to premium spirits brands. Additionally, Reynolds America
was a standout holding, as easing litigation concerns throughout the year
boosted the stock.
On the negative side, primary detractors from performance included the fund's
zero allocations to financials and industrials, sectors that did well in the
broad market during the period. Consistent with our investment philosophy of
searching for companies with stable and durable business models, among other
characteristics, we have not invested in financials stocks. In our view,
financial companies' highly leveraged balance sheets are likely to increase the
volatility of stock price returns. Within the fund's consumer discretionary
sector, our selections in media stocks also detracted from returns, particularly
Clear Channel Communications and The New York Times. These and other media
stocks continued to underperform in a changing industry environment. Within the
past year, advertising budgets have shifted increasingly to alternative media
such as Internet portals and retailers, at the expense of traditional media
(newspapers, billboards, and radio). The challenge for traditional media
companies has been in evolving their business models to meet the Internet
threat. Another individual holding that slowed the fund's pace was IMS Health, a
leading market data and consulting services provider to the health care and
pharmaceutical industries.
Given the overall market environment, we note that the fund's outperformance
over the benchmark in this six-month period was somewhat unusual. Typically, we
would expect the fund to underperform in a market driven by sectors our
investment philosophy generally prevents the fund from holding. However, the
fund's portfolio of individually selected stocks served the fund well during
this period.
We remain committed to the American Franchise philosophy of seeking exceptional
quality at compelling value. Consistent with our commitment to minimizing
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 mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the fund in
the future. The information contained in this overview regarding specific
securities is for informational purposes only and should not be construed as a
recommendation to purchase or sell the securities mentioned.
3
<Table>
<Caption>
TOP TEN HOLDINGS OF 2/28/06
Altria Group, Inc. 7.4%
Kimberly-Clark Corp. 7.1
Pfizer, Inc. 6.8
Kellogg Co. 6.1
Cadbury Schweppes Plc 5.1
Reynolds American, Inc. 4.8
Thomson Corp. 4.6
Harley-Davidson, Inc. 4.6
Accenture, Ltd., Class A 4.6
New York Times Co., Class A 4.6
<Caption>
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 2/28/06
Packaged Foods & Meats 17.8%
Pharmaceuticals 13.1
Tobacco 12.2
Publishing 12.1
Household Products 10.9
IT Consulting & Other Services 4.6
Motorcycle Manufacturers 4.6
Broadcasting & Cable TV 3.8
Distillers & Vintners 2.9
Soft Drinks 2.9
Health Care Services 2.8
Personal Products 2.8
Fertilizers & Agricultural Chemicals 2.3
Movies & Entertainment 0.3
-----
Total Long-Term Investments 93.1%
Short-Term Investments 3.9
Other Assets in Excess of Liabilities 3.0
-----
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.
4
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 (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 (800) 847-2424.
5
HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate
mailings to the same address. The fund delivers a single copy of certain
shareholder documents to investors who share an address, even if the
accounts are registered under different names. The fund's prospectuses
and shareholder reports (including annual privacy notices) will be
delivered to you in this manner indefinitely unless you instruct us
otherwise. You can request multiple copies of these documents by either
calling (800) 341-2911 or writing to Van Kampen Investor Services at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor
Services has received your instructions, we will begin sending individual
copies for each account within 30 days.
PROXY VOTING 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 (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 without charge 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.
6
Expense Example
AMERICAN FRANCHISE FUND
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 09/01/05 - 02/28/06.
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*
------------------------------------------------
9/1/05 2/28/06 9/1/05-2/28/06
Class A
Actual...................................... $1,000.00 $1,066.72 $ 7.02
Hypothetical................................ 1,000.00 1,017.99 6.85
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,062.56 10.84
Hypothetical................................ 1,000.00 1,014.29 10.59
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,062.64 10.84
Hypothetical................................ 1,000.00 1,014.29 10.59
(5% annual return before expenses)
Class I
Actual...................................... 1,000.00 1,068.85 5.75
Hypothetical................................ 1,000.00 1,019.29 5.61
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 1.37%, 2.12%,
2.12%, and 1.12%, for Class A, B, C, and I Shares, respectively, multiplied
by the average account value over the period, multiplied by 181/365 (to
reflect the one-half year period). These ratios reflect an expense waiver.
Assumes all dividends and distributions were reinvested.
7
VAN KAMPEN AMERICAN FRANCHISE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
COMMON STOCKS 93.1%
BROADCASTING & CABLE TV 3.8%
Clear Channel Communications, Inc. ......................... 199,836 $ 5,655,359
------------
DISTILLERS & VINTNERS 2.9%
Brown-Forman Corp., Class B................................. 62,854 4,422,407
------------
FERTILIZERS & AGRICULTURAL CHEMICALS 2.3%
Scotts Miracle-Gro Co., Class A............................. 73,593 3,524,369
------------
HEALTH CARE SERVICES 2.8%
IMS Health, Inc. ........................................... 173,905 4,191,110
------------
HOUSEHOLD PRODUCTS 10.9%
Colgate-Palmolive Co. ...................................... 105,884 5,768,560
Kimberly-Clark Corp. ....................................... 180,880 10,704,478
------------
16,473,038
------------
IT CONSULTING & OTHER SERVICES 4.6%
Accenture, Ltd., Class A (Bermuda).......................... 211,347 6,902,593
------------
MOVIES & ENTERTAINMENT 0.3%
Live Nation, Inc. (a)....................................... 22,932 409,336
------------
MOTORCYCLE MANUFACTURERS 4.6%
Harley-Davidson, Inc. ...................................... 131,550 6,907,691
------------
PACKAGED FOODS & MEATS 17.8%
Cadbury Schweppes Plc (United Kingdom)...................... 748,854 7,629,700
Kellogg Co. ................................................ 208,356 9,232,254
McCormick & Co., Inc. ...................................... 158,187 5,193,279
Nestle, SA (Switzerland) (a)................................ 16,005 4,704,129
------------
26,759,362
------------
PERSONAL PRODUCTS 2.8%
Estee Lauder Co., Inc., Class A............................. 113,787 4,257,910
------------
PHARMACEUTICALS 13.1%
Bristol-Myers Squibb Co. ................................... 249,991 5,774,792
Merck & Co., Inc. .......................................... 106,294 3,705,409
Pfizer, Inc. ............................................... 391,820 10,261,766
------------
19,741,967
------------
PUBLISHING 12.1%
McGraw-Hill Co., Inc. ...................................... 80,888 4,294,344
New York Times Co., Class A................................. 244,558 6,901,427
Thomson Corp. (Canada)...................................... 181,800 6,950,214
------------
18,145,985
------------
SOFT DRINKS 2.9%
PepsiCo, Inc. .............................................. 74,574 4,408,069
------------
</Table>
8 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------------
TOBACCO 12.2%
Altria Group, Inc. ......................................... 155,742 $ 11,197,850
Reynolds American, Inc. .................................... 67,378 7,152,175
------------
18,350,025
------------
TOTAL LONG-TERM INVESTMENTS 93.1%
(Cost $132,325,370).................................................. 140,149,221
REPURCHASE AGREEMENT 3.9%
State Street Bank & Trust Co. ($5,910,000 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of
4.49%, dated 02/28/06, to be sold on 03/01/06 at $5,910,737)
(Cost $5,910,000).................................................... 5,910,000
------------
TOTAL INVESTMENTS 97.0%
(Cost $138,235,370).................................................. 146,059,221
OTHER ASSETS IN EXCESS OF LIABILITIES 3.0%............................ 4,589,471
------------
NET ASSETS 100.0%..................................................... $150,648,692
============
</Table>
Securities with total market value equal $12,333,829 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.
Percentages are calculated as a percentage of net assets.
(a) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements 9
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2006 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $138,235,370)....................... $146,059,221
Cash........................................................ 68
Receivables:
Investments Sold.......................................... 3,247,782
Fund Shares Sold.......................................... 2,418,835
Dividends................................................. 245,812
Interest.................................................. 737
Unamortized Offering Costs.................................. 61,438
Other....................................................... 2,221
------------
Total Assets............................................ 152,036,114
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 1,061,865
Distributor and Affiliates................................ 87,167
Investment Advisory Fee................................... 72,802
Accrued Expenses............................................ 155,358
Trustees' Deferred Compensation and Retirement Plans........ 10,230
------------
Total Liabilities....................................... 1,387,422
------------
NET ASSETS.................................................. $150,648,692
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $142,690,015
Net Unrealized Appreciation................................. 7,823,851
Accumulated Net Realized Gain............................... 142,894
Accumulated Undistributed Net Investment Income............. (8,068)
------------
NET ASSETS.................................................. $150,648,692
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $120,709,754 and 11,188,839 shares of
beneficial interest issued and outstanding)............. $ 10.79
Maximum sales charge (5.75% * of offering price)........ .66
------------
Maximum offering price to public........................ $ 11.45
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $13,252,878 and 1,235,169 shares of
beneficial interest issued and outstanding)............. $ 10.73
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $15,799,976 and 1,472,761 shares of
beneficial interest issued and outstanding)............. $ 10.73
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $886,084 and 82,046 shares of beneficial
interest issued and outstanding)........................ $ 10.80
============
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
10 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $9,848)...... $1,112,564
Interest.................................................... 187,191
----------
Total Income............................................ 1,299,755
----------
EXPENSES:
Investment Advisory Fee..................................... 363,350
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $104,570, $45,125, $53,915 and $0,
respectively)............................................. 203,610
Offering.................................................... 96,699
Shareholder Services........................................ 63,174
Legal....................................................... 18,529
Custody..................................................... 17,281
Trustees' Fees and Related Expenses......................... 10,076
Other....................................................... 89,535
----------
Total Expenses.......................................... 862,254
Investment Advisory Fee Reduction....................... 78,467
Less Credits Earned on Cash Balances.................... 9,199
----------
Net Expenses............................................ 774,588
----------
NET INVESTMENT INCOME....................................... $ 525,167
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 146,350
Foreign Currency Transactions............................. (3,456)
----------
Net Realized Gain........................................... 142,894
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 333,063
End of the Period......................................... 7,823,851
----------
Net Unrealized Appreciation During the Period............... 7,490,788
----------
NET REALIZED AND UNREALIZED GAIN............................ $7,633,682
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $8,158,849
==========
</Table>
See Notes to Financial Statements 11
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE PERIOD
FOR THE JUNE 23, 2005
SIX MONTHS ENDED (COMMENCEMENT OF
FEBRUARY 28, OPERATIONS) TO
2006 AUGUST 31, 2005
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 525,167 $ 39,159
Net Realized Gain...................................... 142,894 782
Net Unrealized Appreciation During the Period.......... 7,490,788 333,063
------------ -----------
Change in Net Assets from Operations................... 8,158,849 373,004
------------ -----------
Distributions from Net Investment Income:
Class A Shares....................................... (526,982) -0-
Class B Shares....................................... (51,724) -0-
Class C Shares....................................... (67,526) -0-
Class I Shares....................................... (575) -0-
------------ -----------
Total Distributions.................................... (646,807) -0-
------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 7,512,042 373,004
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 102,633,704 52,945,901
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 625,000 -0-
Cost of Shares Repurchased............................. (8,451,434) (4,989,525)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... 94,807,270 47,956,376
------------ -----------
TOTAL INCREASE IN NET ASSETS........................... 102,319,312 48,329,380
NET ASSETS:
Beginning of the Period................................ 48,329,380 -0-
------------ -----------
End of the Period (Including accumulated undistributed
net investment income of ($8,068) and $113,572,
respectively)........................................ $150,648,692 $48,329,380
============ ===========
</Table>
12 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
CLASS A SHARES
JUNE 23, 2005
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
FEBRUARY 28, AUGUST 31,
2006 2005
-------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $10.17 $10.00
------ ------
Net Investment Income (a)................................ .06 .02
Net Realized and Unrealized Gain......................... .62 .15
------ ------
Total from Investment Operations........................... .68 .17
Less Distributions from Net Investment Income.............. .06 -0-
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $10.79 $10.17
====== ======
Total Return* (b).......................................... 6.67%** 1.70%**
Net Assets at End of the Period (In millions).............. $120.7 $ 40.2
Ratio of Expenses to Average Net Assets* (c)............... 1.37% 1.38%
Ratio of Net Investment Income to Average Net Assets*...... 1.16% 1.03%
Portfolio Turnover......................................... 17%** 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)............. 1.52% 3.97%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................ 1.01% (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 .02% and .03% for the period ended
February 28, 2006 and August 31, 2005, respectively.
See Notes to Financial Statements 13
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
CLASS B SHARES
JUNE 23, 2005
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
FEBRUARY 28, AUGUST 31,
2006 2005
-------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $10.15 $10.00
------ ------
Net Investment Income (a)................................ .02 -0-(d)
Net Realized and Unrealized Gain......................... .61 .15
------ ------
Total from Investment Operations........................... .63 .15
Less Distributions from Net Investment Income.............. .05 -0-
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $10.73 $10.15
====== ======
Total Return* (b).......................................... 6.26%** 1.50%**
Net Assets at End of the Period (In millions).............. $ 13.3 $ 4.1
Ratio of Expenses to Average Net Assets* (c)............... 2.12% 2.13%
Ratio of Net Investment Income to Average Net Assets*...... .40% .27%
Portfolio Turnover......................................... 17%** 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)............. 2.27% 5.69%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................ .25% (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 .02% and .03% for the period ended
February 28, 2006 and August 31, 2005, respectively.
(d) Amount is less than $.01.
14 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
CLASS C SHARES
JUNE 23, 2005
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
FEBRUARY 28, AUGUST 31,
2006 2005
-------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $10.15 $10.00
------ ------
Net Investment Income (a)................................ .02 -0-(d)
Net Realized and Unrealized Gain......................... .61 .15
------ ------
Total from Investment Operations........................... .63 .15
Less Distributions from Net Investment Income.............. .05 -0-
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $10.73 $10.15
====== ======
Total Return* (b).......................................... 6.26%** 1.50%**
Net Assets at End of the Period (In millions).............. $ 15.8 $ 4.0
Ratio of Expenses to Average Net Assets* (c)............... 2.12% 2.13%
Ratio of Net Investment Income to Average Net Assets*...... .39% .25%
Portfolio Turnover......................................... 17%** 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)............. 2.27% 5.69%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................ .24% (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 .02% and .03% for the period ended
February 28, 2006 and August 31, 2005, respectively.
(d) Amount is less than $.01.
See Notes to Financial Statements 15
VAN KAMPEN AMERICAN FRANCHISE FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
CLASS I SHARES
JUNE 23, 2005
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
FEBRUARY 28, AUGUST 31,
2006 2005
-------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $10.17 $10.00
------ ------
Net Investment Income (a)................................ .08 .01
Net Realized and Unrealized Gain......................... .61 .16
------ ------
Total from Investment Operations........................... .69 .17
Less Distributions from Net Investment Income.............. .06 -0-
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $10.80 $10.17
====== ======
Total Return*.............................................. 6.88%** 1.60%**
Net Assets at End of the Period (In millions).............. $ .9 $ .1
Ratio of Expenses to Average Net Assets* (b)............... 1.12% 1.13%
Ratio of Net Investment Income to Average Net Assets*...... 1.51% .76%
Portfolio Turnover......................................... 17%** 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)............. 1.31% 6.94%
Ratio of Net Investment Income/Loss to Average Net
Assets................................................ 1.32% (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 .02% and .03% for the period ended
February 28, 2006 and August 31, 2005, respectively.
16 See Notes to Financial Statements
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
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. The Fund offers Class A Shares, Class B Shares, Class C Shares
and Class I Shares. Each class of shares differs by its initial sales load,
contingent deferred sales charges, the allocation of class-specific expenses and
voting rights on matters affecting a single class.
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 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 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.
17
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) 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 February 28, 2006, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $138,477,382
============
Gross tax unrealized appreciation........................... $ 8,535,224
Gross tax unrealized depreciation........................... (953,385)
------------
Net tax unrealized appreciation on investments.............. $ 7,581,839
============
</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. There
were no distributions paid during the period ended August 31, 2005.
As of August 31, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $116,346
Long-term capital gain...................................... -0-
</Table>
F. EXPENSE REDUCTIONS During the six months ended February 28, 2006, the Fund's
custody fee was reduced by $9,199 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 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.
H. OFFERING COSTS Offering costs are amortized, on a straight-line basis, over a
twelve-month period.
18
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) 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.......................................... .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 six months ended February 28, 2006,
the Adviser waived approximately $78,500 of its advisory fees. 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 net assets. This waiver is voluntary and can be
discontinued at any time.
For the six months ended February 28, 2006, the Fund recognized expenses of
approximately $400 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 six months ended February 28,
2006, the Fund recognized expenses of approximately $29,800, 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 six months ended
February 28, 2006, the Fund recognized expenses of approximately $61,300,
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and 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. Investments in such funds of $2,120 are included in
"Other" assets on the Statement of Assets and Liabilities at February 28, 2006.
Appreciation/depreciation and distributions received from these investments are
recorded with
19
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
an offsetting increase/decrease in the deferred compensation obligation and do
not affect the net asset value of the Fund. Benefits under the retirement plan
are payable upon retirement for a ten-year period and are based upon each
trustee's years of service to the Fund. The maximum annual benefit per trustee
under the plan is $2,500.
For the six months ended February 28, 2006, Van Kampen, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $294,400 and CDSC on redeemed shares of approximately $7,400.
Sales charges do not represent expenses of the Fund.
At February 28, 2006, 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
For the six months ended February 28, 2006 and the period ended August 31, 2005,
transactions were as follows:
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
------------------------- ------------------------
SHARES VALUE SHARES VALUE
Sales:
Class A............................. 7,901,623 $ 81,398,625 4,092,277 $41,312,018
Class B............................. 876,960 9,013,574 517,033 5,207,870
Class C............................. 1,117,174 11,444,007 513,803 5,176,205
Class I............................. 71,991 777,498 125,000 1,249,808
--------- ------------ --------- -----------
Total Sales........................... 9,967,748 $102,633,704 5,248,113 $52,945,901
========= ============ ========= ===========
Dividend Reinvestment:
Class A............................. 48,968 $ 511,223 -0- $ -0-
Class B............................. 4,827 50,201 -0- -0-
Class C............................. 6,058 63,001 -0- -0-
Class I............................. 55 575 -0- -0-
--------- ------------ --------- -----------
Total Dividend Reinvestment........... 59,908 $ 625,000 -0- $ -0-
========= ============ ========= ===========
Repurchases:
Class A............................. (713,813) $ (7,516,689) (140,216) $(1,417,480)
Class B............................. (45,989) (475,198) (117,662) (1,186,071)
Class C............................. (43,674) (459,547) (120,600) (1,218,724)
Class I............................. -0- -0- (115,000) (1,167,250)
--------- ------------ --------- -----------
Total Repurchases..................... (803,476) $ (8,451,434) (493,478) $(4,989,525)
========= ============ ========= ===========
</Table>
4. REDEMPTION FEE
The Fund will assess a 2% redemption fee on the proceeds of Fund shares that are
redeemed (either by sale or exchange) within seven days of purchase. The
redemption fee is paid directly to the Fund. For six months ended February 28,
2006, the Fund received redemption fees of approximately $400 which are reported
as part of "Cost of Shares Repurchased" in the Statement of Changes in Net
Assets.
20
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $109,590,251 and $15,996,210,
respectively.
6. DISTRIBUTION AND SERVICE PLANS
Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"),
an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively,
the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate
the Distributor for the distribution, shareholder servicing and maintenance of
shareholder accounts for these shares. Under the Plans, the Fund will incur
annual fees 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. These fees are accrued
daily and paid to the Distributor monthly.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed receivable") was approximately $287,900 and $79,600
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, the distribution fee is
reduced.
7. 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 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 defendants have moved to dismiss this action and otherwise intend to
defend it vigorously.
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
21
VAN KAMPEN AMERICAN FRANCHISE FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
damages. This complaint has been coordinated with the consolidated complaint
described in the preceding paragraph. Defendants moved to dismiss the complaint
and intend otherwise to vigorously defend it. Plaintiff 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 moved to dismiss this matter, which motion
was granted in part and denied in part. Defendants moved for reconsideration of
those claims that were denied. Plaintiff subsequently dismissed the trustee
defendants from the action, in exchange for the execution of a tolling agreement
by the trustees permitting plaintiff to bring the same claims against the
trustees at a later date should plaintiff deem necessary.
While the defendants believe that they have meritorious defenses, the
ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of these matters.
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.
22
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
J. DAVID GERMANY
Vice President
DENNIS SHEA
Vice President
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
One Lincoln Street
Boston, Massachusetts 02111
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.
23
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.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2006 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
146, 246, 346
AMFR SAR 4/06
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-00907P-Y02/06
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
International Growth Fund performed during the semiannual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of February 28, 2006.
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.
PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN VAN KAMPEN
INTERNATIONAL GROWTH FUND AND 1838 INTERNATIONAL EQUITY FUND, ON DECEMBER
16, 2005, VAN KAMPEN INTERNATIONAL GROWTH FUND ACQUIRED SUBSTANTIALLY ALL
OF THE ASSETS AND SUBSTANTIALLY ALL OF THE LIABILITIES OF THE 1838
INTERNATIONAL EQUITY FUND IN EXCHANGE FOR CLASS I SHARES OF VAN KAMPEN
INTERNATIONAL GROWTH FUND. AS A RESULT OF THE REORGANIZATION, CLASS I
SHARES OF VAN KAMPEN INTERNATIONAL GROWTH FUND ARE THE ACCOUNTING
SUCCESSOR OF THE 1838 INTERNATIONAL EQUITY 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 2/28/06
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 12/19/05 since 12/19/05 since 12/19/05 since 8/3/95
- -----------------------------------------------------------------------------------------------------
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
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 7.65% 1.49% 7.53% 2.53% 7.47% 6.47% 8.62%
10-year -- -- -- -- -- -- 8.85
5-year -- -- -- -- -- -- 8.21
1-year -- -- -- -- -- -- 22.88
For the period
11/1/05-2/28/06 -- -- -- -- -- -- 15.76
- -----------------------------------------------------------------------------------------------------
</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 do not include 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. Class I Shares may also be held in shareholder
accounts opened in connection with the reorganization of the 1838 International
Equity Fund into the Fund ("Reorganization Shareholders"). Reorganization
Shareholders may purchase additional Class I Shares of the Fund, either directly
or through the reinvestment of dividends. 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 EAFE Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US &
Canada. 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 PERIOD ENDED FEBRUARY 28, 2006
NOTE: This discussion covers the period from the fund's prior fiscal year end of
October 31, 2005 through February 28, 2006.
MARKET CONDITIONS
In the four-month period ended February 28, 2006, concerns about slowing global
economic growth and mounting inflationary pressures did little to dampen the
advance of international markets. Japan bested all other countries represented
in the MSCI EAFE Index by a wide margin. The Japanese market rallied very
strongly on improved sentiment that the country may be coming out of its
long-suffering economic quagmire. In September, the reelection of Prime Minister
Koizumi and anticipation of additional reform garnered the attention of both
domestic and foreign investors alike. The Nikkei 225 closed 2005 with its best
performance since 1986 and at its highest level since October 4, 2000, fueled in
part by the return of the individual investor. By January, the Japanese economy
appeared to be finally and decisively getting on track, expanding in the fourth
quarter at five times the rate of the prior quarter. A significant aspect of
this recovery is that consumer spending accounted for a large part of the
increase--a crucial element lacking in past recoveries. Moreover, consumer
confidence in Japan registered a 15-year high.
An uptick in the European economy prompted the European Central Bank to raise
interest rates for the first time in two years. Healthy demand for exports,
particularly to Eastern Europe, Asia, and the United States, supported economic
growth. In the United Kingdom, languishing consumer trends began to stabilize
after the cooling of its real estate market. Germany's market improved during
the course of the reporting period, as investors reconciled their initial
disappointment over the election results and upbeat economic news buoyed
sentiment.
The emerging markets continued their strong showing of the past few years. High
commodity prices supported the region's commodity-driven economies. Investors
favored the region's faster-growing economies and relatively inexpensive stock
valuations. Asian emerging markets performed with particular strength, as their
economies were less affected by high oil prices and rising interest rates.
2
PERFORMANCE ANALYSIS
The fund returned 15.76 percent for the period from November 1, 2005 through
February 28, 2006 (Class I shares). In comparison, the fund's benchmark, the
MSCI EAFE Index, returned 12.91 percent for the same period.
TOTAL RETURN FOR THE PERIOD FROM NOVEMBER 1, 2005 THROUGH FEBRUARY 28, 2006
<Table>
<Caption>
- -------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I MSCI EAFE INDEX
7.65%* 7.53%* 7.47%* 15.76% 12.91%
- -------------------------------------------------------------------
</Table>
*Class A, B and C shares have an inception date of December 19, 2005. For these
share classes, the total returns shown above are for the period since their
inception through February 28, 2006.
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 and
index definition.
Relative to the benchmark, the fund's performance in Japan was strong, mostly in
its exposure to Japanese financial services and materials stocks. The financials
sector benefited from rising real estate prices and investors' renewed interest
in the Japanese stock market. Investors began to anticipate that sustainable
economic growth--in conjunction with an end to deflation--may finally return to
Japan after an extended absence. In the materials sector, positive company-
specific fundamentals and accelerating demand boosted the fund's exposure to
specialty product providers.
Within the fund's European holdings, significant contributions to positive
results came from stock selections in Germany. Against a backdrop of improving
business confidence, the fund's financial services and industrials sectors
generated outsized gains during the period. Auto components exposure also added
to the fund's return.
In the emerging markets region, stock selection in health care and financial
services served the fund well. Company-specific factors enhanced gains in the
fund's generic drug exposure. A favorable industry environment supported the
fund's banking holdings. Improving creditworthiness and falling interest rates
in the emerging markets bolstered demand for loans and financial services.
During the reporting period, the fund had few detractors from performance. The
energy sector, which had been the market's best performing sector for the first
nine months of 2005, gave back some of its gains in late 2005 and early 2006.
The fund's Canadian energy exposure was an especially lagging area, due to a
weak near-term outlook for natural gas prices in an unusually warm winter in
many parts of North America.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the fund in
the future.
3
<Table>
<Caption>
TOP TEN HOLDINGS AS OF 2/28/06
Toyota Motor Corp. 2.7%
Kobe Steel, Ltd. 2.2
Continental, AG 2.1
BP Plc 2.1
Fortum Corp. 2.0
BHP Billiton, Ltd. 2.0
Kubota Corp. 2.0
Anglo Irish Bank Corp., Plc 1.9
Akbank TAS 1.9
E.ON, AG 1.9
<Caption>
TOP FIVE INDUSTRIES AS OF 2/28/06
Diversified Banks 17.3%
Electric Utilities 3.9
Integrated Oil & Gas 3.7
Industrial Conglomerates 3.0
Oil & Gas Exploration & Production 2.7
<Caption>
SUMMARY OF INVESTMENTS BY COUNTRY CLASSIFICATION AS OF 2/28/06
Japan 21.4%
Germany 10.7
United Kingdom 10.4
France 7.7
Switzerland 5.4
Ireland 4.6
Netherlands 3.9
Greece 3.0
Austria 2.8
Singapore 2.6
Mexico 2.6
Spain 2.4
Sweden 2.3
Finland 2.0
Australia 2.0
Turkey 1.9
Canada 1.5
Israel 1.3
Bermuda 1.3
Norway 1.3
Hungary 1.2
India 1.1
Hong Kong 1.1
Republic of Korea (South Korea) 1.1
-----
Total Long-Term Investments 95.6%
Short-Term Investments 2.5
Foreign Currency 0.0
Other Assets in Excess of Liabilities 1.9
-----
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
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.
4
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 (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 (800) 847-2424.
5
HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate
mailings to the same address. The fund delivers a single copy of certain
shareholder documents to investors who share an address, even if the
accounts are registered under different names. The fund's prospectuses
and shareholder reports (including annual privacy notices) will be
delivered to you in this manner indefinitely unless you instruct us
otherwise. You can request multiple copies of these documents by either
calling (800) 341-2911 or writing to Van Kampen Investor Services at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor
Services has received your instructions, we will begin sending individual
copies for each account within 30 days.
PROXY VOTING 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 (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 without charge 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.
6
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 9/1/05 - 2/28/06.
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*
------------------------------------------------
9/1/05 2/28/06 9/1/05-2/28/06
Class A
Actual...................................... $1,000.00 $1,076.50 $ 3.09
Hypothetical................................ 1,000.00 1,021.79 7.67
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,075.29 4.60
Hypothetical................................ 1,000.00 1,020.39 11.42
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,074.68 4.60
Hypothetical................................ 1,000.00 1,020.39 11.42
(5% annual return before expenses)
Class I
Actual...................................... 1,000.00 1,157.62 4.54
Hypothetical................................ 1,000.00 1,020.59 6.41
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 1.53%, 2.28%,
2.28% and 1.28% for Class A, B, C and I Shares, respectively, multiplied by
the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period) except for "Actual" information for Class A, B and
C which reflects the period from December 19, 2005 through February 28, 2006
and "Actual" information for Class I which reflects the period from November
1, 2005 through February 28, 2006. These ratios reflect an expense cap.
Assumes all dividends and distributions were reinvested.
7
VAN KAMPEN INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
COMMON STOCKS 95.6%
AUSTRALIA 2.0%
BHP Billiton, Ltd. ......................................... 77,108 $ 1,391,281
-----------
AUSTRIA 2.8%
Erste Bank Der Oester Spark, AG............................. 20,426 1,241,948
Telekom Austria, AG......................................... 33,051 754,592
-----------
1,996,540
-----------
BERMUDA 1.3%
Esprit Holdings, Ltd. ...................................... 118,994 913,379
-----------
CANADA 1.5%
EnCana Corp. ............................................... 26,321 1,088,554
-----------
FINLAND 2.0%
Fortum Corp. ............................................... 58,871 1,422,888
-----------
FRANCE 7.7%
AXA, SA..................................................... 35,189 1,244,384
BNP Paribas, SA............................................. 11,800 1,092,038
Essilor International, SA................................... 12,807 1,103,185
LVMH Moet-Hennessy Louis Vuitton, SA........................ 8,643 784,763
Total, SA, Class B.......................................... 4,664 1,171,562
-----------
5,395,932
-----------
GERMANY 10.7%
adidas-Salomon, AG.......................................... 4,594 897,948
Celesio, AG................................................. 9,756 905,798
Continental, AG............................................. 14,544 1,488,042
Deutsche Bank, AG........................................... 8,936 984,110
E.ON, AG.................................................... 11,914 1,318,441
SAP, AG..................................................... 4,933 1,006,369
Siemens, AG................................................. 10,004 917,850
-----------
7,518,558
-----------
GREECE 3.0%
Coca-Cola Hellenic Bottling Co., SA......................... 26,267 784,798
National Bank of Greece, SA................................. 25,291 1,308,896
-----------
2,093,694
-----------
HONG KONG 1.1%
China Resources Power Holdings Co., Ltd. ................... 1,184,000 781,271
-----------
HUNGARY 1.2%
MOL Magyar Olaj-es Gazipari Rt.-GDR......................... 2,650 272,805
MOL Magyar Olaj-es Gazipari Rt.-GDR......................... 5,300 545,900
-----------
818,705
-----------
INDIA 1.1%
ICICI Bank, Ltd.--ADR....................................... 26,063 800,395
-----------
</Table>
8 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
IRELAND 4.6%
Allied Irish Banks Plc...................................... 39,413 $ 941,219
Anglo Irish Bank Corp., Plc................................. 3,697 60,631
Anglo Irish Bank Corp., Plc................................. 83,519 1,368,413
CRH Plc..................................................... 25,568 836,701
-----------
3,206,964
-----------
ISRAEL 1.3%
Teva Pharmaceutical Industries, Ltd.--ADR................... 22,107 928,273
-----------
JAPAN 21.4%
Canon, Inc. ................................................ 15,700 986,188
Casio Computer Co., Ltd. ................................... 48,000 776,940
Daiwa Securities Group, Inc. ............................... 84,000 993,760
Hoya Corp. ................................................. 24,700 975,954
JSR Corp. .................................................. 42,800 1,257,761
Kobe Steel, Ltd. ........................................... 404,000 1,542,212
Kubota Corp. ............................................... 141,000 1,379,783
Sharp Corp. ................................................ 56,000 986,870
SMC Corp. .................................................. 7,700 1,084,372
Sumitomo Realty & Development............................... 53,000 1,227,028
Terumo Corp. ............................................... 23,800 728,444
Toray Industries, Inc. ..................................... 155,000 1,190,733
Toyota Motor Corp. ......................................... 35,300 1,891,009
-----------
15,021,054
-----------
MEXICO 2.6%
America Movil SA de CV, Ser L--ADR.......................... 24,144 838,521
Wal-Mart de Mexico SA de CV, Ser V--ADR..................... 34,066 974,529
-----------
1,813,050
-----------
NETHERLANDS 3.9%
ING Groep, NV CVA........................................... 32,245 1,211,812
Reed Elsevier, NV........................................... 48,186 650,687
Royal Numico, NV............................................ 19,560 846,903
-----------
2,709,402
-----------
NORWAY 1.3%
Telenor, ASA................................................ 82,597 891,610
-----------
REPUBLIC OF KOREA (SOUTH KOREA) 1.1%
Samsung Electronics Co., Ltd., 144A--Private Placement--GDR
(a)....................................................... 257 90,834
Samsung Electronics Co., Ltd., 144A--Private Placement--GDR
(a)....................................................... 1,883 666,111
-----------
756,945
-----------
SINGAPORE 2.6%
DBS Group Holdings, Ltd. ................................... 69,255 696,729
Keppel Corp., Ltd. ......................................... 135,900 1,168,171
-----------
1,864,900
-----------
</Table>
See Notes to Financial Statements 9
VAN KAMPEN INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------
SPAIN 2.4%
Banco Popular Espanol, SA................................... 54,273 $ 727,721
Grupo Ferrovial, SA......................................... 13,191 987,883
-----------
1,715,604
-----------
SWEDEN 2.3%
Ericsson (LM) Tel, Class B--ADR............................. 24,279 827,914
Getinge AB, Ser B........................................... 53,612 775,315
-----------
1,603,229
-----------
SWITZERLAND 5.4%
ABB, Ltd. .................................................. 83,000 991,462
Nestle, SA--ADR............................................. 13,828 1,016,687
Novartis, AG................................................ 16,153 861,427
SGS, SA..................................................... 983 906,996
-----------
3,776,572
-----------
TURKEY 1.9%
Akbank TAS--ADR............................................. 65,798 1,341,490
-----------
UNITED KINGDOM 10.4%
Barclays Plc................................................ 76,966 902,286
BP Plc...................................................... 130,791 1,443,232
Capita Group Plc............................................ 83,981 698,933
HSBC Holdings Plc........................................... 43,750 748,579
Reckitt Benckiser Plc....................................... 25,701 914,875
Royal Bank of Scotland Group Plc............................ 26,435 884,746
SABMiller Plc............................................... 43,926 873,200
Tesco Plc................................................... 137,696 816,226
-----------
7,282,077
-----------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $58,282,023)................................................... 67,132,367
REPURCHASE AGREEMENT 2.5%
State Street Bank & Trust Co. ($1,726,000 par
collateralized by U.S. Government obligations in a
pooled cash account, interest rate of 4.49%, dated
02/28/06, to be sold on 03/01/06 at $1,726,215)
(Cost $1,726,000).................................................... 1,726,000
-----------
TOTAL INVESTMENTS 98.1%
(Cost $60,008,023)................................................... 68,858,367
</Table>
10 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
<Table>
<Caption>
DESCRIPTION VALUE
- -------------------------------------------------------------------------------------
FOREIGN CURRENCY 0.0%
(Cost $16,681)....................................................... $ 16,722
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%............................ 1,341,308
-----------
NET ASSETS 100.0%..................................................... $70,216,397
===========
</Table>
Percentages are calculated as a percentage of net assets.
Securities with total market value equal to $58,103,993 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.
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
ADR--American Depositary Receipt
CVA--Certification Van Aandelen
GDR--Global Depositary Receipt
See Notes to Financial Statements 11
VAN KAMPEN INTERNATIONAL GROWTH FUND
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
Diversified Banks........................................... $12,115,091 17.3%
Electric Utilities.......................................... 2,741,329 3.9
Integrated Oil & Gas........................................ 2,614,793 3.7
Industrial Conglomerates.................................... 2,086,020 3.0
Oil & Gas Exploration & Production.......................... 1,907,258 2.7
Automobile Manufacturers.................................... 1,891,009 2.7
Packaged Foods & Meats...................................... 1,863,591 2.7
Pharmaceuticals............................................. 1,789,700 2.6
Consumer Electronics........................................ 1,763,809 2.5
Apparel, Accessories & Luxury Goods......................... 1,682,711 2.4
Integrated Telecommunication Services....................... 1,646,202 2.3
Independent Power Producers & Energy Traders................ 1,617,973 2.3
Steel....................................................... 1,542,212 2.2
Health Care Equipment....................................... 1,503,759 2.1
Tires & Rubber.............................................. 1,488,042 2.1
Diversified Metals & Mining................................. 1,391,281 2.0
Construction & Farm Machinery & Heavy Trucks................ 1,379,783 2.0
Specialty Chemicals......................................... 1,257,761 1.8
Multi-line Insurance........................................ 1,244,384 1.8
Real Estate Management & Development........................ 1,227,028 1.7
Other Diversified Financial Services........................ 1,211,812 1.7
Commodity Chemicals......................................... 1,190,733 1.7
Health Care Supplies........................................ 1,103,185 1.6
Industrial Machinery........................................ 1,084,372 1.5
Application Software........................................ 1,006,369 1.4
Investment Banking & Brokerage.............................. 993,760 1.4
Heavy Electrical Equipment.................................. 991,462 1.4
Construction & Engineering.................................. 987,883 1.4
Office Electronics.......................................... 986,188 1.4
Diversified Capital Markets................................. 984,110 1.4
Electronic Equipment Manufacturers.......................... 975,954 1.4
Hypermarkets & Super Centers................................ 974,529 1.4
Household Products.......................................... 914,875 1.3
Apparel Retail.............................................. 913,379 1.3
Diversified Commercial & Professional Services.............. 906,996 1.3
Health Care Services........................................ 905,798 1.3
Brewers..................................................... 873,200 1.2
Wireless Telecommunication Services......................... 838,521 1.2
Communications Equipment.................................... 827,914 1.2
Food Retail................................................. 816,226 1.2
Soft Drinks................................................. 784,798 1.1
Semiconductors.............................................. 756,945 1.1
Human Resource & Employment Services........................ 698,934 1.0
Publishing.................................................. 650,688 0.9
----------- ----
$67,132,367 95.6%
=========== ====
</Table>
12
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2006 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $60,008,023)........................ $68,858,367
Foreign Currency (Cost $16,681)............................. 16,722
Cash........................................................ 761
Receivables:
Fund Shares Sold.......................................... 4,357,054
Dividends................................................. 71,336
Interest.................................................. 215
-----------
Total Assets............................................ 73,304,455
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,879,500
Distributor and Affiliates................................ 65,582
Investment Advisory Fee................................... 30,558
Fund Shares Repurchased................................... 17,145
Accrued Expenses............................................ 93,473
Trustees' Deferred Compensation and Retirement Plans........ 1,800
-----------
Total Liabilities....................................... 3,088,058
-----------
NET ASSETS.................................................. $70,216,397
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $64,925,360
Net Unrealized Appreciation................................. 8,848,448
Accumulated Undistributed Net Investment Income............. 63,629
Accumulated Net Realized Loss............................... (3,621,040)
-----------
NET ASSETS.................................................. $70,216,397
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $44,777,452 and 2,525,355 shares of
beneficial interest issued and outstanding)............. $ 17.73
Maximum sales charge (5.75%* of offering price)......... 1.08
-----------
Maximum offering price to public........................ $ 18.81
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $2,895,173 and 163,493 shares of
beneficial interest issued and outstanding)............. $ 17.71
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $956,984 and 54,056 shares of beneficial
interest issued and outstanding)........................ $ 17.70
===========
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $21,586,788 and 1,217,047 shares of
beneficial interest issued and outstanding)............. $ 17.74
===========
</Table>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 13
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Period November 1, 2005 to February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $17,963)..... $ 85,407
Interest.................................................... 14,407
----------
Total Income............................................ 99,814
----------
EXPENSES:
Investment Advisory Fee..................................... 75,050
Registration and Filing Fees................................ 73,209
Shareholder Services........................................ 20,354
Legal....................................................... 16,445
Trustees' Fees and Related Expenses......................... 13,006
Custody..................................................... 12,638
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $8,242, $1,888, and $580, respectively).... 10,710
Other....................................................... 45,650
----------
Total Expenses.......................................... 267,062
Expense Fee Reduction ($75,050 Investment Advisory Fee
and $53,553 Other).................................... 128,603
Less Credits Earned on Cash Balances.................... 2,633
----------
Net Expenses............................................ 135,826
----------
NET INVESTMENT LOSS......................................... $ (36,012)
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 400,762
Foreign Currency Transactions............................. 24,475
----------
Net Realized Gain........................................... 425,237
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 5,266,444
----------
End of the Period:
Investments............................................. 8,850,344
Foreign Currency Translation............................ (1,896)
----------
8,848,448
----------
Net Unrealized Appreciation During the Period............... 3,582,004
----------
NET REALIZED AND UNREALIZED GAIN............................ $4,007,241
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,971,229
==========
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 28, 2006 OCTOBER 31, 2005
-------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income/Loss............................. $ (36,012) $ 156,909
Net Realized Gain...................................... 425,237 7,133,830
Net Unrealized Appreciation/Depreciation During the
Period............................................... 3,582,004 (1,639,776)
----------- ------------
Change in Net Assets from Operations................... 3,971,229 5,650,963
----------- ------------
Distributions from Net Investment Income:
Class A Shares....................................... -0- -0-
Class B Shares....................................... -0- -0-
Class C Shares....................................... -0- -0-
Class I Shares....................................... (57,268) -0-
----------- ------------
Total Distributions.................................... (57,268) -0-
----------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 3,913,961 5,650,963
----------- ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 48,636,812 6,544,090
Cost of Shares Repurchased............................. (617,556) (23,952,136)
----------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... 48,019,256 (17,408,046)
----------- ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.................. 51,933,217 (11,757,083)
NET ASSETS:
Beginning of the Period................................ 18,283,180 30,040,263
----------- ------------
End of the Period (Including accumulated undistributed
net investment income of $63,629 and $156,909,
respectively)........................................ $70,216,397 $ 18,283,180
=========== ============
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
DECEMBER 19, 2005
(COMMENCEMENT OF
CLASS A SHARES OPERATIONS) TO
FEBRUARY 28, 2006
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $16.47
------
Net Investment Loss (a)................................... (.01)
Net Realized and Unrealized Gain.......................... 1.27
------
Total from Investment Operations............................ 1.26
------
NET ASSET VALUE, END OF THE PERIOD.......................... $17.73
======
Total Return (b)*........................................... 7.65%**
Net Assets at End of the Period (In millions)............... $ 44.8
Ratio of Expenses to Average Net Assets (c)*................ 1.53%
Ratio of Net Investment Loss to Average Net Assets*......... (.52%)
Portfolio Turnover.......................................... 6%**
* 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).............. 2.46%
Ratio of Net Investment Loss to Average Net Assets....... (1.46%)
</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 return would be lower. This return
includes combined Rule 12b-1 fees and service fees of up to .25% and does
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 February
28, 2006.
16 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
DECEMBER 19, 2005
(COMMENCEMENT OF
CLASS B SHARES OPERATIONS) TO
FEBRUARY 28, 2006
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $16.47
------
Net Investment Loss (a)................................... (.03)
Net Realized and Unrealized Gain.......................... 1.27
------
Total from Investment Operations............................ 1.24
------
NET ASSET VALUE, END OF THE PERIOD.......................... $17.71
======
Total Return (b)*........................................... 7.53%**
Net Assets at End of the Period (In millions)............... $ 2.9
Ratio of Expenses to Average Net Assets (c)*................ 2.28%
Ratio of Net Investment Loss to Average Net Assets*......... (1.21%)
Portfolio Turnover.......................................... 6%**
* 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).............. 3.13%
Ratio of Net Investment Loss to Average Net Assets....... (2.07%)
</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 return would be lower. This return
includes combined Rule 12b-1 fees and service fees of up to 1% and does 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 February
28, 2006.
See Notes to Financial Statements 17
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<Table>
<Caption>
DECEMBER 19, 2005
(COMMENCEMENT OF
CLASS C SHARES OPERATIONS) TO
FEBRUARY 28, 2006
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $16.47
------
Net Investment Loss (a)................................... (.03)
Net Realized and Unrealized Gain.......................... 1.26
------
Total from Investment Operations............................ 1.23
------
NET ASSET VALUE, END OF THE PERIOD.......................... $17.70
======
Total Return (b)*........................................... 7.47%**
Net Assets at End of the Period (In millions)............... $ 1.0
Ratio of Expenses to Average Net Assets (c)*................ 2.28%
Ratio of Net Investment Loss to Average Net Assets*......... (1.19%)
Portfolio Turnover.......................................... 6%**
* 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).............. 3.13%
Ratio of Net Investment Loss to Average Net Assets....... (2.04%)
</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
return would be lower. This return includes combined Rule 12b-1 fees and
service fees of up to 1% and does 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 February
28, 2006.
18 See Notes to Financial Statements
VAN KAMPEN INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) continued
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
NOVEMBER 1,
2005 TO YEAR ENDED OCTOBER 31,
CLASS I SHARES FEBRUARY 28, --------------------------------------------
2006 2005 2004 2003 2002 2001
-----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $15.36 $12.57 $10.50 $ 8.50 $ 9.89 $ 14.59
------ ------ ------ ------ ------- -------
Net Investment Income/Loss.... (.01) .13 .10 .05 .01 .03
Net Realized and Unrealized
Gain/Loss................... 2.44 2.66 1.97 1.95 (1.40) (3.19)
------ ------ ------ ------ ------- -------
Total from Investment
Operations.................... 2.43 2.79 2.07 2.00 (1.39) (3.16)
------ ------ ------ ------ ------- -------
Less:
Distributions from Net
Investment Income........... .05 -0- -0- -0- -0- -0-
Distributions from Net
Realized Gain............... -0- -0- -0- -0- -0- 1.54
------ ------ ------ ------ ------- -------
Total Distributions............. .05 -0- -0- -0- -0- 1.54
------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................ $17.74 $15.36 $12.57 $10.50 $ 8.50 $ 9.89
====== ====== ====== ====== ======= =======
Total Return (a)*............... 15.76%** 22.20% 19.71% 23.53% -14.05% -23.94%
Net Assets at End of the Period
(In millions)................. $ 21.6 $ 18.3 $ 30.0 $ 50.1 $ 56.5 $ 72.0
Ratio of Expenses to Average Net
Assets (b)*................... 1.28% 1.25% 1.25% 1.23% 1.10% 1.04%
Ratio of Net Investment
Income/Loss to Average Net
Assets*....................... (.24%) .64% .63% .55% .08% .26%
Portfolio Turnover.............. 6%** 17% 37% 46% 32% 42%
* If certain expenses had not been voluntarily assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets (b)............. 2.76% 2.37% 1.48% N/A N/A N/A
Ratio of Net Investment
Income/Loss to Average Net
Assets..................... (1.72%) (.48%) .40% N/A N/A N/A
</Table>
** Non-annualized
(a) Assumes reinvestment of all distributions for the period. These returns do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund Shares.
(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 February
28, 2006.
N/A--Not Applicable.
See Notes to Financial Statements 19
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen International Growth Fund (the "Fund"), formerly known as the 1838
International Equity 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 capital
appreciation, with a secondary objective of income, by investing primarily in a
diversified portfolio of equity securities of foreign issuers. The Fund
commenced investment operations on August 3, 1995. Pursuant to an agreement and
plan of reorganization between the Fund and 1838 International Equity Fund, on
December 16, 2005, the Fund acquired substantially all of the assets and
substantially all of the liabilities of the 1838 International Equity Fund in
exchange for Class I shares of the Fund. As a result of the reorganization,
Class I shares of the Fund are the accounting successor of the 1838
International Equity Fund. The Fund offers Class A Shares, Class B Shares, Class
C Shares, and Class I Shares. Each class of shares differs by its initial sales
load, contingent deferred sales charges, the allocation of class-specific
expenses and voting rights on matters affecting a single class. The Fund
registered Class A Shares, Class B Shares, and Class C Shares on December 19,
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. 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. 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
20
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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.
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.
At October 31, 2005, the Fund had an accumulated capital loss carryforward for
tax purposes of $3,863,627 which will expire on October 31, 2011.
All of this capital loss carryforward was acquired as a result of a
reorganization with another regulated investment company. Please see Footnote 3
for details.
At February 28, 2006, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $60,008,023
===========
Gross tax unrealized appreciation........................... $ 8,910,123
Gross tax unrealized depreciation........................... (59,779)
-----------
Net tax unrealized appreciation on investments.............. $ 8,850,344
===========
</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.
As of October 31, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $57,257
</Table>
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
21
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
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 period ended February 28, 2006, the Fund's
custody fee was reduced by $2,633 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 $1 billion............................................ .75%
Over $1 billion............................................. .70
</Table>
Prior to December 16, 2005, the advisory fee was .75% of average daily net
assets.
For the period ended February 28, 2006, the Adviser waived approximately
$75,000 of its advisory fees and $53,600 of other expenses. The Adviser has
agreed to waive all expenses in excess of 1.50% of Class A average net assets,
2.25% of Class B average net assets, 2.25% of Class C average net assets, and
1.25% of Class I average net assets. This waiver is voluntary and can be
discontinued at any time after August 31, 2006.
For the period ended February 28, 2006, the Fund recognized expenses of
approximately $100 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.
Effective December 16, 2005, 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 February 28, 2006, the fund recognized expenses of approximately
$20,600, 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.
Effective December 16, 2005, Van Kampen Investor Services Inc. (VKIS), an
affiliate of the Adviser, serves as the shareholder servicing agent for the
Fund. For the period ended February 28, 2006, the Fund recognized expenses of
approximately $16,600 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.
22
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
Effective December 16, 2005, 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
February 28, 2006. Appreciation/depreciation and distributions received from
these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Fund. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Fund.
The maximum annual benefit per trustee under the plan is $2,500.
At February 28, 2006, Morgan Stanley Investment Management Inc., an
affiliate of the Adviser, owned 304 shares of Class A, 304 shares of Class B,
and 304 shares of Class C.
For the period ended February 28, 2006, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $138,800 and CDSC on redeemed shares of approximately $400. Sales
charges do not represent expenses of the Fund.
3. CAPITAL TRANSACTIONS
For the period ended February 28, 2006 and the year ended October 31, 2005,
transactions were as follows:
<Table>
<Caption>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 28, 2006 OCTOBER 31, 2005
------------------------ --------------------------
SHARES VALUE SHARES VALUE
Sales:
Class A............................. 2,542,048 $44,020,916 -0- $ -0-
Class B............................. 168,494 2,922,438 -0- -0-
Class C............................. 54,057 941,136 -0- -0-
Class I............................. 40,703 752,322 454,074 6,544,090
--------- ----------- ---------- ------------
Total Sales........................... 2,805,302 $48,636,812 454,074 $ 6,544,090
========= =========== ========== ============
Repurchases:
Class A............................. (16,693) $ (289,008) -0- $ --0-
Class B............................. (5,001) (86,979) -0- -0-
Class C............................. (1) (19) -0- -0-
Class I............................. (14,102) (241,550) (1,654,064) (23,952,136)
--------- ----------- ---------- ------------
Total Repurchases..................... (35,797) $ (617,556) (1,654,064) $(23,952,136)
========= =========== ========== ============
</Table>
Pursuant to an agreement and plan of reorganization between the Fund and
1838 International Equity Fund, on December 16, 2005, the Fund acquired
1,190,446 shares of the 1838 International Equity Fund valued at $16,906,104 in
exchange for Class I shares of the Fund.
23
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
4. REDEMPTION FEE
Effective December 16, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within 30
days of purchase. The redemption fee is paid directly to the Fund. For the
period ended February 28, 2006, the Fund received redemption fees of
approximately $600, which are reported as part of "Cost of Shares Repurchased"
in the Statement of Changes in Net Assets.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $47,588,415 and $2,149,476, respectively.
6. DISTRIBUTION AND SERVICE PLANS
Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"),
an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively,
the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate
the Distributor for the distribution, shareholder servicing and maintenance of
shareholder accounts for these shares. Under the Plans, the Fund will incur
annual fees 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. These fees are accrued
daily and paid to the Distributor monthly.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed receivable") was approximately $1,500 and $100 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, the distribution fee is
reduced.
7. 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 or to manage the portfolio's foreign currency exposure, maturity, or
generate potential gain. All of the Fund's portfolio 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. The gain or loss
arising from the difference between the original value of the contract and the
closing value of such contract is
24
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
included as a component or realized gain/loss on foreign currency transactions.
As of February 28, 2006, there were no forward foreign currency contracts
outstanding.
8. 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 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, recessionary 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 defendants have moved to dismiss this action and otherwise intend to
defend it vigorously.
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. Defendants moved to dismiss the complaint and intend otherwise to
vigorously defend it. Plaintiff 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 moved to dismiss this matter, which motion was granted in
part and denied in part. Defendants moved for reconsideration of those claims
that were denied. Plaintiff subsequently dismissed the trustee defendants from
the action, in exchange for the execution of a tolling agreement by the trustees
permitting plaintiff to bring the same claims against the trustees at a later
date should plaintiff deem necessary.
25
VAN KAMPEN INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- FEBRUARY 28, 2006 (UNAUDITED) continued
While the defendants believe that they have meritorious defenses, the
ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of these matters.
9. 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 INTERNATIONAL GROWTH 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
J. DAVID GERMANY
Vice President
DENNIS SHEA
Vice President
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
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
One Lincoln Street
Boston, Massachusetts 02111
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.
27
Van Kampen International Growth 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 Growth 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 Growth Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2006 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
34, 134, 234
IGF SAR 4/06
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN06-01007P-Y02/06
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures
(a) The 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-CSRS 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 second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(1) Code of Ethics -- Not applicable for semi-annual reports.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) A certification for the Principal
Financial Officer of the registrant is attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Equity Trust II
By: /s/ Ronald E. Robison
------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: April 19, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: April 19, 2006
By: /s/ Phillip G. Goff
------------------------------
Name: Phillip G. Goff
Title: Principal Financial Officer
Date: April 19, 2006