<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 21
Report of Independent Accountants................ 27
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
September 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past 12 months, keeping
the economy growing at a healthy pace. Although the economic environment
remained positive, we experienced a slowdown over the last several months from
the rapid growth early in the reporting period. The nation's gross domestic
product (GDP) peaked at 6.0 percent in the fourth quarter of 1998, then fell to
more sustainable levels in the first and second quarters of 1999.
EMPLOYMENT SITUATION
The strong job market helped encourage continued economic growth by making
consumers confident enough to spend at a brisk pace. During the reporting
period, the unemployment rate reached its lowest level in almost 30 years, and
wages and the number of jobs created continued to climb. However, some
economists expressed concerns about the job market in recent months, with wages
still increasing but productivity remaining stagnant. This has pushed the cost
of labor higher, as evidenced by the Employment Cost Index, which jumped sharply
in the second quarter of 1999.
INFLATION AND INTEREST RATES
In addition to strong growth levels, inflation remained tame throughout most
of the reporting period, although a sharp increase in oil prices contributed to
a spike in April's consumer price index (CPI) report. The Federal Reserve
remained active in guarding against inflation and tempering the economy during
this environment. The Fed lowered interest rates 0.25 percent three times in the
fall of 1998 in response to economic pressures, but, during the summer of 1999,
reversed two of those decreases to keep the economy from overheating.
INTEREST RATES AND INFLATION
August 31, 1997, through August 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Aug 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Nov 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Feb 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
May 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Aug 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Nov 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Feb 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
May 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Aug 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1999
VAN KAMPEN TECHNOLOGY FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Since inception total return based on
NAV(1)................................... 11.70% 11.60% 11.60%
Since inception total return(2).......... 5.28% 6.60% 10.60%
Commencement date........................ 07/26/99 07/26/99 07/26/99
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (5.75% for A shares) or contingent
deferred sales charge for early withdrawal (5% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
See the Comparative Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. Specifically, there are significant competitive pressures
among technology-oriented companies and the products or operations of such
companies may become obsolete quickly. Therefore, stocks of companies that rely
on technology, science or communications, especially those of smaller or
unseasoned companies, tend to be more volatile than the overall stock market and
may or may not move in tandem with the overall stock market. Investors should
carefully consider their risk tolerance before investing. Past performance does
not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Pacific
Stock Exchange Technology Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Technology Fund vs. the Pacific Stock Exchange Technology Index
(July 26, 1999, through August 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------------
Fund's Total Return
Total Return Since Inception = 5.28%
- ------------------------------------
<TABLE>
<CAPTION>
PACIFIC STOCK EXCHANGE TECHNOLOGY
VAN KAMPEN TECHNOLOGY FUND -A INDEX
----------------------------- ---------------------------------
<S> <C> <C>
Jul 26, 1999 9425. 10000.
Jul 30, 1999 9595. 10270.
Aug 6, 1999 9237. 10053.3
Aug 13, 1999 10029. 10538.9
Aug 20, 1999 10048. 10548.4
Aug 27, 1999 10529. 10817.4
Aug 31, 1999 10529. 10797.9
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (5.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN TECHNOLOGY FUND
We recently spoke to the management team of the Van Kampen Technology Fund about
the key events and economic forces that shaped the markets since the Fund's
inception on July 26, 1999. The team includes Gary M. Lewis, senior portfolio
manager, who has managed the Fund since inception and worked in the investment
industry since 1979. He is joined by Dudley Brickhouse, Janet Luby, and David
Walker, portfolio managers; and Stephen L. Boyd, chief investment officer for
equity investments. The following excerpts reflect their views on the Fund's
performance between its inception and August 31, 1999.
Q COULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED?
A Fears of inflation and higher interest rates helped limit the overall
stock market's growth during the brief reporting period. On August 24, as
expected, the Federal Reserve Board raised short-term interest rates for
the second time in three months, reversing two of the Fed's three rate decreases
from late 1998. Technology stocks, which have tended to be volatile in recent
years, fluctuated widely during July and August. The NASDAQ stock market, which
includes the stocks of many technology companies, fell to its lowest point in
two months on August 10, but regained ground quickly and again neared its record
high by the period's end.
Q IN LIGHT OF THIS ENVIRONMENT, WHAT WAS YOUR STRATEGY IN MANAGING THE FUND,
AND HOW DID THIS STRATEGY AFFECT THE FUND'S PERFORMANCE?
A Our investment strategy is to look for stocks with rising earnings
expectations and rising valuations. During the reporting period, we
invested in those companies we believed had the potential to outperform
earnings expectations, and we sold stocks if their underlying companies'
earnings estimates or valuations were declining. We consistently manage the
Portfolio from the "bottom up," meaning that we evaluate each company
individually before deciding to invest.
This strategy benefited the Fund, as we were successful in identifying a
number of stocks that performed well during the reporting period. As a result,
positive stock selection contributed to the Fund's overall return.
Q WHAT KINDS OF TECHNOLOGY COMPANIES DOES THE FUND INVEST IN?
A We invest in companies that rely extensively on technology, science, or
communications in their product development or operations. Although the
Fund does invest in companies whose growth potential is tied to the
Internet--which, along with its enormous potential, carries a great deal of
risk--we maintain a diversified portfolio across a number of different
technology industries. For example, at the end of the
5
<PAGE> 7
reporting period, the Fund owned stocks in a wide variety of industries across
the technology and science sectors, such as biotechnology, semiconductors,
medical products, and wireless communications equipment.
Q WHICH INVESTMENTS PARTICULARLY HELPED THE FUND'S PERFORMANCE?
A Technology stocks generally performed very well during the reporting
period, benefiting the Fund. Internet companies continued their rapid
growth. We were heavily invested in this sector, although we shifted our
focus from service companies to firms that are helping to provide the
infrastructure needed for high-speed data access. Holdings in this area that
helped the Fund's return included
- Harmonic and JDS Uniphase, which provide components for the next
generation of cable and data networks;
- Emulex and Brocade Communications Systems, which provide equipment used in
the development of next generation storage networks;
- Hi/fn, a developer of technology enabling "virtual private networks,"
which help connect remote employees and offices to corporate Intranets,
reducing telecommunications costs; and
- VeriSign, which develops encryption technology to establish secure
Internet connections.
Q DID ANY NON-INTERNET RELATED TECHNOLOGY STOCKS BOOST THE FUND'S RETURN?
A Yes. Wireless communications company Qualcomm was a successful investment
for the Fund during the reporting period. In the health-care arena, the
Fund was helped by the performance of a number of leading biotechnology
firms, including MedImmune, Idec Pharmaceuticals, and Biogen.
Of course, not all stocks in the Fund performed as favorably as those we
have mentioned, and there's no guarantee that any of these stocks will perform
as well in the future. For additional Fund Portfolio highlights, please refer to
page 9.
Q DID ANY STOCKS HURT THE FUND?
A The worst detractor to the Fund's return during the reporting period was
Macrovision, which provides copy protection for motion pictures and other
video materials. The company's stock fell sharply after the firm announced
an acquisition that would dilute its earnings for 1999. We sold the stock in
response to this development, though not soon enough to escape some of its price
decline.
Despite the excellent performance of biotechnology stocks during the
reporting period, some other stocks with exposure to the health-care industry
did not reward us. For example, InfoCure, a national provider of software
products to physicians' offices, saw its stock suffer as a result of concerns
about the company's growth capabilities.
Laser Vision Centers, another health care-related company that provides
lasers to eye surgeons for vision correction surgery, saw its stock price fall
in response to fears of a
6
<PAGE> 8
price war in this competitive industry. We sold this stock in accordance with
our discipline, which generally leads us to sell stocks that aren't being
compensated by the market.
Q HOW DID THE FUND PERFORM OVERALL?
A The Fund performed well during the brief reporting period, achieving a
total return of 11.70 percent(1) as of August 31, 1999 (Class A shares at
net asset value). By comparison, the Pacific Stock Exchange Technology
Index, a price-weighted, broad-based index composed of 100 listed and
over-the-counter technology stocks from 15 different industries, returned 7.96
percent. Past performance doesn't guarantee future results. Please refer to the
chart and footnotes on page 3 for additional performance results.
Q WHAT DO YOU SEE AHEAD FOR THE FUND DURING THE NEXT SIX MONTHS?
A Concerns about interest rates will make for an interesting next six
months, and questions about the year 2000 problem could affect investors'
decisions--although to what extent is uncertain. We do think that
corporate spending on the year 2000 problem will lead to a slowdown in the
software industry, because firms may delay their purchases of new software until
after the new year. Also, we continue to adjust to a new "day trading" stock
market culture, which has led to a new standard of volatility.
Through all of these situations, we will continue to do what has worked well
for us in the management of our other funds, which is invest according to our
discipline. In volatile times our job is more difficult because it can be
challenging to find stocks that meet our criteria. In that case, we search
harder for stocks whose valuations are increasing or for those stocks whose
valuations are declining the least. Either way, we have confidence in our
investment strategy and plan to stick with it during all types of market
conditions.
[SIG]
Gary M. Lewis
Senior Portfolio Manager
[SIG]
Dudley Brickhouse
Portfolio Manager
[SIG]
Janet Luby
Portfolio Manager
[SIG]
David Walker
Portfolio Manager
[SIG]
Stephen L. Boyd
Chief Investment
Officer
Equity Investments
7
<PAGE> 9
GLOSSARY OF TERMS
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
EARNINGS ESTIMATES: A forecast for a company's net income during a given period.
Earnings estimates can come from the company's management as well as from
independent analysts.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing
this amount by the number of shares outstanding. The NAV does not include
any initial or contingent deferred sales charge.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue,
book value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN TECHNOLOGY FUND
TOP TEN PORTFOLIO HOLDINGS AS OF AUGUST 31, 1999*
<TABLE>
<S> <C>
HARMONIC develops and manufactures fiber-optic transmission
equipment for cable, satellite, and wireless networks....... 2.92%
EMULEX designs three types of network connectivity products:
network access servers, printer servers, and high-speed
fiber channel products...................................... 2.23%
QUALCOMM is a leading designer, developer, and manufacturer
of digital wireless communications products................. 2.22%
LSI LOGIC designs, manufactures, and markets semiconductor
products and computer-storage systems solutions............. 2.10%
QLOGIC makes integrated circuits and adapter boards that
connect peripheral devices to computers..................... 2.01%
CONEXANT SYSTEMS supplies semiconductor products for a broad
range of communications applications........................ 2.00%
JDS UNIPHASE develops a range of products used by systems
manufacturers to develop optical networks for the
telecommunications and cable television industries.......... 1.96%
TEXAS INSTRUMENTS is a global semiconductor company as well
as a leading designer and supplier of digital signal
processing solutions and analog technologies................ 1.90%
EXODUS COMMUNICATIONS offers services that allow businesses
to outsource the management of their Internet sites......... 1.86%
RF MICRO DEVICES creates radio-frequency integrated circuits
used in wireless communications products.................... 1.73%
</TABLE>
TOP FIVE PORTFOLIO INDUSTRIES AS OF AUGUST 31, 1999*
[BAR GRAPH]
<TABLE>
<CAPTION>
AUGUST 31, 1999
---------------
<S> <C>
Electronics-Semiconductors 27.91%
Communications Technology-Equipment 16.78%
Computers-Software/Services 16.10%
Healthcare 8.97%
Computers-Hardware 8.17%
</TABLE>
* As a Percentage of Fund's Long-Term Investments
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 89.3%
COMMUNICATIONS 4.3%
Gemstar International Group Ltd. (a)................ 20,000 $ 1,380,000
Nextel Communications, Inc. (a)..................... 35,000 2,023,438
Powerwave Technologies, Inc. (a).................... 45,000 1,909,688
Price Communications Corp. (a)...................... 75,000 1,542,188
United States Cellular Corp. (a).................... 30,000 1,689,375
Western Wireless Corp. (a).......................... 30,000 1,160,625
Wink Communications, Inc. (a)....................... 14,500 594,500
------------
10,299,814
------------
COMMUNICATIONS TECHNOLOGY -- EQUIPMENT 15.0%
ANTEC Corp. (a)..................................... 50,000 2,278,125
CommScope, Inc. (a)................................. 75,000 2,582,812
Comverse Technology, Inc. (a)....................... 25,000 1,950,000
Corning, Inc........................................ 25,000 1,662,500
General Instrument Corp. (a)........................ 40,000 1,967,500
Harmonic, Inc. (a).................................. 50,000 6,300,000
JDS Uniphase Corp. (a).............................. 40,000 4,242,500
Motorola, Inc....................................... 20,000 1,845,000
Nokia Oyg Corp. - ADR (Finland)..................... 20,000 1,667,500
Nortel Networks Corp................................ 40,000 1,642,500
QUALCOMM, Inc. (a).................................. 25,000 4,804,687
Scientific-Atlanta, Inc............................. 65,000 3,331,250
TranSwitch Corp. (a)................................ 40,000 1,987,500
------------
36,261,874
------------
COMPUTERS -- HARDWARE 7.3%
Adaptec, Inc. (a)................................... 25,000 975,000
Brocade Communications Systems, Inc. (a)............ 15,000 2,821,875
Copper Mountain Networks, Inc. (a).................. 15,000 1,755,000
Electronics for Imaging, Inc. (a)................... 30,000 1,758,750
Emulex Corp. (a).................................... 70,000 4,825,625
Gadzoox Networks, Inc. (a).......................... 15,000 1,355,625
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------
<S> <C> <C>
COMPUTERS -- HARDWARE (CONTINUED)
Hewlett-Packard Co.................................. 15,000 $ 1,580,625
Juniper Networks, Inc. (a).......................... 10,000 2,050,000
MMC Networks, Inc. (a).............................. 17,000 524,875
------------
17,647,375
------------
COMPUTERS -- NETWORKING 6.7%
Advanced Digital Information Corp. (a).............. 80,000 2,580,000
Cisco Systems, Inc. (a)............................. 30,000 2,034,375
EMC Corp. (a)....................................... 30,000 1,800,000
Internet Capital Group, Inc. (a).................... 8,800 660,000
Lexmark International Group, Inc., Class A (a)...... 30,000 2,362,500
Network Appliance, Inc. (a)......................... 45,000 2,955,937
Radisys Corp. (a)................................... 20,000 770,000
SanDisk Corp. (a)................................... 35,000 2,953,125
------------
16,115,937
------------
COMPUTERS -- SOFTWARE/SERVICES 14.4%
Adobe Systems, Inc.................................. 20,000 1,992,500
BroadVision, Inc. (a)............................... 30,000 2,986,875
Check Point Software Technologies Ltd. (a).......... 25,000 1,928,125
Concord EFS, Inc. (a)............................... 45,000 1,670,625
Exodus Communications, Inc. (a)..................... 50,000 4,018,750
InfoCure Corp. (a).................................. 70,000 1,347,500
Legato Systems, Inc. (a)............................ 65,000 2,799,062
MedQuist, Inc. (a).................................. 40,000 1,392,500
Mercury Interactive Corp. (a)....................... 20,000 955,000
Micromuse, Inc. (a)................................. 35,000 1,999,375
Microsoft Corp. (a)................................. 20,000 1,851,250
NetIQ Corp. (a)..................................... 5,300 159,000
RealNetworks, Inc. (a).............................. 20,000 1,635,000
Red Hat, Inc. (a)................................... 7,400 605,875
Siebel Systems, Inc. (a)............................ 25,000 1,717,188
Unisys Corp. (a).................................... 40,000 1,720,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------
<S> <C> <C>
COMPUTERS -- SOFTWARE/SERVICES (CONTINUED)
VeriSign, Inc. (a).................................. 30,000 $ 3,249,375
VERITAS Software Corp. (a).......................... 30,000 1,777,500
Verity, Inc. (a).................................... 20,000 975,000
------------
34,780,500
------------
CONSUMER CYCLICALS 1.2%
Best Buy Co., Inc. (a).............................. 25,000 1,756,250
Cheap Tickets, Inc. (a)............................. 35,000 1,295,000
------------
3,051,250
------------
ELECTRONICS -- MANUFACTURING 3.5%
AVX Corp............................................ 30,000 898,125
Creo Products, Inc. (Canada) (a).................... 8,900 194,131
CTS Corp............................................ 27,000 1,285,875
Hadco Corp. (a)..................................... 25,000 1,039,063
KEMET Corp. (a)..................................... 45,000 1,161,563
Solectron Corp. (a)................................. 30,000 2,347,500
Zomax, Inc. (a)..................................... 65,000 1,482,813
------------
8,409,070
------------
ELECTRONICS -- SEMICONDUCTORS 24.9%
Alpha Industries, Inc............................... 35,000 1,992,813
ANADIGICS, Inc. (a)................................. 25,000 893,750
Analog Devices, Inc. (a)............................ 20,000 1,030,000
Applied Micro Circuits Corp. (a).................... 20,000 1,845,000
Broadcom Corp. (a).................................. 25,000 3,218,750
Conexant Systems, Inc. (a).......................... 60,000 4,312,500
Cree Research, Inc. (a)............................. 50,000 1,690,625
Cypress Semiconductor Corp. (a)..................... 50,000 1,156,250
Galileo Technology Ltd. (a)......................... 35,000 1,824,375
Hi/fn, Inc. (a)..................................... 25,000 3,017,187
Integrated Device Technology, Inc. (a).............. 125,000 2,437,500
LSI Logic Corp. (a)................................. 80,000 4,540,000
Micrel, Inc. (a).................................... 25,000 1,915,625
National Semiconductor Corp. (a).................... 50,000 1,409,375
PMC Sierra, Inc. (a)................................ 35,000 3,255,000
QLogic Corp. (a).................................... 50,000 4,353,125
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
-----------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS -- SEMICONDUCTORS (CONTINUED)
RF Micro Devices, Inc. (a).......................... 85,000 $ 3,734,687
SDL, Inc. (a)....................................... 45,000 3,684,375
Semtech Corp. (a)................................... 35,000 2,452,187
Texas Instruments, Inc.............................. 50,000 4,103,125
TriQuint Semiconductor, Inc. (a).................... 40,000 2,115,000
Vitesse Semiconductor Corp. (a)..................... 15,000 1,020,000
Xilinx, Inc. (a).................................... 45,000 3,147,187
Zoran Corp. (a)..................................... 35,000 1,163,750
------------
60,312,186
------------
EQUIPMENT -- SEMICONDUCTORS 3.2%
ASM Lithography Holding N.V. - ADR (Netherlands) 30,000 1,893,750
(a)...............................................
Helix Technology Corp............................... 20,000 565,000
KLA - Tencor Corp. (a).............................. 25,000 1,570,313
Lam Research Corp. (a).............................. 45,000 2,539,687
Teradyne, Inc. (a).................................. 20,000 1,361,250
------------
7,930,000
------------
HEALTH CARE 8.0%
Andrx Corp. (a)..................................... 25,000 1,796,875
Biogen, Inc. (a).................................... 40,000 3,070,000
ChiRex, Inc. (a).................................... 25,000 756,250
Gilead Sciences, Inc. (a)........................... 20,000 1,558,750
IDEC Pharmaceuticals Corp. (a)...................... 20,000 2,541,250
MedImmune, Inc. (a)................................. 25,000 2,579,687
MiniMed, Inc. (a)................................... 25,000 2,273,438
QLT Phototherapeutics, Inc. (a)..................... 20,000 1,637,500
VISX, Inc. (a)...................................... 35,000 3,167,500
------------
19,381,250
------------
PHOTOGRAPHY/IMAGING 0.8%
In Focus Systems, Inc. (a).......................... 45,000 720,000
Zebra Technologies Corp. (a)........................ 25,000 1,175,000
------------
1,895,000
------------
TOTAL LONG-TERM INVESTMENTS 89.3%
(Cost $190,776,648)...................................... 216,084,256
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
-----------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT 10.0%
Warburg Dillon Reed ($24,280,000 par collaterized by U.S.
Government obligations in a pooled cash account dated
08/31/99, to be sold on 09/01/99 at $24,283,662)
(Cost $24,280,000)......................................... $ 24,280,000
------------
TOTAL INVESTMENTS 99.3%
(Cost $215,056,648)........................................ 240,364,256
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%.................. 1,627,382
------------
NET ASSETS 100.0%........................................... $241,991,638
============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR -- American Depositary Receipt
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including a repurchase agreement of
$24,280,000 (Cost $215,056,648)........................... $240,364,256
Cash........................................................ 5,932
Receivables:
Fund Shares Sold.......................................... 7,311,251
Investments Sold.......................................... 3,814,204
Interest.................................................. 3,662
Dividends................................................. 975
------------
Total Assets.......................................... 251,500,280
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 8,910,925
Fund Shares Repurchased................................... 201,420
Investment Advisory Fee................................... 177,545
Distributor and Affiliates................................ 169,731
Accrued Expenses............................................ 48,805
Trustees' Deferred Compensation and Retirement Plans........ 216
------------
Total Liabilities..................................... 9,508,642
------------
NET ASSETS.................................................. $241,991,638
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $218,510,745
Net Unrealized Appreciation................................. 25,307,608
Accumulated Net Realized Loss............................... (1,825,348)
Accumulated Net Investment Loss............................. (1,367)
------------
NET ASSETS.................................................. $241,991,638
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $49,717,192 and 4,449,606 shares of
beneficial interest issued and outstanding)........... $ 11.17
Maximum sales charge (5.75%* of offering price)......... .68
------------
Maximum offering price to public........................ $ 11.85
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $164,267,232 and 14,714,736 shares of
beneficial interest issued and outstanding)........... $ 11.16
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $28,007,214 and 2,509,036 shares of
beneficial interest issued and outstanding)........... $ 11.16
============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Period July 26, 1999
(Commencement of Investment Operations) through August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest...................................................... $ 78,847
Dividends..................................................... 2,675
-----------
Total Income.............................................. 81,522
-----------
EXPENSES:
Investment Advisory Fee....................................... 177,545
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $9,434, $136,327 and $23,209, respectively)... 168,970
Shareholder Services.......................................... 37,889
Custody....................................................... 7,719
Trustees' Fees and Related Expenses........................... 1,764
Legal......................................................... 1,296
Other......................................................... 13,406
-----------
Total Expenses............................................ 408,589
Less Credits Earned on Cash Balances...................... 1,801
-----------
Net Expenses.............................................. 406,788
-----------
NET INVESTMENT LOSS........................................... $ (325,266)
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss............................................. $(1,825,348)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... -0-
End of the Period........................................... 25,307,608
-----------
Net Unrealized Appreciation During the Period................. 25,307,608
-----------
NET REALIZED AND UNREALIZED GAIN.............................. $23,482,260
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................... $23,156,994
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Period July 26, 1999
(Commencement of Investment Operations) through August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss......................................... $ (325,266)
Net Realized Loss........................................... (1,825,348)
Net Unrealized Appreciation During the Period............... 25,307,608
------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 23,156,994
------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 220,058,816
Cost of Shares Repurchased.................................. (1,324,172)
------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 218,734,644
------------
TOTAL INCREASE IN NET ASSETS................................ 241,891,638
NET ASSETS:
Beginning of the Period..................................... 100,000
------------
End of the Period (Including accumulated net investment loss
of $1,367)................................................ $241,991,638
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 26, 1999
(Commencement of
Investment Operations)
Class A Shares to August 31, 1999
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................... $10.000
-------
Net Investment Loss......................................... (0.009)
Net Realized and Unrealized Gain............................ 1.182
-------
Total from Investment Operations............................ 1.173
-------
Net Asset Value, End of the Period.......................... $11.173
=======
Total Return (a)............................................ 11.70%*
Net Assets at End of the Period (In millions)............... $ 49.7
Ratio of Expenses to Average Net Assets (b)................. 1.45%
Ratio of Net Investment Loss to Average Net Assets.......... (1.03%)
Portfolio Turnover.......................................... 7%*
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by .01% for the period July 26, 1999
to August 31, 1999.
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 26, 1999
(Commencement of
Investment Operations)
Class B Shares to August 31, 1999
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.000
-------
Net Investment Loss......................................... (.017)
Net Realized and Unrealized Gain............................ 1.180
-------
Total from Investment Operations............................ 1.163
-------
Net Asset Value, End of the Period.......................... $11.163
=======
Total Return (a)............................................ 11.60%*
Net Assets at End of the Period (In millions)............... $ 164.3
Ratio of Expenses to Average Net Assets..................... 2.21%
Ratio of Net Investment Income to Average Net Assets........ (1.79%)
Portfolio Turnover.......................................... 7%*
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by .01% for the period July 26, 1999
to August 31, 1999.
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 26, 1999
(Commencement of
Investment Operations)
Class C Shares to August 31, 1999
- -----------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................... $10.000
-------
Net Investment Loss......................................... (.016)
Net Realized and Unrealized Gain............................ 1.179
-------
Total from Investment Operations............................ 1.163
-------
Net Asset Value, End of the Period.......................... $11.163
=======
Total Return (a)............................................ 11.60%*
Net Assets at End of the Period (In millions)............... $ 28.0
Ratio of Expenses to Average Net Assets (b)................. 2.21%
Ratio of Net Investment Income to Average Net Assets........ (1.79%)
Portfolio Turnover.......................................... 7%*
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by .01% for the period July 26, 1999
to August 31, 1999.
See Notes to Financial Statements
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
August 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Technology Fund (the "Fund") is organized as a series of Van Kampen
Equity Trust II (the "Trust"), a Delaware business trust, and is registered as a
diversified open-end investment management company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is capital appreciation
through investments in common stock of companies considered by the Fund's
management to rely extensively on technology, science or communications in their
product development or operations. The Fund commenced investment operations on
July 26, 1999 with three classes of common shares, Class A, Class B, and Class C
shares.
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 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 sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the mean of the bid and asked prices, or, if not
available, their fair value as 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.
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 purchase and sell securities on a "when issued" or "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund will maintain, in a segregated account with its custodian, assets having an
aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made. At August 31, 1999, there
were no when issued or delayed delivery purchase commitments.
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
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
independently in repurchase agreements, or transfer uninvested cash balances
into a pooled cash account along with other investment companies advised by Van
Kampen Asset Management Inc. (the "Adviser") or its affiliates, the daily
aggregate of which is invested in repurchase agreements. Repurchase agreements
are fully collateralized by the underlying debt security. The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Fund.
C. INCOME AND EXPENSE--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts are amortized over
the life of each applicable security. Premiums on debt securities are not
amortized. Income and expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax 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, 1999, the Fund had an accumulated capital loss carryforward for
tax purposes of $1,825,348 which will expire on August 31, 2007.
Net realized gains or losses may differ for financial and tax reporting
purposes.
At August 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $215,056,648, the aggregate gross unrealized
appreciation is $28,180,421 and the aggregate gross unrealized depreciation is
$2,872,813, resulting in net unrealized appreciation on long- and short-term
investments of $25,307,608.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares and pays dividends
annually from net investment income. Net realized gains, if any, are distributed
annually. Distributions from net realized gains for book purposes may include
short-term capital gains and gains on option and futures transactions.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
For federal income tax purposes, net operating losses may not be used to
offset income generated in future tax years. Therefore, for the period ended
August 31, 1999, $323,899 of net investment loss and startup costs generated by
the Fund has been reclassified from accumulated net investment loss to capital.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of net investment income may differ between book and federal income tax
purposes for a particular period. These differences are temporary in nature.
F. EXPENSE REDUCTIONS--During the period ended August 31, 1999, the Fund's
custody fee was reduced by $1,801 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide facilities and investment advice to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .90 of 1%
Next $500 million..................................... .85 of 1%
Over $1 billion or thereafter......................... .80 of 1%
</TABLE>
For the period ended August 31, 1999, the Fund recognized expenses of
approximately $600 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the period ended August 31, 1999, the Fund recognized expenses of
approximately $1,000 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the period ended August 31,
1999, the Fund recognized expenses of approximately $9,000. Transfer agency fees
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
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 to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At August 31, 1999, Van Kampen owned 4,000 shares of Class A, 3,000 shares
of Class B, and 3,000 shares of Class C.
3. CAPITAL TRANSACTIONS
At August 31, 1999, capital aggregated $45,038,940, $148,236,808 and
$25,234,997 for Classes A, B and C, respectively. For the period ended August
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 4,494,651 $ 45,603,198
Class B................................... 14,753,444 148,873,096
Class C................................... 2,537,523 25,582,522
---------- ------------
Total Sales................................. 21,785,618 $220,058,816
========== ============
Repurchases:
Class A................................... (49,045) $ (537,859)
Class B................................... (41,708) (446,360)
Class C................................... (31,487) (339,953)
---------- ------------
Total Repurchases........................... (122,240) $ (1,324,172)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A Shares after the eighth year following
purchase. The CDSC for Class B and C
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
shares will be imposed on most redemptions made within five years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth and Thereafter......................... None None
</TABLE>
For the period ended August 31, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $248,800 and CDSC on redeemed shares of approximately $12,000.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $205,289,757 and $12,687,760,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or to 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 exercising a call
option contract or taking delivery of a security underlying a futures contract.
In these instances, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or futures contract.
The Fund may invest in futures contracts, a type of derivative. A futures
contract is an agreement involving the delivery of a particular asset on a
specified future date at an agreed upon price. Upon entering into futures
contracts, the Fund maintains, in a segregated account with its custodian,
securities with a value equal to its obligation under
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
the futures contracts. During the period the futures contract is open, payments
are received from or made to the broker based upon changes in the value of the
contract (the variation margin).
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. No fees were paid for
the period ended August 31, 1999.
26
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Van Kampen Equity Trust II --
Van Kampen Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Technology Fund (a fund
of the Van Kampen Equity Trust II, referred to as the "Fund") at August 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for the period presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 6, 1999
27
<PAGE> 29
VAN KAMPEN TECHNOLOGY FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President
and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, the report, if used with
prospective investors, must be accompanied by a quarterly performance update, if
applicable.
28
<PAGE> 30
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> TECHNOLOGY FUND - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1999<F1>
<PERIOD-START> JUL-26-1999<F1>
<PERIOD-END> AUG-31-1999<F1>
<INVESTMENTS-AT-COST> 215,056,648<F1>
<INVESTMENTS-AT-VALUE> 240,364,256<F1>
<RECEIVABLES> 11,130,092<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 5,932<F1>
<TOTAL-ASSETS> 251,500,280<F1>
<PAYABLE-FOR-SECURITIES> 8,910,925<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 597,717<F1>
<TOTAL-LIABILITIES> 9,508,642<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,038,940
<SHARES-COMMON-STOCK> 4,449,606
<SHARES-COMMON-PRIOR> 4,000
<ACCUMULATED-NII-CURRENT> (1,367)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,825,348)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 25,307,608<F1>
<NET-ASSETS> 49,717,192
<DIVIDEND-INCOME> 2,675<F1>
<INTEREST-INCOME> 78,847<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (406,788)<F1>
<NET-INVESTMENT-INCOME> (325,266)<F1>
<REALIZED-GAINS-CURRENT> (1,825,348)<F1>
<APPREC-INCREASE-CURRENT> 25,307,608<F1>
<NET-CHANGE-FROM-OPS> 23,156,994<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,494,651
<NUMBER-OF-SHARES-REDEEMED> (49,045)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,677,192
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 177,545<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 406,788<F1>
<AVERAGE-NET-ASSETS> 38,451,423
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.009)
<PER-SHARE-GAIN-APPREC> 1.182
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.173
<EXPENSE-RATIO> 1.45
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TECHNOLOGY FUND - CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1999<F1>
<PERIOD-START> JUL-26-1999<F1>
<PERIOD-END> AUG-31-1999<F1>
<INVESTMENTS-AT-COST> 215,056,648<F1>
<INVESTMENTS-AT-VALUE> 240,364,256<F1>
<RECEIVABLES> 11,130,092<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 5,932<F1>
<TOTAL-ASSETS> 251,500,280<F1>
<PAYABLE-FOR-SECURITIES> 8,910,925<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 597,717<F1>
<TOTAL-LIABILITIES> 9,508,642<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,236,808
<SHARES-COMMON-STOCK> 14,714,736
<SHARES-COMMON-PRIOR> 3,000
<ACCUMULATED-NII-CURRENT> (1,367)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,825,348)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 25,307,608<F1>
<NET-ASSETS> 164,267,232
<DIVIDEND-INCOME> 2,675<F1>
<INTEREST-INCOME> 78,847<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (406,788)<F1>
<NET-INVESTMENT-INCOME> (325,266)<F1>
<REALIZED-GAINS-CURRENT> (1,825,348)<F1>
<APPREC-INCREASE-CURRENT> 25,307,608<F1>
<NET-CHANGE-FROM-OPS> 23,156,994<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,753,444
<NUMBER-OF-SHARES-REDEEMED> (41,708)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 164,237,232
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 177,545<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 406,788<F1>
<AVERAGE-NET-ASSETS> 138,727,832
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.017)
<PER-SHARE-GAIN-APPREC> 1.180
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.163
<EXPENSE-RATIO> 2.21
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> TECHNOLOGY FUND - CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1999<F1>
<PERIOD-START> JUL-26-1999<F1>
<PERIOD-END> AUG-31-1999<F1>
<INVESTMENTS-AT-COST> 215,056,648<F1>
<INVESTMENTS-AT-VALUE> 240,364,256<F1>
<RECEIVABLES> 11,130,092<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 5,932<F1>
<TOTAL-ASSETS> 251,500,280<F1>
<PAYABLE-FOR-SECURITIES> 8,910,925<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 597,717<F1>
<TOTAL-LIABILITIES> 9,508,642<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,234,997
<SHARES-COMMON-STOCK> 2,509,036
<SHARES-COMMON-PRIOR> 3,000
<ACCUMULATED-NII-CURRENT> (1,367)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,825,348)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 25,307,608<F1>
<NET-ASSETS> 28,007,214
<DIVIDEND-INCOME> 2,675<F1>
<INTEREST-INCOME> 78,847<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (406,788)<F1>
<NET-INVESTMENT-INCOME> (325,266)<F1>
<REALIZED-GAINS-CURRENT> (1,825,348)<F1>
<APPREC-INCREASE-CURRENT> 25,307,608<F1>
<NET-CHANGE-FROM-OPS> 23,156,994<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,537,523
<NUMBER-OF-SHARES-REDEEMED> (31,487)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27,977,214
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 177,545<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 406,788<F1>
<AVERAGE-NET-ASSETS> 23,621,288
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.016)
<PER-SHARE-GAIN-APPREC> 1.179
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.163
<EXPENSE-RATIO> 2.21
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
