UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22043
Van Kampen Dynamic Credit Opportunities Fund
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 7/31
Date of reporting period: 7/31/07
Item 1. Reports to Shareholders.
The Fund'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
Dynamic Credit Opportunities Fund performed during the annual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of July 31, 2007.
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.
AN INVESTMENT IN SENIOR LOANS IS SUBJECT TO CERTAIN RISKS SUCH AS LOAN
DEFAULTS AND ILLIQUIDITY DUE TO INSUFFICIENT COLLATERAL BACKING.
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
Performance Summary as of 7/31/07
DYNAMIC CREDIT OPPORTUNITIES FUND
SYMBOL: VTA
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (6/26/07) -2.36% -1.25%
------------------------------------------------------------
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 NAV per share is determined by dividing the value of the fund's portfolio
securities, cash and other assets, less all liabilities, by the total number of
common shares outstanding. The common share market price is the price the market
is willing to pay for shares of the fund at a given time. Common share market
price is influenced by a range of factors, including supply and demand and
market conditions. Total return assumes an investment at the beginning of the
period, reinvestment of all distributions for the period in accordance with the
fund's dividend reinvestment plan, and sale of all shares at the end of the
period.
1
Fund Report
FOR THE PERIOD SINCE INCEPTION THROUGH JULY 31, 2007
MARKET CONDITIONS
In the months leading up to the Fund's inception on June 26, 2007, strong
technical and fundamental factors contributed to an exuberant market for senior
loans. The pace of global economic growth continued to be solid, inflation
remained contained, and conditions in the corporate credit market were quite
favorable. Corporate productivity was rising, cash flows were strong, and
borrowing costs remained low.
With regard to technical factors in the senior loan market, new-issue volume has
been extremely high over the past several months. Increasing private equity
activity helped drive global issuance up to $294 billion for the second quarter
of 2007 and total volume for the first half of the year to $545 billion--a 62
percent increase over the first half of 2006. The heavy supply was met by even
greater demand, as market activity from both institutional investors and
traditional high-yield investors continued to grow. In late June, however, while
new-issue supply still remained high, volatility in global interest rates and
equity performance, the U.S. subprime mortgage market fallout, and declining
high-yield credit indices caused yield spreads in the loan market to widen and
prices to soften, though more so in the U.S. than in Europe. In effect, what had
essentially been an issuer's market suddenly became a buyer's market, which
afforded us some very attractive investment opportunities around the time of the
Fund's inception.
In our view, the recent volatility in the senior loan market is the result of an
unusual confluence of events affecting the primary and secondary markets for all
credit products. This volatility has been driven by a number of factors,
including a supply/demand imbalance as some investors have scaled back purchases
of credit products, including senior loans, while other investors have sold off
securities and other credit vehicles, including senior loans. In the weeks
immediately following the end of the reporting period, signs of greater
stability in the senior loan market have begun to emerge, but all money markets
remain relatively nervous. Overall, the fundamentals of the loan market remain
strong, credit quality continues to be robust, and default rates continue to be
at historic low levels.
2
PERFORMANCE ANALYSIS
The Fund's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the Fund's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding, while market
price reflects the supply and demand for the shares. As a result, the two
returns can differ, as they did during the reporting period. For the period
since inception on June 26, 2007 through July 31, 2007, the Fund returned -1.25
percent on a market price basis and -2.36 percent on an NAV basis.
TOTAL RETURN FOR THE PERIOD SINCE INCEPTION THROUGH JULY 31, 2007
---------------------------------------
BASED ON BASED ON
NAV MARKET PRICE
-2.36% -1.25%
---------------------------------------
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. Investment return, net asset value and common share market price will
fluctuate and Fund shares, when sold, may be worth more or less than their
original cost. See Performance Summary for additional performance information.
Given the Fund's short, one-month history as of the end of the reporting period,
we maintain that it is too soon to effectively analyze portfolio performance.
The portfolio has been affected by the recent market volatility; however, we are
pleased by the additional value that has developed in the credit markets since
the Fund's initial public offering date. This has allowed us the opportunity to
purchase assets at attractive prices and yields, furthering our goals of seeking
high current income, and secondarily, capital appreciation. As of August 3,
2007, 49 percent of the Fund's assets had been invested in more than 150
holdings. In addition, on August 7, 2007, the Fund declared an initial dividend
of $0.1517 per share, payable on September 28, 2007, for shareholders of record
on September 14, 2007.
We use a combination of thorough credit analysis, a broad diversification of
holdings, and sophisticated risk-management techniques in order to build a
portfolio that we believe will ultimately lead to an attractive risk-adjusted
return. In an effort to further enhance return, we will opportunistically shift
allocations of the portfolio's assets among different categories of credit
investments, based on current economic and corporate credit cycles as well as
our expectations for future market trends.
The portfolio's assets will be allocated in the U.S. and Europe (primarily in
long-time European Union countries such as the U.K., the Netherlands, Germany,
France, Italy, and the Scandinavian states, and in euro-denominated investments
issued by non-European issuers).
3
Given the current low default rate environment, the portfolio's assets are
invested more defensively, primarily in senior loans, first and second lien
loans, and bonds. Should default rates rise, we will take a more balanced stance
between current yield and capital appreciation opportunities, increasing the
Fund's allocation to stressed and distressed debt and loans, and other
securities that we believe are the most undervalued part of a company's capital
structure.
Furthermore, we will utilize leverage in an effort to enhance returns. This
involves borrowing at a floating short-term rate and reinvesting the proceeds at
a higher rate. Unlike other fixed-income asset classes, using leverage in
conjunction with senior loans does not involve the same degree of risk from
rising short-term interest rate since the income from senior loans adjusts to
changes in interest rates, as do the rates which determine the Fund's borrowing
costs. (Similarly, should short-term rates fall, borrowing costs and income
would also decline. The use of leverage may increase the Fund's volatility.)
In closing, we will continue to closely monitor the markets for compelling
investment opportunities and look forward to reporting our progress in the
months ahead.
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
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 7/31/2007
Printing & Publishing 7.0%
Non-Durable Consumer Products 4.5
Entertainment & Leisure 3.8
Buildings & Real Estate 2.9
Chemicals, Plastics & Rubber 2.8
Beverage, Food & Tobacco 2.7
Broadcasting--Cable 2.2
Finance 1.9
Automotive 1.8
Retail--Stores 1.7
Broadcasting--Television 1.6
Business Equipment & Services 1.4
Electronics 1.4
Containers, Packaging & Glass 1.4
Telecommunications--Wireless 1.3
Telecommunications--Local Exchange Carriers 1.2
Healthcare 1.2
Utilities 1.1
Insurance 1.1
Construction Material 1.0
Hotels, Motels, Inns & Gaming 1.0
Education & Child Care 0.9
Ecological 0.9
Health & Beauty 0.8
Telecommunications--Equipment & Services 0.7
Natural Resources 0.6
Aerospace/Defense 0.6
Home & Office Furnishings, Housewares & Durable Consumer
Products 0.5
Transportation--Cargo 0.5
Mining, Steel, Iron & Non-Precious Metals 0.4
Farming & Agriculture 0.4
Textiles & Leather 0.4
Diversified Manufacturing 0.4
Surface Transportation 0.3
Transportation--Personal 0.3
Paper & Forest Products 0.2
Medical Products & Services 0.2
Restaurants & Food Service 0.1
Broadcasting--Radio 0.1
-----
Total Long-Term Investments 53.3
Short-Term Investments 46.7
-----
Total Investments 100.0%
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 sectors shown above. Summary of investments by industry
classification percentages are as a percentage of total investments. Securities
are classified by sectors that represent broad groupings of related industries.
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. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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) 341-2929.
6
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) 341-2929 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
Investment Advisory Agreement Approval
The Investment Company Act of 1940 requires that the investment advisory
agreement between the Fund and its investment adviser and the subadvisory
agreement between the investment adviser and the investment subadviser be
approved both by a majority of the Board of Trustees and by a majority of the
independent trustees voting separately. The Board of Trustees has considered the
investment advisory agreement and the subadvisory agreement separately, however,
for purposes of the discussion below, references herein to the investment
advisory agreement include collectively the investment advisory agreement and
the subadvisory agreement and references herein to the investment adviser
include collectively the investment adviser and the investment subadviser.
At a meeting held on April 17, 2007, the Board of Trustees, and the independent
trustees voting separately, considered and ultimately determined that the terms
of the investment advisory agreement are fair and reasonable and approved the
investment advisory agreement as being in the best interests of the Fund and its
shareholders. In making its determination, the Board of Trustees considered
materials that were specifically prepared by the investment adviser at the
request of the Board and Fund counsel, relating to the investment advisory
agreement review process. The Board also considered information received about
the model portfolio, the investment strategy, portfolio management team and
projected fees and expenses of the Fund. The Board of Trustees considered the
investment advisory agreement, and the trustees held sessions both with
management and separate from management in reviewing and considering the
investment advisory agreement.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
to be provided by the investment adviser, the projected fees and expenses of the
Fund compared to other similar funds and other products, the projected expenses
in providing the services and the projected profitability. The Board of Trustees
considered the extent to which any economies of scale could be experienced in
managing the Fund and noted the lack of proposed breakpoints given the proposed
nature of the Fund's portfolio. The Board of Trustees considered comparative
advisory fees of the Fund and other investment companies and/or other products
at different asset levels, and considered the trends in the industry versus
projected assets of the Fund. The Board of Trustees evaluated other benefits the
investment adviser and its affiliates may derive from their relationship with
the Fund. The Board of Trustees discussed the financial strength of the
investment adviser and its affiliated companies and the capability of the
personnel of the investment adviser, and specifically the strength and
background of its portfolio management personnel. The Board of Trustees reviewed
the statutory and regulatory requirements for approval and disclosure of the
investment advisory agreement. The Board of Trustees, including the independent
trustees, evaluated all of the foregoing and does not
8
believe any single factor or group of factors control or dominate the review
process, and, after considering all factors together, has determined, in the
exercise of its business judgment, that approval of the investment advisory
agreement is in the best interests of the Fund and its shareholders. The
following summary provides more detail on certain matters considered but does
not detail all matters considered.
Nature, Extent and Quality of the Services to be Provided. The Board of Trustees
considered the roles and responsibilities of the investment adviser as a whole
and for those specific portfolio management, support and trading functions
anticipated to be servicing the Fund. The trustees discussed with the investment
adviser the resources available in managing the Fund. The trustees also
discussed certain other services which are to be provided on a cost-
reimbursement basis by the investment adviser or its affiliates to the Van
Kampen funds including certain accounting, administrative and legal services.
The Board has determined that the nature, extent and quality of the services to
be provided by the investment adviser support its decision to approve the
investment advisory agreement.
Projected Fees and Expenses of the Fund. The Board of Trustees reviewed the
projected fees and expenses of the Fund compared to its peers. The trustees
discussed with the investment adviser the performance goals in managing the
Fund. When considering a fund's performance, the trustees and the investment
adviser discussed emphasis on trends and longer-term returns (focusing on one-
year, three-year and five-year performance with special attention to three-year
performance). The trustees discussed with the investment adviser the level of
advisory fees for this Fund relative to comparable funds and other products
advised by the adviser and others in the marketplace. The trustees reviewed not
only the advisory fees but other projected fees and expenses (whether payable to
the adviser, its affiliates or others) and the Fund's overall projected expense
ratio. The Board has determined that the projected fees and expenses of the Fund
support its decision to approve the investment advisory agreement.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees expect to review the investment adviser's expenses
in providing services to the Fund and other funds advised by the investment
adviser and the profitability of the investment adviser. These profitability
reports are put together by the investment adviser with the oversight of the
Board. In connection with the Fund, the trustees discussed with the investment
adviser its projected revenues and expenses, including among other things,
revenues for advisory services, portfolio management-related expenses, other
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's projected expenses
and profitability support its decision to approve the investment advisory
agreement.
Economies of Scale. The Board of Trustees considered the projected size of the
Fund and how that relates to the Fund's expense ratio and particularly the
Fund's advisory fee rate. The trustees discussed with the investment adviser how
9
more (or less) assets can affect the efficiency or effectiveness of managing the
Fund's portfolio and whether the advisory fee level is appropriate relative to
projected asset levels and/or whether the advisory fee structure reflects
economies of scale as asset levels change. The Board has determined that its
review of the potential economies of scale of the Fund support its decision to
approve the investment advisory agreement.
Other Benefits of the Relationship. The Board of Trustees considered other
benefits to the investment adviser and its affiliates derived from its
relationship with the Fund and other funds advised by the investment adviser.
These benefits include, among other things, fees for transfer agency services
provided to the funds, in certain cases research received by the adviser
generated from commission dollars spent on funds' portfolio trading, and in
certain cases distribution or service related fees related to funds' sales. The
trustees reviewed with the investment adviser each of these arrangements and the
reasonableness of its costs relative to the services performed. The Board has
determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory agreement.
10
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
VARIABLE RATE** SENIOR LOAN INTERESTS 60.2%
AEROSPACE/DEFENSE 0.7%
$ 4,722 DeCrane Aircraft
Holdings, Inc., Term
Loan.................. B1 B+ 8.11% 02/21/13 $ 4,674,656
1,496 IAP Worldwide
Services, Inc., Term
Loan.................. B1 B 9.69 12/30/12 1,365,285
3,000 Wesco Aircraft
Hardware Corp., Term
Loan.................. NR B 11.11 03/28/14 2,820,000
--------------
8,859,941
--------------
AUTOMOTIVE 2.2%
25,000 Ford Motor Co., Term
Loan.................. Ba3 B+ 8.36 12/15/13 23,626,725
1,333 Navistar International
Corp., Revolving
Credit Agreement...... NR BB- 5.22 to 8.61 01/19/12 1,276,667
3,667 Navistar International
Corp., Term Loan...... NR BB- 8.61 01/19/12 3,510,833
1,364 Precision Partners,
Inc., Term Loan....... B2 B+ 8.86 10/27/13 1,327,772
--------------
29,741,997
--------------
BEVERAGE, FOOD & TOBACCO 3.2%
4,000 Birds Eye Foods, Inc.,
Term Loan............. NR NR 10.61 07/11/12 3,880,000
6,645 Coleman Natural Foods,
LLC, Term Loan........ NR NR 9.86 08/22/12 6,412,023
7,000 Dole Food Co., Inc.,
Term Loan............. Ba3 BB- 7.36 to 7.54 04/12/13 6,632,500
10,000 DSW Holdings, Inc.,
Term Loan............. NR NR 9.36 03/07/12 9,925,000
3,000 LJVH Holdings, Inc.,
Term Loan............. Caa1 CCC+ 10.86 01/19/15 3,003,750
10,000 Pinnacle Foods Finance
LLC, Term Loan........ B2 B 8.11 04/02/14 9,475,000
4,964 Volume Services
America, Inc., Term
Loan.................. B2 NR 8.61 to 9.50 10/01/10 4,973,006
--------------
44,301,279
--------------
See Notes to Financial Statements 11
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
BROADCASTING--CABLE 2.5%
$17,000 Charter Communications
Operating, LLC, Term
Loan.................. B1 B+ 7.36% 03/06/14 $ 16,201,000
19,589 CSC Holdings, Inc.,
Term Loan............. Ba2 BB 6.57 02/24/12 18,824,416
--------------
35,025,416
--------------
BROADCASTING--RADIO 0.1%
1,000 NextMedia Operating,
Inc., Term Loan....... Caa1 CCC+ 9.82 11/15/13 977,500
--------------
BROADCASTING--TELEVISION 1.9%
28,188 Univision
Communications, Inc.,
Term Loan............. Ba3 B+ 7.61 09/29/14 26,114,360
--------------
BUILDINGS & REAL ESTATE 3.4%
7,495 Ginn LA CS Borrower,
LLC, Term Loan........ Caa3 CCC 8.36 to 12.86 06/08/11 to 06/08/12 6,396,821
2,000 Kyle Acquisition
Group, LLC, Term
Loan.................. NR NR 8.88 07/20/08 to 07/20/10 1,957,500
1,806 Lake at Las Vegas
Joint Venture, LLC,
Revolving Credit
Agreement............. Caa1 CCC+ 15.46 06/20/12 1,787,500
13,194 Lake at Las Vegas
Joint Venture, LLC,
Term Loan............. Caa1 CCC+ 15.46 06/20/12 12,336,805
3,000 Metroflag BP, LLC,
Term Loan............. NR NR 14.32 07/06/09 3,007,500
2,000 NLV Holdings, LLC,
Term Loan............. Caa1 B+ 12.32 05/30/12 2,010,000
4,998 Pivotal Promontory,
Term Loan............. NR NR 8.07 to 11.82 08/31/10 to 08/31/11 4,742,985
3,000 Realogy Corp., Term
Loan.................. Ba3 BB 8.32 to 8.36 10/10/13 2,830,713
4,912 Rhodes Ranch General
Partnership, Term
Loan.................. B2 BB- 8.61 to 12.86 11/21/10 to 11/21/11 4,780,809
2,992 Shea Capital I, LLC,
Term Loan............. NR NR 7.36 10/27/11 2,782,990
2,500 Tamarack Resort, LLC,
Term Loan............. NR NR 8.61 to 10.50 05/19/11 2,437,500
2,000 WCI Communities, Inc,
Term Loan............. NR NR 7.82 12/23/10 1,927,500
--------------
46,998,623
--------------
12 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES 1.7%
$ 1,000 Edwards (Cayman
Islands II) Limited,
Term Loan............. B3 B 11.11% 11/30/14 $ 900,000
2,000 HydroChem Industrial
Services, Inc., Term
Loan.................. Caa1 NR 11.07 07/12/14 2,002,500
997 NCO Financial Systems,
Term Loan............. Ba3 BB- 8.36 05/15/13 987,519
20,000 VNU, Inc., Term
Loan.................. Ba3 B+ 7.36 08/09/13 19,511,720
--------------
23,401,739
--------------
CHEMICALS, PLASTICS & RUBBER 3.2%
3,000 Arizona Chemical Co.,
Term Loan............. Caa1 CCC+ 10.86 02/28/14 2,872,500
6,841 Borsodchem, Term Loan
(Hungary)............. NR B+ 7.86 to 8.36 09/19/14 to 09/09/15 6,825,358
5,000 Brenntag Holdings GmbH
& Co. KG, Term Loan
(Germany)............. Caa1 CCC+ 9.39 07/17/15 4,987,500
4,094 Fibervisions Delaware
Corp., Term Loan...... B1 B+ 8.86 03/31/13 4,802,785
10,000 Foamex L.P., Term
Loan.................. Caa1 CCC+ 10.11 02/12/14 9,100,000
2,922 Momentive Performance,
Term Loan............. Caa1 CCC+ 6.34 02/12/13 3,999,486
13,000 Wellman, Inc., Term
Loan.................. Caa1 CCC 9.36 to 12.11 02/10/09 to 02/10/10 12,097,000
--------------
44,684,629
--------------
CONSTRUCTION MATERIAL 1.2%
2,000 AXIA, Inc., Term
Loan.................. B2 B 10.11 12/21/12 1,810,000
8,988 Building Materials
Corp. of America, Term
Loan.................. Caa1 NR 8.13 to 11.13 03/15/14 to 09/15/14 8,245,881
3,000 Building Materials
Holdings Corp., Term
Loan.................. B1 BB+ 7.86 11/10/13 2,925,000
2,000 Custom Building
Products, Inc., Term
Loan.................. NR NR 10.32 04/29/12 1,920,000
2,000 Masonite International
Corp., Term Loan...... Ba3 BB 7.36 04/06/13 1,865,384
--------------
16,766,265
--------------
See Notes to Financial Statements 13
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS 1.3%
$ 5,200 Altivity Packaging
LLC, Term Loan........ B3 B 10.32% 12/30/13 $ 5,131,750
4,000 Berry Plastics Group,
Inc., Term Loan....... Ba3 BB- 7.36 04/03/15 3,764,284
4,000 Berry Plastics Group,
Inc., Term Loan (b)... Caa2 CCC+ 11.61 06/05/14 3,680,000
3,000 Consolidated Container
Co., LLC, Term Loan... Caa1 CCC 10.82 to 10.86 09/28/14 2,677,500
3,000 Unifrax Corp., Term
Loan.................. Ba3 BB- 7.63 05/02/13 2,921,250
--------------
18,174,784
--------------
DIVERSIFIED MANUFACTURING 0.5%
7,000 Euramax International,
Inc., Term Loan....... B1 B+ 8.38 to 13.36 06/29/12 to 06/29/13 6,578,752
--------------
ECOLOGICAL 1.1%
5,000 Energy Solutions, LLC,
Term Loan............. B3 B+ 9.88 12/31/14 4,931,250
10,250 Synagro Technologies,
Inc., Term Loan....... Caa1 B- 10.11 10/02/14 9,840,000
--------------
14,771,250
--------------
EDUCATION & CHILD CARE 1.1%
500 Educate, Inc., Term
Loan.................. B3 CCC+ 10.59 06/14/14 477,500
5,000 Nelson Education Ltd.,
Term Loan............. Caa1 CCC+ 11.32 07/05/15 4,993,750
10,000 TL Acquisitions, Inc.,
Term Loan............. B1 B+ 8.07 07/05/14 9,420,000
--------------
14,891,250
--------------
ELECTRONICS 1.6%
4,000 Dealer Computer
Services, Inc., Term
Loan.................. B3 B- 10.85 10/26/13 3,980,000
5,000 Kronos, Inc., Term
Loan.................. Caa1 CCC+ 11.11 06/11/15 4,825,000
3,980 Stratus Technologies,
Inc., Term Loan....... NR B- 9.11 03/29/11 3,845,578
9,854 Verint Systems, Inc.,
Term Loan............. NR B+ 8.09 05/25/14 9,792,260
--------------
22,442,838
--------------
14 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
ENTERTAINMENT & LEISURE 4.4%
$ 2,933 Fender Musical
Instruments Corp.,
Term Loan............. B2 B+ 7.65% 06/09/14 $ 2,845,333
47,623 Metro-Goldwyn-Mayer
Studios, Inc., Term
Loan.................. NR NR 8.61 04/08/12 45,111,552
5,000 Panavision, Inc., Term
Loan.................. B1 B+ 8.86 03/30/11 4,875,000
8,178 Travelport, Term
Loan.................. Ba3 BB- 7.86 08/23/13 8,058,855
--------------
60,890,740
--------------
FARMING & AGRICULTURE 0.5%
7,000 Wm. Bolthouse Farms,
Inc., Term Loan....... Caa1 CCC+ 10.86 12/16/13 6,935,831
--------------
FINANCE 1.7%
2,934 DCS Business Services,
Inc., Term Loan....... NR NR 10.32 02/04/11 2,611,377
4,000 National Processing
Company Group, Term
Loan.................. B2 B+ 8.37 09/29/12 3,942,500
5,000 Outsourcing Solutions,
Inc., Term Loan....... NR NR 9.86 to 10.82 06/17/10 to 09/30/10 5,018,924
10,000 RJO Holdings Corp.,
Term Loan............. B3 CCC 8.32 to 12.07 07/12/14 to 07/12/15 9,900,000
2,500 Transfirst Holdings,
Inc., Term Loan....... Caa2 CCC+ 11.36 06/15/15 2,406,250
--------------
23,879,051
--------------
HEALTH & BEAUTY 1.0%
7,500 American Safety Razor
Co., Term Loan........ B3 B- 11.63 01/30/14 7,425,000
6,753 Marietta Intermediate
Holdings Corp., Term
Loan (b).............. NR NR 9.32 to 13.32 12/17/10 to 12/17/11 6,128,427
--------------
13,553,427
--------------
HEALTHCARE 1.4%
2,000 Concentra, Inc., Term
Loan.................. Caa1 CCC+ 10.86 06/25/15 1,980,000
12,000 HCA, Inc., Term Loan.. Ba3 BB 7.36 to 7.61 11/17/12 to 11/17/13 11,562,479
6,500 Inverness Medical
Innovations, Inc.,
Term Loan............. Caa1 B- 9.59 06/26/15 6,337,500
--------------
19,879,979
--------------
See Notes to Financial Statements 15
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 0.6%
$ 3,789 Hunter Fan Co., Term
Loan.................. Caa1 CCC+ 7.86% 10/16/14 $ 3,524,211
998 Lenox, Inc., Term
Loan.................. NR B- 9.82 to 9.86 04/20/13 972,562
4,000 National Bedding Co.,
LLC, Term Loan........ Caa1 B+ 10.36 08/31/12 3,820,000
--------------
8,316,773
--------------
HOTELS, MOTELS, INNS & GAMING 0.6%
3,000 Kuilima Resort Co.,
Term Loan (c)......... NR NR 15.75 09/30/11 2,205,000
5,500 Wembley, Inc., Term
Loan.................. B3 B- 9.63 07/18/12 5,503,437
--------------
7,708,437
--------------
INSURANCE 1.3%
3,000 Concord Re, Ltd., Term
Loan.................. Ba2 BB+ 9.61 02/29/12 2,992,500
3,500 HMSC Holdings Corp.,
Term Loan............. B3 CCC+ 10.86 10/03/14 3,220,000
5,860 Mitchell
International, Inc.,
Term Loan............. Caa1 CCC+ 10.63 03/28/15 5,567,000
6,000 Vertafore, Inc., Term
Loan.................. NR NR 11.11 to 11.36 01/31/13 5,730,000
--------------
17,509,500
--------------
MEDICAL PRODUCTS & SERVICES 0.2%
3,000 VWR Funding, Inc.,
Term Loan............. B1 B+ 7.86 06/29/14 2,917,500
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 0.5%
7,963 John Maneely Co., Term
Loan.................. B3 B+ 8.61 to 8.62 12/08/13 7,156,343
--------------
NATURAL RESOURCES 0.7%
8,000 CDX Funding, LLC, Term
Loan.................. NR NR 11.57 03/31/13 8,005,000
2,000 Dresser, Inc., Term
Loan.................. B3 B- 11.11 05/04/15 1,900,000
--------------
9,905,000
--------------
NON-DURABLE CONSUMER PRODUCTS 4.6%
4,090 Aearo Technologies,
Inc., Term Loan....... Caa1 B- 7.61 to 10.86 09/24/13 to 06/01/14 3,966,475
1,796 Amscan Holdings, Inc.,
Term Loan............. Ba3 B 7.57 to 7.62 05/25/13 1,741,635
9,400 KIK Custom Products,
Term Loan............. Caa1 CCC 7.57 to 10.36 05/31/14 to 11/30/14 8,536,500
16 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
NON-DURABLE CONSUMER PRODUCTS (CONTINUED)
$ 1,000 Nice Pak Products,
Term Loan............. NR NR 8.36% 06/18/14 $ 1,000,000
27,363 Ontex, Term Loan
(Belgium)............. NR NR 7.36 to 7.86 07/05/12 to 07/05/13 27,180,571
5,000 Philosophy, Inc., Term
Loan.................. B2 B+ 7.34 to 7.36 03/16/14 4,912,500
12,600 Spectrum Brands, Inc.,
Revolving Credit
Agreement............. B1 B- 5.17 to 9.36 03/30/13 12,222,000
5,000 Targus Group
International, Inc.,
Term Loan............. Caa2 CCC+ 13.87 05/22/13 4,350,000
--------------
63,909,681
--------------
PAPER & FOREST PRODUCTS 0.3%
4,000 Ainsworth Lumber Co,
Ltd, Term Loan........ Ba3 B- 8.36 06/26/14 3,900,000
--------------
PRINTING & PUBLISHING 8.0%
10,000 American Media
Operations, Inc., Term
Loan.................. B1 B- 8.61 01/31/13 9,400,000
1,205 Canon Communications,
LLC, Term Loan........ B2 B+ 8.32 05/31/11 1,202,321
1,963 CBD Media, Inc., Term
Loan.................. Ba3 B+ 8.07 12/31/09 1,938,426
1,593 Dex Media West, LLC,
Term Loan............. Ba1 BB+ 5.58 03/09/10 1,548,956
1,000 DRI Holdings, Term
Loan.................. NR NR 8.32 07/03/14 995,000
4,000 Endurance Business
Media, Inc., Term
Loan.................. Caa1 CCC+ 12.57 01/26/14 4,010,000
2,000 FSC Acquisition, LLC,
Term Loan............. B2 B 7.61 03/08/14 1,863,334
5,000 Gatehouse Media, Inc.,
Term Loan............. B1 BB- 7.36 08/28/14 4,754,165
3,369 Haights Cross
Operating Co., Term
Loan.................. B3 B- 9.86 08/20/08 3,335,062
10,000 Idearc, Inc., Term
Loan.................. Ba3 BBB- 7.36 11/17/13 9,462,500
11,750 Merrill
Communications, LLC,
Term Loan............. B3 B- 11.82 11/15/13 11,779,375
3,000 Penton Media, Inc.,
Term Loan............. Caa1 CCC+ 10.36 02/01/14 2,910,000
See Notes to Financial Statements 17
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING (CONTINUED)
$ 4,104 Prosiebensat.1 Media
Ag, Term Loan
(Germany)............. Ba1 NR 7.23% 05/09/15 $ 3,887,684
4,126 R.H. Donnelley, Inc.,
Term Loan............. Ba1 BB 6.86 12/31/09 to 06/30/11 3,997,638
4,000 Riverdeep Interactive
Learning USA, Inc.,
Term Loan............. B B- 8.11 12/20/13 3,880,000
50,000 Tribune Co., Term
Loan.................. Ba2 BB- 8.36 05/19/14 45,571,450
--------------
110,535,911
--------------
RESTAURANTS & FOOD SERVICE 0.1%
1,600 Center Cut
Hospitality, Inc.,
Term Loan............. NR NR 8.07 07/06/14 1,568,000
--------------
RETAIL--STORES 2.0%
15,000 Dollar General Corp,
Term Loan............. B2 B+ 8.07 to 8.11 07/06/14 13,668,750
3,000 General Nutrition
Centers, Inc., Term
Loan.................. Ba3 B- 7.61 09/16/13 2,913,750
9,975 Michael's Stores,
Inc., Term Loan....... B2 B 7.63 10/31/13 9,362,357
2,000 Neiman Marcus Group,
Inc., Term Loan....... Ba3 B+ 7.11 04/06/13 1,927,500
--------------
27,872,357
--------------
TELECOMMUNICATIONS--EQUIPMENT & SERVICES 0.8%
10,945 Orion, Term Loan
(Germany)............. NR NR 7.61 to 8.61 02/02/14 10,770,334
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 1.5%
1,995 CavTel Holdings, LLC,
Term Loan............. B2 NR 10.11 12/31/12 2,021,172
8,484 Global Tel*Link Corp.,
Term Loan............. Ba3 BB 6.36 to 8.86 02/14/13 8,399,504
5,600 Hawaiian Telcom
Communications, Inc.,
Term Loan............. Ba3 B- 7.61 06/01/14 5,341,000
2,800 NuVox Transition
Subsidiary, LLC, Term
Loan.................. B2 CCC+ 8.59 to 8.66 05/31/14 2,772,000
1,606 Sorenson
Communications, Inc.,
Term Loan............. NR NR 7.86 04/27/14 1,581,474
--------------
20,115,150
--------------
18 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P COUPON STATED MATURITY* VALUE
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--WIRELESS 1.5%
$ 5,000 Asurion Corp., Term
Loan.................. NR NR 8.32% 07/03/14 $ 4,681,250
16,947 MetroPCS Wireless,
Inc., Term Loan....... B1 B+ 7.63 11/03/13 16,523,629
--------------
21,204,879
--------------
TEXTILES & LEATHER 0.5%
2,000 Gold Toe Investment
Corp., Term Loan...... Caa1 CCC+ 11.36 04/30/14 2,010,000
5,000 Levi Strauss & Co,
Term Loan............. B2 B 7.57 03/27/14 4,754,165
--------------
6,764,165
--------------
TRANSPORTATION--CARGO 0.6%
9,000 JHCI Acquisitions,
Inc., Term Loan....... Caa1 CCC+ 10.86 12/19/14 8,100,000
--------------
TRANSPORTATION--PERSONAL 0.4%
5,500 Coach America
Holdings, Inc.,
Revolving Credit
Agreement............. Caa1 CCC+ 11.86 10/20/14 5,376,250
--------------
UTILITIES 1.3%
5,000 Bicent Power LLC, Term
Loan.................. B1 B- 9.36 12/31/14 4,925,000
2,500 First Light Power
Resources, Term
Loan.................. B3 B- 9.88 05/01/14 2,443,750
6,000 NRG Energy, Inc., Term
Loan.................. B2 B- 7.11 02/01/13 5,809,998
5,000 TPF Generation
Holdings, LLC, Term
Loan.................. B3 B- 9.61 12/15/14 4,937,500
--------------
18,116,248
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 60.2%.......................... 830,616,179
--------------
See Notes to Financial Statements 19
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
DESCRIPTION VALUE
--------------------------------------------------------------------------------------------------------
NOTES 2.7%
Ardagh Glass Finance Bv (Ireland) ($4,104,450 par, 8.88% coupon, maturing 07/01/13).... $ 4,042,883
Cb Bus Ab (Sweden) ($5,472,600 par, 9.13% coupon, maturing 08/01/09)................... 5,582,052
Codere Fin Luxembourg SA (Luxembourg) ($2,736,300 par, 8.25% coupon, maturing
06/15/15)............................................................................. 2,606,326
Del Laboratories, Inc. ($10,000,000 par, 10.36% coupon, maturing 11/01/11) (d)......... 9,950,000
Ford Credit Europe (United Kingdom) ($6,840,750 par, 7.13% coupon, maturing
01/15/13)............................................................................. 6,409,872
Kabel Deutschland (Germany) ($2,736,300 par, 10.75% coupon, maturing 07/01/14)......... 2,900,478
Peermont Global Ltd. (South Africa) ($5,472,600 par, 7.75% coupon, maturing
04/30/14)............................................................................. 5,212,652
--------------
TOTAL NOTES............................................................................ 36,704,263
--------------
TOTAL LONG-TERM INVESTMENTS 62.9%
(Cost $897,219,735)................................................................... 867,320,442
--------------
SHORT-TERM INVESTMENTS 55.0%
REPURCHASE AGREEMENTS 55.0%
State Street Bank & Trust Co. ($758,521,000 par collateralized by U.S. Government
obligations in a pooled cash account, interest rate of 4.88%, dated 07/31/07, to be
sold on 08/01/07 at $758,623,822) (a)................................................. 758,521,000
TIME DEPOSIT 0.0%
State Street Bank & Trust Corp. ($200,851 par, 0.85% coupon, dated 07/31/07, to be sold
on 08/01/07 at $200,856).............................................................. 200,851
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $758,721,851)................................................................... 758,721,851
--------------
TOTAL INVESTMENTS 117.9%
(Cost $1,655,941,586)................................................................. 1,626,042,293
--------------
FOREIGN CURRENCY 0.2%
(Cost $3,038,291)..................................................................... 3,011,982
LIABILITIES IN EXCESS OF OTHER ASSETS (18.1%)......................................... (249,208,149)
--------------
NET ASSETS 100.0%..................................................................... $1,379,846,126
==============
Industry percentages are calculated as a percentage of net assets.
NR--Not rated
(a) All or a portion of this security is designated in connection with unfunded
loan commitments.
(b) Payment-in-kind security.
(c) This Senior Loan interest is non-income producing.
(d) Variable rate security. Interest rate shown is that in effect at July 31,
2007.
+ Bank Loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade. Bank
loan ratings are unaudited.
20 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
* Senior Loans in the Fund's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Fund estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Fund invests generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally (i) the lending rate offered
by one or more major European banks, such as the London Inter-Bank Offered
Rate ("LIBOR"), (ii) the prime rate offered by one or more major United
States banks or (iii) the certificate of deposit rate. Senior Loans are
generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
Borrower prior to the disposition of a Senior Loan.
SWAP AGREEMENTS OUTSTANDING AS OF JULY 31, 2007:
CREDIT DEFAULT SWAPS
PAY/
RECEIVE NOTIONAL UNREALIZED
REFERENCE BUY/SELL FIXED EXPIRATION AMOUNT APPRECIATION/
COUNTERPARTY ENTITY/INDEX PROTECTION RATE DATE (000) DEPRECIATION
Goldman Sachs Credit
Partners, L.P. ............ Standard Pacific
Corporation Sell 4.77% 09/20/12 $ 5,000 $ (422,658)
Goldman Sachs Credit
Partners, L.P. ............ K. Hovnanian
Enterprises. Inc. Sell 4.69 09/20/12 5,000 (489,995)
Credit Suisse
International.............. LCDX.NA.8 Sell 1.20 06/20/12 20,000 (942,839)
Goldman Sachs Credit
Partners, L.P. ............ LCDX.NA.8 Sell 1.20 06/20/12 40,000 (2,075,677)
Goldman Sachs Credit
Partners, L.P. ............ CDX.NA.HY.8 Sell 2.75 06/20/12 30,000 (1,183,858)
UBS AG...................... CDX.NA.HY.8 Sell 2.75 06/20/12 20,000 (1,080,905)
Goldman Sachs Credit
Partners, L.P. ............ UPC Holding B.V. Sell 3.45 09/20/12 5,000 (447,544)
Goldman Sachs Credit
Partners, L.P. ............ Peermont Global
Limited Sell 3.50 09/20/12 6,841 (549,449)
Bank of America N.A......... WDAC Subsidiary
Corp. Sell 3.30 09/20/12 6,841 (708,317)
Credit Suisse
International.............. Codere Finance
(Luxembourg) S.A. Sell 3.42 09/20/12 6,841 (533,303)
Bank of America N.A......... Kabel Deutsche-
land GMBH Sell 3.05 09/20/10 6,841 (165,873)
Bank of America N.A......... Seat Pagine
Gialle S.P.A. Sell 3.35 09/20/12 6,841 (408,165)
-------------
TOTAL CREDIT DEFAULT SWAPS................................................................... $(9,088,583)
=============
See Notes to Financial Statements 21
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS -- JULY 31, 2007 continued
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AS OF JULY 31, 2007:
UNREALIZED
IN EXCHANGE CURRENT APPRECIATION/
FOR VALUE DEPRECIATION
LONG CONTRACTS:
Euro
2,082,093 expiring 10/16/07.......................... US$ $2,855,346 $ (452)
347,078 expiring 10/16/07............................ US$ 475,977 (273)
-------------
(725)
-------------
SHORT CONTRACTS:
Euro
1,000,000 expiring 10/16/07.......................... US$ 1,371,383 (7,383)
2,090,000 expiring 10/16/07.......................... US$ 2,866,190 (11,250)
2,962,500 expiring 10/16/07.......................... US$ 4,062,721 (15,946)
4,971,583 expiring 10/16/07.......................... US$ 6,817,943 27,927
1,930,000 expiring 10/16/07.......................... US$ 2,646,769 17,210
4,120,000 expiring 10/16/07.......................... US$ 5,650,097 44,567
1,042,500 expiring 10/16/07.......................... US$ 1,429,667 10,652
1,223,608 expiring 10/16/07.......................... US$ 1,678,035 18,008
-------------
83,785
-------------
TOTAL FORWARD FOREIGN CURRENCY CONTRACTS.......................................... $ 83,060
=============
SUMMARY OF LONG-TERM INVESTMENTS BY COUNTRY CLASSIFICATION
COUNTRY VALUE PERCENT OF NET ASSETS
United States........................................... $780,269,348 56.5%
Belgium................................................. 27,180,571 2.0
Germany................................................. 22,545,996 1.6
Ireland................................................. 7,922,883 0.6
Hungary................................................. 6,825,358 0.5
United Kingdom.......................................... 6,409,872 0.5
Sweden.................................................. 5,582,052 0.4
South Africa............................................ 5,212,652 0.4
Luxembourg.............................................. 2,606,326 0.2
Canada.................................................. 1,865,384 0.1
Cayman Islands.......................................... 900,000 0.1
------------ ----
$867,320,442 62.9%
============ ====
22 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2007
ASSETS:
Total Investments, including repurchase agreement of
$758,521,000 (Cost $1,655,941,586)........................ $1,626,042,293
Foreign Currency (Cost $3,038,291).......................... 3,011,982
Restricted Cash............................................. 19,150,000
Receivables:
Investments Sold.......................................... 40,000,000
Interest.................................................. 3,408,525
Forward Foreign Currency Contracts.......................... 118,364
Other....................................................... 39,526
--------------
Total Assets............................................ 1,691,770,690
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 288,058,327
Custodian Bank............................................ 9,750,193
Investment Advisory Fee................................... 1,445,099
Other Affiliates.......................................... 73,260
Swap Contracts.............................................. 11,789,833
Unfunded Commitments........................................ 116,992
Forward Foreign Currency Contracts.......................... 35,304
Trustees' Deferred Compensation and Retirement Plans........ 1,260
Accrued Expenses............................................ 654,296
--------------
Total Liabilities....................................... 311,924,564
--------------
NET ASSETS.................................................. $1,379,846,126
==============
NET ASSET VALUE PER COMMON SHARE ($1,379,846,126 divided by
74,005,236 shares outstanding)............................ $ 18.65
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 74,005,236 shares issued and
outstanding).............................................. $ 740,052
Paid in Surplus............................................. 1,412,159,948
Accumulated Undistributed Net Investment Income............. 6,258,914
Accumulated Net Realized Loss............................... (344,326)
Net Unrealized Depreciation................................. (38,968,462)
--------------
NET ASSETS.................................................. $1,379,846,126
==============
See Notes to Financial Statements 23
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Period June 26, 2007 (Commencement of Operations) to July 31, 2007
INVESTMENT INCOME:
Interest.................................................... $ 7,983,421
Other....................................................... 2,808
------------
Total Income............................................ 7,986,229
------------
EXPENSES:
Investment Advisory Fee..................................... 1,630,802
Professional Fees........................................... 138,985
Reports to Shareholders..................................... 60,025
Custody..................................................... 52,395
Accounting & Administrative Expenses........................ 33,425
Registration Fees........................................... 7,000
Transfer Agent.............................................. 4,690
Trustees' Fees and Related Expenses......................... 3,360
Other....................................................... 83,008
------------
Total Expenses.......................................... 2,013,690
------------
NET INVESTMENT INCOME....................................... $ 5,972,539
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 19,004
Swap Contracts............................................ (71,329)
Foreign Currency Transactions............................. (5,626)
------------
Net Realized Loss........................................... (57,951)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... -0-
------------
End of the Period:
Investments............................................. (29,899,293)
Swap Contracts.......................................... (9,008,583)
Unfunded Commitments.................................... (116,992)
Foreign Currency Translation............................ (26,654)
Forward Foreign Currency Contracts...................... 83,060
------------
Net Unrealized Depreciation During the Period............... (38,968,462)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(39,026,413)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(33,053,874)
============
24 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
For the Period June 26, 2007 (Commencement of Operations) to July 31, 2007
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 5,972,539
Net Realized Loss........................................... (57,951)
Net Unrealized Depreciation During the Period............... (38,968,462)
--------------
Change in Net Assets from Operations........................ (33,053,874)
Distributions from Net Investment Income.................... -0-
--------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (33,053,874)
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares of Beneficial Interest Sold............ 1,412,900,000
--------------
TOTAL INCREASE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 1,379,846,126
NET ASSETS:
Beginning of the Period..................................... -0-
--------------
End of the Period (Including accumulated undistributed net
investment income of $6,258,914).......................... $1,379,846,126
==============
See Notes to Financial Statements 25
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
FINANCIAL STATEMENTS continued
Statement of Cash Flows
For the Period June 26, 2007 (Commencement of Operations) to July 31, 2007
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ (33,053,874)
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash provided by Operating Activities:
Purchases of Investments.................................. (899,005,101)
Principal Repayments/Sales of Investments................. 1,743,833
Net Purchases of Short-Term Investments................... (758,721,851)
Purchases of Foreign Currency............................. (48,763,524)
Sales of Foreign Currency................................. 45,719,627
Amortization of Loan Fees................................. 33,811
Net Loan Fees Received.................................... 82,880
Accretion of Discount..................................... (56,174)
Net Realized Gain on Investments.......................... (19,004)
Net Realized Loss on Foreign Currency Transactions........ 5,626
Net Change in Unrealized Depreciation on Investments...... 29,899,293
Net Change in Unrealized Depreciation on Foreign
Currency................................................ 26,309
Net Change in Unrealized Appreciation on Forward Foreign
Currency Contracts...................................... (83,060)
Increase in Restricted Cash............................... (19,150,000)
Increase in Interest Receivables and Other Assets......... (3,448,051)
Increase in Receivable for Investments Sold............... (40,000,000)
Increase in Accrued Expenses and Other Payables........... 11,924,108
Increase in Investments Purchased......................... 288,058,327
Net Change in Unrealized Depreciation on Swap Contracts... 9,008,583
Net Change in Unfunded Commitments........................ 116,992
---------------
Total Adjustments....................................... (1,382,627,376)
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... (1,415,681,250)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares of Beneficial Interest Sold............ 1,412,900,000
Payments Received From Swaps with a Financing Element....... 2,781,250
---------------
Net Cash From Financing Activities...................... 1,415,681,250
---------------
NET INCREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
---------------
CASH AT THE END OF THE PERIOD............................... $ -0-
===============
26 See Notes to Financial Statements
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
JUNE 26, 2007
(COMMENCEMENT
OF OPERATIONS) TO
JULY 31, 2007
-----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 19.10
--------
Net Investment Income (a)................................. 0.08
Net Realized and Unrealized Loss.......................... (0.53)
--------
Total from Investment Operations.......................... (0.45)
Less Distributions from Net Investment Income............. -0-
--------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 18.65
========
Common Share Market Price at End of the Period.............. $ 19.75
Total Return (b)............................................ -1.25%*
Net Assets at End of the Period (In millions)............... $1,379.8
Ratio of Expenses to Average Net Assets..................... 1.54%
Ratio of Net Investment Income to Average Net Assets........ 4.58%
Portfolio Turnover (c)...................................... 0%*
* Non-Annualized
(a) Based on average shares outstanding.
(b) Total return based on common share market price assumes an investment at the
common share market price at the beginning of the period indicated,
reinvestment of all distributions for the period in accordance with the
Fund's dividend reinvestment plan, and sale of all shares at the closing
common share market price at the end of the period indicated.
(c) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
See Notes to Financial Statements 27
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Dynamic Credit Opportunities Fund (the "Fund") is a statutory trust
organized under the laws of the State of Delaware pursuant to an Agreement and
Declaration of Trust dated March 15, 2007. The Fund is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment
objective is to seek a high level of current income, with a secondary objective
of capital appreciation. The Fund seeks to achieve its investment objectives by
opportunistically investing primarily in credit securities of issuers which
operate in a variety of industries and geographic regions located throughout the
world. The Fund will invest in a combination of (i) senior secured floating rate
and fixed rate loans; (ii) second lien or other subordinated or unsecured
floating rate loans or debt; (iii) other debt obligations, including high yield,
high risk obligations; and (iv) structured products including collateralized
debt and loan obligations. The Fund intends to borrow money for investment
purposes which will create the opportunity for enhanced return, but also should
be considered a speculative technique and may increase the Fund's volatility.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Fund is authorized to issue an unlimited number of common shares of
beneficial interest, par value $0.01 per share. The Fund had no operations until
June 26, 2007, other than matters relating to its organization and registration
and sale and issuance to Van Kampen Investments Inc., an affiliate of Van Kampen
Asset Management (the "Adviser"), of 5,236 shares of common stock at an
aggregate purchase price of $100,000. The Adviser, on behalf of the Fund, will
incur all of the Fund's organizational cost, estimated at $10,000. The Adviser
also has agreed to pay the amount by which the offering costs of the Fund (other
than the sales load) exceed $0.04 per share of the Fund's common shares. The
aggregate offering expenses (other than the sales load) currently are estimated
to be $600,000. On June 26, 2007, the Fund sold 71,000,000 common shares in an
initial public offering. Proceeds to the Fund were $1,355,500,000 after
deducting underwriting commissions and $600,000 of offering expenses. On July
23, 2007 the Fund sold 3,000,000 common shares, pursuant to an over allotment
agreement with the underwriters for net proceeds of $57,300,000 after deducting
underwriting commissions.
A. SECURITY VALUATION The Fund's loans and debt obligations are valued by the
Fund following valuation guidelines established and periodically reviewed by the
Fund's Board of Trustees. Under the valuation guidelines, loans and debt
obligations for which reliable market quotes are readily available are valued at
the mean of such bid and ask quotes. Where reliable market quotes are not
readily available, loans and debt obligations are valued, where possible, using
independent market indicators provided by independent pricing sources approved
by the Board of Trustees. Other loans and debt obligations are valued by
independent pricing sources approved by the Board of Trustees based upon pricing
models developed, maintained and operated by those pricing sources or valued by
the Adviser by considering a number of
28
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007 continued
factors including consideration of market indicators, transactions in
instruments which the Adviser believes may be comparable (including comparable
credit quality, interest rate, interest rate redetermination period and
maturity), the credit worthiness of the borrower, the current interest rate, the
period until next interest rate redetermination and the maturity of such loan.
Consideration of comparable instruments may include commercial paper, negotiable
certificates of deposit and short-term variable rate securities which have
adjustment periods comparable to the loans in the Fund's portfolio. The fair
value of loans are reviewed and approved by the Fund's Valuation Committee and
the Board of Trustees. Forward foreign currency contracts are valued using
quoted foreign exchange rates. Credit default swaps are valued using market
quotations obtained from brokers.
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. Short-term loan
participations are valued at cost in the absence of any indication of
impairment. 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.
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.
B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
Legal expenditures that are expected to result in the restructuring of or a plan
of reorganization for an investment are recorded as realized losses. 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 segregate
assets with the custodian having an aggregate value at least equal to the amount
of the when-issued or delayed delivery purchase commitments until payment is
made. At July 31, 2007, the Fund had no when-issued or delayed delivery purchase
commitments.
C. INVESTMENT INCOME Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Facility fees received are
treated as market discounts. Market premiums are amortized and discounts are
accreted over the stated life of each applicable loan or other debt obligation.
Other income is comprised primarily of amendment fees which are recorded when
received. Amendment fees are earned as compensation for agreeing to changes in
loan agreements.
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 may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains and net unrealized appreciation, as applicable as the income is earned or
capital gains are recorded.
29
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007 continued
At July 31, 2007, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $1,655,975,415
==============
Gross tax unrealized appreciation........................... $ 24,702,527
Gross tax unrealized depreciation........................... (54,635,649)
--------------
Net tax unrealized depreciation on investments.............. $ (29,933,122)
==============
E. DISTRIBUTION OF INCOME AND GAINS The Fund intends to declare and pay monthly
dividends from net investment income. Net realized gains, if any, are
distributed at least annually to its shareholders. Distributions from net
realized gains for book purposes may include short term capital gains, which are
included as ordinary income for tax purposes. For the period from June 26, 2007
(Commencement of Operations) to July 31, 2007, there were no distributions of
income or gains paid.
Permanent differences, primarily due to swap reclasses, resulted in the
following reclassifications among the Fund's components of net assets at July
31, 2007:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET PAID IN
NET INVESTMENT INCOME REALIZED LOSS SURPLUS
$286,375 $(286,375) $-0-
As of July 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income............................... $6,420,930
Net realized gains and losses may differ for financial reporting and tax
purposes primarily as a result of gains or losses recognized on securities for
tax purposes but not for book purposes.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities and
related receivables and payables against changes in future foreign currency
exchange rates. A currency exchange contract is an agreement between two parties
to buy or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the Fund as
unrealized appreciation/depreciation on foreign currency translation.
Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked 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. Income and
expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities resulting from changes in exchange
rates are not segregated for financial reporting purposes from amounts arising
from changes in the market prices of securities. Realized gains and losses on
foreign currency transactions include the net realized amount from the sale of
the currency and the amount realized between trade date
30
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007 continued
and settlement date on security and income transactions. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts. Risks may also arise from the unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide certain day-to-day investment management services to the Fund for an
annual fee of 1.25% of the average daily managed assets. Average daily managed
assets are defined as the average daily total asset value of the Fund minus the
sum of accrued liabilities other than the aggregate amount of borrowings for
investment purposes. The Adviser has entered into a subadvisory agreement with
Avenue Europe International Management, L.P. (the "Subadviser"). Under the
subadvisory agreement, the Adviser retains the Subadviser to manage that portion
of the Fund's assets that are allocated to the Subadviser. The Adviser will pay
the Subadviser an annual fee, payable monthly, in an amount equal to 1.25% of
the portion of the managed assets of the Fund managed by the Subadviser.
For the period ended July 31, 2007, the Fund recognized expenses of
approximately $30,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the period ended July 31, 2007,
the Fund recognized expenses of approximately $57,100 representing Van Kampen
Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund as well as the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Professional Fees" on the Statement of Operations. Services provided
pursuant to the Accounting and CCO Employment agreements are reported as part of
"Accounting and Administrative Expenses" on the Statement of Operations.
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 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.
3. CAPITAL TRANSACTIONS
For the period ended July 31, 2007 transactions were as follows:
SHARES VALUE
Sales....................................................... 74,005,236 $1,412,900,000
========== ==============
31
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007 continued
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $899,005,101 and $1,743,833,
respectively.
5. COMMITMENTS
Pursuant to the terms of certain loan agreements, the Fund had unfunded loan
commitments of approximately $8,278,700 as of July 31, 2007. The Fund intends to
reserve against such contingent obligations by designating cash, liquid
securities and liquid loans as a reserve. The unrealized depreciation on these
commitments of $116,992 as of July 31, 2007 is reported as "Unfunded
Commitments" on the Statement of Assets and Liabilities.
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 may use derivative instruments for a variety of reasons, 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. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
Summarized below are specific types of derivative financial instruments used
by the Fund.
A. FORWARD FOREIGN CURRENCY CONTRACTS Forward foreign currency contracts are
commitments 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
included as a component of realized gain/loss on foreign currency transactions.
B. CREDIT DEFAULT SWAPS The Fund may enter into credit default swap contracts
for hedging purposes or to gain exposure to a credit in which the Fund may
otherwise invest. A credit default swap is an agreement between two parties to
exchange the credit risk of an issuer. A buyer of a credit default swap is said
to buy protection by paying periodic fees in return for a contingent payment
from the seller if the issuer has a credit event such as bankruptcy, a failure
to pay outstanding obligations or deteriorating credit while the swap is
outstanding. A seller of a credit default swap is said to sell protection and
thus collects the periodic fees and profits if the credit of the issuer remains
stable or improves while the swap is outstanding but the seller in a credit
default swap contract would be required to pay an agreed-upon amount, which
approximates the notional amount of the swap as disclosed in the table following
the Portfolio of Investments, to the buyer in the event of an adverse credit
event of the issuer. The Fund accrues for the periodic fees on credit default
swaps on a daily basis with the net amount accrued recorded within unrealized
appreciation/depreciation of swap contracts. Upon cash settlement of the
periodic fees, the net amount is recorded as realized gain/loss on swap
contracts on the Statements of Operations. Net unrealized gains are recorded as
an asset or net unrealized losses are reported as a liability on the Statement
of Assets and Liabilities.
32
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS -- JULY 31, 2007 continued
The change in value of the swap contracts is reported as unrealized gains or
losses on the Statement of Operations.
Credit default swaps may involve greater risks than if the Fund had invested
in the issuer directly. Credit default swaps are subject to general market risk,
counterparty risk and credit risk. If there is a default by the counterparty,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction. In addition, all counterparties are required to pledge
collateral daily (based on the valuation of each swap) on behalf of the Fund
with a value approximately equal to the amount of any unrealized gain.
Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund
has instructed the custodian to pledge cash or liquid securities as collateral
with a value approximately equal to the amount of the unrealized loss.
Collateral pledges are monitored and subsequently adjusted if and when the swap
valuations fluctuate. Restricted cash, if any, for segregating purposes is shown
on the Statement of Assets and Liabilities.
7. SUBSEQUENT EVENTS
As of August 28, 2007, the Fund entered into a $750 million revolving credit and
security agreement. Annual commitment fees of 0.08% are charged on the unused
portion of the credit line. This revolving credit agreement is secured by the
assets of the Fund.
On September 28, 2007, the Fund paid a dividend of $0.1517 per share to all
shareholders of record as of September 14, 2007.
8. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
9. ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for the fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. Recent SEC guidance
allows implementing FIN 48 in the fund NAV calculations as late as the fund's
last NAV calculation in the first required financial statement period. As a
result, the Fund will incorporate FIN 48 in its semiannual report on January 31,
2008. The impact to the Fund's financial statements, if any, is currently being
assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
33
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of Van Kampen Dynamic Credit
Opportunities Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Dynamic Credit Opportunities Fund (the "Fund"), including the portfolio
of investments, as of July 31, 2007, and the related statements of operations
and cash flows for the period from June 26, 2007 (commencement of operations)
through July 31, 2007, and the statement of changes in net assets and financial
highlights for the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2007, by correspondence with the Fund's
custodian, brokers, and selling or agent banks; where replies were not received,
we performed other auditing procedures. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Dynamic Credit Opportunities Fund as of July 31, 2007, the results of its
operations, its cash flows, the changes in its net assets and the financial
highlights for the respective stated period, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 21, 2007
34
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan (the "Plan") offers you a prompt and simple
way to reinvest your dividends and capital gains distributions into additional
shares of Van Kampen Dynamic Credit Opportunities Fund (the "Fund"). Under the
Plan, the money you earn from dividends and capital gains distributions will be
reinvested automatically in more shares of the Fund, allowing you to potentially
increase your investment over time. All shareholders in the Fund are
automatically enrolled in the Plan when shares are purchased.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in the Fund easily and automatically with the Plan.
- LOW TRANSACTION COSTS
Shareholders who participate in the Plan are able to buy shares at below-market
prices when the Fund is trading at a premium to its net asset value. In
addition, transaction costs are low because when new shares are issued by the
Fund, there is no brokerage fee, and when shares are bought in blocks on the
open market, the brokerage commission is shared among all participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust Company,
N.A., which administers the Plan, whenever shares are reinvested for you. The
statement shows your total distributions, date of investment, shares acquired,
and price per share, as well as the total number of shares in your reinvestment
account. You can also access your account via the Internet. To do this, please
go to vankampen.com.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for you
in safekeeping.
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly in the
Plan. If your shares are held in "street name"--in the name of your brokerage
firm, bank, or other financial institution--you must instruct that entity to
participate on your behalf. If they are unable to participate on your behalf,
you may request that they reregister your shares in your own name so that you
may enroll in the Plan.
If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly reinvested for you, automatically increasing your
shares. If the Fund is trading at a share price that is equal to its net asset
value
35
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
DIVIDEND REINVESTMENT PLAN continued
(NAV), you'll pay that amount for your reinvested shares. However, if the Fund
is trading above or below NAV, the price is determined by one of two ways:
1. PREMIUM If the Fund is trading at a premium--a market price that is higher
than its NAV--you'll pay either the NAV or 95 percent of the market price,
whichever is greater. When the Fund trades at a premium, you'll pay less for
your reinvested shares than an ordinary investor purchasing shares on the
stock exchange. Keep in mind, a portion of your price reduction may be
taxable because you are receiving shares at less than market price.
2. DISCOUNT If the Fund is trading at a discount--a market price that is lower
than its NAV--you'll pay the market price for your reinvested shares.
HOW TO ENROLL
To enroll in the Plan, please read the Terms and Conditions in the Plan
brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by
visiting vankampen.com, calling toll-free (800) 341-2929 or notifying us in
writing at Van Kampen Closed End Funds, Computershare Trust Company, N.A., P.O.
Box 43078, Providence, RI 02940-3078. Please include the Fund name and account
number and ensure that all shareholders listed on the account sign these written
instructions. Your participation in the Plan will begin with the next dividend
or capital gains distribution payable after Computershare Trust Company, N.A.
receives your authorization, as long as they receive it before the "record
date," which is generally ten business days before the dividend is paid. If your
authorization arrives after such record date, your participation in the Plan
will begin with the following dividend or distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the Plan's fees are paid by the Fund. However, when
applicable, you will pay your portion of any brokerage commissions incurred when
the new shares are purchased on the open market. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions,
because shares are purchased for all participants in blocks, resulting in lower
commissions for each individual participant. Any brokerage commissions or
service fees are averaged into the purchase price.
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does
not relieve you of any income tax that may be due on dividends or distributions.
You will receive tax information annually to help you prepare your federal and
state income tax returns.
36
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
DIVIDEND REINVESTMENT PLAN continued
Van Kampen does not offer tax advice. The tax information contained herein
is general and is not exhaustive by nature. It was not intended or written to be
used, and it cannot be used by any taxpayer, for avoiding penalties that may be
imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws
are complex and constantly changing. Shareholders should always consult a legal
or tax advisor for information concerning their individual situation.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Plan please visit vankampen.com or call (800) 341-2929
or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have three options with regard to the shares
held in your account:
1. If you opt to continue to hold your non-certificated shares, they will be
held by Computershare Trust Company N.A.
2. If you opt to sell your shares through Van Kampen, we will sell all full and
fractional shares and send the proceeds via check to your address of record
after deducting brokerage commissions and a $2.50 service fee.
3. You may sell your shares through your financial advisor through the Direct
Registration Systems ("DRS"). DRS is a service within the securities industry
that allows Fund shares to be held in your name in electronic format. You
retain full ownership of your shares, without having to hold a stock
certificate.
The Fund and Computershare Trust Company, N.A. may amend or terminate the Plan.
Participants will receive written notice at least 30 days before the effective
date of any amendment. In the case of termination, Participants will receive
written notice at least 30 days before the record date for the payment of any
dividend or capital gains distribution by the Fund. In the case of amendment or
termination necessary or appropriate to comply with applicable law or the rules
and policies of the Securities and Exchange Commission or any other regulatory
authority, such written notice will not be required.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
37
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES 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
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
STUART N. SCHULDT
Chief Financial Officer and Treasurer
HOWARD TIFFEN
Vice President
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
522 Fifth Avenue
New York, New York 10036
SUBADVISER
AVENUE EUROPE INTERNATIONAL MANAGEMENT, L.P.
535 Madison Avenue, 15th Floor
New York, New York 10022
CUSTODIAN
STATE STREET BANK
AND FUND COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE FUND COMPANY, N.A.
c/o Computershare Investor Services
P.O. Box 43078
Providence, Rhode Island 02940-3078
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606-4301
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
38
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Fund generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (62) Trustee Trustee Chairman and Chief 73 Trustee/Director/Managing
Blistex Inc. since 2007 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products Director of the Heartland
manufacturer. Alliance, a nonprofit
organization serving
human needs based in
Chicago. Board member of
the Illinois
Manufacturers'
Association.
Jerry D. Choate (69) Trustee Trustee Prior to January 1999, 73 Trustee/Director/Managing
33971 Selva Road since 2007 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of H&R Block,
("Allstate") and Allstate Amgen Inc., a
Insurance Company. Prior biotechnological company,
to January 1995, and Valero Energy
President and Chief Corporation, an
Executive Officer of independent refining
Allstate. Prior to August company.
1994, various management
positions at Allstate.
39
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFfiCERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 73 Trustee/Director/Managing
CAC, L.L.C. since 2007 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Quidel
San Diego, CA 92122-6223 advisory services. Corporation, Stericycle,
Inc., and Ventana Medical
Systems, Inc. and Trustee
of The Scripps Research
Institute. Prior to April
2007, Director of GATX
Corporation. Prior to
April 2004, Director of
TheraSense, Inc. Prior to
January 2004, Director of
TeleTech Holdings Inc.
and Arris Group, Inc.
Linda Hutton Heagy+ (59) Trustee Trustee Managing Partner of 73 Trustee/Director/Managing
Heidrick & Struggles since 2007 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive international executive in the Fund Complex.
Suite 7000 search firm. Prior to Trustee on the University
Chicago, IL 60606 1997, Partner of Ray & of Chicago Hospitals
Berndtson, Inc., an Board, Vice Chair of the
executive recruiting Board of the YMCA of
firm. Prior to 1995, Metropolitan Chicago and
Executive Vice President a member of the Women's
of ABN AMRO, N.A., a bank Board of the University
holding company. Prior to of Chicago.
1990, Executive Vice
President of The Exchange
National Bank.
40
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFFICERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (55) Trustee Trustee Director and President of 73 Trustee/Director/Managing
1744 R Street, NW since 2007 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (71) Trustee Trustee Prior to 1998, President 73 Trustee/Director/Managing
14 Huron Trace since 2007 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the Marrow
Foundation.
Jack E. Nelson (71) Trustee Trustee President of Nelson 73 Trustee/Director/Managing
423 Country Club Drive since 2007 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the FINRA,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
41
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFfiCERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (66) Trustee Trustee President Emeritus and 73 Trustee/Director/Managing
1126 E. 59th Street since 2007 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Trustee of the University
Distinguished Service of Rochester and a member
Professor in the of its investment
Department of Economics committee. Member of the
at the University of National Academy of
Chicago. Prior to July Sciences, the American
2000, President of the Philosophical Society and
University of Chicago. a fellow of the American
Academy of Arts and
Sciences.
42
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFFICERS continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (65) Trustee Trustee Chief Communications 73 Trustee/Director/Managing
815 Cumberstone Road since 2007 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004. Director of
Operating Officer from Intelligent Medical
1993 to 2001. Prior to Devices, Inc., a symptom
1993, Executive Director based diagnostic tool for
of the Commission on physicians and clinical
Behavioral and Social labs. Director of the
Sciences and Education at Institute for Defense
the National Academy of Analyses, a federally
Sciences/National funded research and
Research Council. From development center,
1980 through 1989, Director of the German
Partner of Coopers & Marshall Fund of the
Lybrand. United States, Director
of the Rocky Mountain
Institute and Trustee of
California Institute of
Technology and the
Colorado College.
43
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFFICERS continued
INTERESTED TRUSTEE:*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (68) Trustee Trustee Partner in the law firm 73 Trustee/Director/Managing
333 West Wacker Drive since 2007 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
+ As indicated above, Ms. Heagy is an employee of Heidrick and Struggles, an
international executive search firm ("Heidrick"). Heidrick has been (and may
continue to be) engaged by Morgan Stanley from time to time to perform
executive searches. Such searches have been unrelated to Van Kampen's or
Morgan Stanley's asset management businesses and have been done by
professionals at Heidrick without any involvement by Ms. Heagy. Ethical wall
procedures exist to ensure that Ms. Heagy will not have any involvement with
any searches performed by Heidrick for Morgan Stanley. Ms. Heagy does not
receive any compensation, directly or indirectly, for searches performed by
Heidrick for Morgan Stanley. Ms. Heagy does own common shares of Heidrick
(representing less than 1% of Heidrick's outstanding common shares).
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
44
VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND
TRUSTEES AND OFFICERS continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (68) President and Officer President of funds in the Fund Complex since September 2005
522 Fifth Avenue Principal Executive since 2007 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10036 Officer since May 2003. Managing Director of Van Kampen Advisors
Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution Inc. Chief
Executive Officer and Director of Morgan Stanley Trust.
Executive Vice President and Principal Executive Officer of
the Institutional and Retail Morgan Stanley Funds. Director
of Morgan Stanley SICAV. Previously, Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Amy R. Doberman (45) Vice President Officer Managing Director and General Counsel--U.S. Investment
522 Fifth Avenue since 2007 Management; Managing Director of Morgan Stanley Investment
New York, NY 10036 Management Inc., Morgan Stanley Investment Advisors Inc. and
the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (40) Vice President Officer Executive Director of Morgan Stanley Investment Management
522 Fifth Avenue and Secretary since 2007 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10036 Complex.
45
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (52) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza - Suite 100 Officer since 2007 August 2004. Prior to August 2004, Director and Managing
P.O. Box 5555 Director of Van Kampen Investments, the Adviser, Van Kampen
Oakbrook Terrace, IL 60181 Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Stuart N. Schuldt (45) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza - Suite 100 and Treasurer since 2007 Inc. since June 2007; Chief Financial Officer and Treasurer
P.O. Box 5555 of funds in the Fund Complex since June 2007. Prior to June
Oakbrook Terrace, IL 60181 2007, Senior Vice President of Northern Trust Company,
Treasurer and Principal Financial Officer of Northern Trust
U.S. mutual fund complex.
Howard Tiffen (59) Vice President Officer Managing Director of the Adviser and Van Kampen Advisors
1 Parkview Plaza - Suite 100 since 2007 Inc. Vice President of the senior loan funds advised by the
Oakbrook Terrace, IL 60181 Adviser. Prior to 1999, senior portfolio manager for Pilgrim
Investments. Associate of the Chartered Institute of Bankers
and a member of the Economic Club of Chicago.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Fund's Chief Executive Officer has certified to the New York
Stock Exchange that, as of June 27, 2007, he was not aware of any violation by
the Fund of NYSE corporate governance listing standards.
The certifications by the Fund's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Fund's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
46
Van Kampen Dynamic Credit Opportunities 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 Dynamic Credit Opportunities 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 Dynamic Credit Opportunities 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, Suite 100
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2007 Van Kampen Funds Inc.
All rights reserved. Member FINRA/SIPC.
VTAANN 9/07
(VAN KAMPEN INVESTMENTS LOGO) IU07-03452P-Y07/07
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Due to personnel changes at the Adviser, the list of covered officers set
forth in Exhibit B was amended in November 2006 and June 2007 and the
general counsel's designee set forth in Exhibit C was amended in October
and December 2006. All three editions of Exhibit B and all three editions
of Exhibit C are attached.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit 12(1).
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Rod Dammeyer, Jerry D. Choate and R. Craig Kennedy.
Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as a result of being designated or identified as an audit committee
financial expert. The designation or identification of a person as an audit
committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the audit committee and Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2007
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
AUDIT FEES ............. $76,675 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES .. $ 0 $211,000(2)
TAX FEES ............ $ 2,575(3) $ 0
ALL OTHER FEES ...... $ 0 $ 0
TOTAL NON-AUDIT FEES ... $ 2,575 $211,000
TOTAL .................. $79,250 $211,000
2006
REGISTRANT COVERED ENTITIES
---------- ----------------
AUDIT FEES ............. $0 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES .. $0 $0
TAX FEES ............ $0 $0
ALL OTHER FEES ...... $0 $0
TOTAL NON-AUDIT FEES ... $0 $0
TOTAL .................. $0 $0
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any
entity controlling, controlled by or under common control with the Adviser
that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically attestation services provided in connection with a
SAS 70 Report.
(3) Tax Fees represent tax advice and compliance services provided in
connection with the review of the Registrant's tax.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
JOINT AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
VAN KAMPEN FUNDS
AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether
such services are consistent with the SEC's rules on auditor independence. The
Audit Committee will also consider whether the Independent Auditors are best
positioned to provide the most effective and efficient services, for reasons
such as its familiarity with the Fund's business, people, culture, accounting
systems, risk profile and other factors, and whether the service might enhance
the Fund's ability to manage or control risk or improve audit quality. All such
factors will be considered as a whole, and no one factor should necessarily be
determinative.
The Audit Committee is also mindful of the relationship between fees for
audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval
----------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy
and Procedures (the "Policy"), amended as of the date above, supercedes and
replaces all prior versions that may have been amended from time to time.
(2) Terms used in this Policy and not otherwise defined herein shall have the
meanings as defined in the Joint Audit Committee Charter.
from the Audit Committee. The Audit Committee will add to or subtract from the
list of general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix
B.2. All other Audit-related services not listed in Appendix B.2 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services. Hence, the Audit Committee believes it may grant
general pre-approval to those Tax services that have historically been provided
by the Independent Auditors, that the Audit Committee has reviewed and believes
would not impair the independence of the Independent Auditors, and that are
consistent with the SEC's rules on auditor independence. The Audit Committee
will not permit the retention of the Independent Auditors in connection with a
transaction initially recommended by the Independent Auditors, the sole business
purpose of which may be tax avoidance and the tax treatment of which may not be
supported in the Internal Revenue Code and related regulations. The Audit
Committee will consult with Director of Tax or outside counsel to determine that
the tax planning and reporting positions are consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services involving large and complex
transactions not listed in Appendix B.3 must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated), including tax services proposed to be provided by the
Independent Auditors to any executive officer or trustee/director/managing
general partner of the Fund, in his or her individual capacity, where such
services are paid for by the Fund (generally applicable only to internally
managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided
by the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be rendered. The Fund's Chief Financial Officer
will determine whether such services are included within the list of services
that have received the general pre-approval of the Audit Committee. The Audit
Committee will be informed on a timely basis of any such services rendered by
the Independent Auditors. Requests or applications to provide services that
require specific approval by the Audit Committee will be submitted to the Audit
Committee by both the Independent Auditors and the Fund's Chief Financial
Officer, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's rules on auditor
independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services
are determined to have a direct impact on the operations or financial reporting
of the Registrant. 100% of such services were pre-approved by the audit
committee pursuant to the Audit Committee's pre-approval policies and procedures
(included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: David
C. Arch, Rod Dammeyer, Howard J Kerr, Hugo F. Sonnenschein.
(b) Not applicable.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund's and its investment advisor's Proxy Voting Policies and Procedures are
as follows:
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policy and
procedures for voting proxies ("Policy") with respect to securities held in the
accounts of clients applies to those MSIM entities that provide discretionary
investment management services and for which a MSIM entity has authority to vote
proxies. This Policy is reviewed and updated as necessary to address new and
evolving proxy voting issues and standards.
The MSIM entities covered by this Policy currently include the following: Morgan
Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley
Investment Management Inc., Morgan Stanley Investment Management Limited, Morgan
Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each an "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates" or as "we"
below).
Each MSIM Affiliate will use its best efforts to vote proxies as part of its
authority to manage, acquire and dispose of account assets. With respect to the
MSIM registered management investment companies (Van Kampen, Institutional and
Advisor Funds--collectively referred to herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies under this Policy pursuant to authority granted
under its applicable investment advisory agreement or, in the absence of such
authority, as authorized by the Board of Directors/Trustees of the MSIM Funds.
An MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA
account has reserved the authority for itself, or in the case of an account not
governed by ERISA, the investment management or investment advisory agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will vote
proxies in a prudent and diligent manner and in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which the MSIM Affiliates manage assets, consistent with
the objective of maximizing long-term investment returns ("Client Proxy
Standard"). In certain situations, a client or its fiduciary may provide an MSIM
Affiliate with a proxy voting policy. In these situations, the MSIM Affiliate
will comply with the client's policy.
Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as we may retain from time
to time, the "Research Providers") are independent advisers that specialize in
providing a variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided include in-depth research, global
issuer analysis, and voting recommendations. While we may review and utilize the
recommendations of the Research Providers in making proxy voting decisions, we
are in no way obligated to follow such recommendations. In addition to research,
ISS provides vote execution, reporting, and recordkeeping.
Voting Proxies for Certain Non-U.S. Companies - Voting proxies of companies
located in some jurisdictions, particularly emerging markets, may involve
several problems that can restrict or prevent the ability to vote such proxies
or entail significant costs. These problems include, but are not limited to: (i)
proxy statements and ballots being written in a language other than English;
(ii) untimely and/or inadequate notice of shareholder meetings; (iii)
restrictions on the ability of holders outside the issuer's jurisdiction of
organization to exercise votes; (iv) requirements to vote proxies in person; (v)
the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate our voting instructions. As a
result, we vote clients' non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent with the
Client Proxy Standard. ISS has been retained to provide assistance in connection
with voting non-U.S. proxies.
II. GENERAL PROXY VOTING GUIDELINES
To promote consistency in voting proxies on behalf of its clients, we follow
this Policy (subject to any exception set forth herein), including the
guidelines set forth below. These guidelines address a broad range of issues,
and provide general voting parameters on proposals that arise most frequently.
However, details of specific proposals vary, and those details affect particular
voting decisions, as do factors specific to a given company. Pursuant to the
procedures set forth herein, we may vote in a manner that is not in accordance
with the following general guidelines, provided the vote is approved by the
Proxy Review Committee and is consistent with the Client Proxy Standard. Morgan
Stanley AIP GP LP will follow the procedures as described in Appendix A.
We endeavor to integrate governance and proxy voting policy with investment
goals and to follow the Client Proxy Standard for each client. At times, this
may result in split votes, for example when different clients have varying
economic interests in the outcome of a particular voting matter (such as a case
in which varied ownership interests in two companies involved in a merger result
in different stakes in the outcome). We also may split votes at times based on
differing views of portfolio managers, but such a split vote must be approved by
the Proxy Review Committee.
A. ROUTINE MATTERS. We generally support routine management proposals. The
following are examples of routine management proposals:
- Approval of financial statements and auditor reports.
- General updating/corrective amendments to the charter.
- Most proposals related to the conduct of the annual meeting, with the
following exceptions. We may oppose proposals that relate to "the
transaction of such other business which may come before the meeting,"
and open-ended requests for adjournment. However, where management
specifically states the reason for requesting an adjournment and the
requested adjournment is necessary to permit a proposal that would
otherwise be supported under this Policy to be carried out (i.e. an
uncontested corporate transaction), the adjournment request will be
supported. Finally, we generally support shareholder proposals
advocating confidential voting procedures and independent tabulation
of voting results.
B. BOARD OF DIRECTORS
1. Election of directors: In the absence of a proxy contest, we generally
support the board's nominees for director except as follows:
a. We withhold or vote against interested directors if the
company's board does not meet market standards for director
independence, or if otherwise we believe board independence
is insufficient. We refer to prevalent market standards,
generally as promulgated by a stock exchange or other
authority within a given market (e.g., New York Stock
Exchange or Nasdaq rules for most U.S. companies, and The
Combined Code on Corporate Governance in the United
Kingdom). Thus, for a NYSE company with dispersed ownership,
we would expect that at a minimum a majority of directors
should be independent as defined by NYSE. Non-independent
directors under NYSE standards include an employee or an
individual with an immediate family member who is an
executive (or in either case was in such position within the
previous three years). A director's consulting arrangements
with the company, or material business relationships between
the director's employer and the company, also impair
independence. Market standards notwithstanding, we generally
do not view long board tenure alone as a basis to classify a
director as non-independent. Where we view market standards
as inadequate, we may withhold votes based on stronger
independence standards.
b. Depending on market standards, we consider withholding
support from or voting against a nominee who is interested
and who is standing for election as a member of the
company's compensation, nominating or audit committees.
c. We consider withholding support or voting against a nominee
if we believe a direct conflict exists between the interests
of the nominee and the public shareholders. This includes
consideration for withholding support or voting against
individual board members or an entire slate if we believe
the board is entrenched and dealing inadequately with
performance problems, and/or with insufficient independence
between the board and management.
d. We consider withholding support from or voting against a
nominee standing for election if the board has not taken
action to implement generally accepted governance practices
for which there is a "bright line" test. In the context of
the U.S. market, these would include elimination of dead
hand or slow hand poison pills, requiring audit,
compensation or nominating committees to be composed of
independent directors and requiring a majority independent
board.
e. We generally withhold support from or vote against a nominee
who has failed to attend at least 75% of board meetings
within a given year without a reasonable excuse.
f. We consider withholding support from or voting against a
nominee who serves on the board of directors of more than
six companies (excluding investment companies). We also
consider voting against a director who otherwise appears to
have too many commitments to serve adequately on the board
of the company.
2. Board independence: We generally support proposals requiring that a
certain percentage (up to 66 2/3%) of the company's board members be
independent directors, and promoting all-independent audit,
compensation and nominating/governance committees.
3. Board diversity: We consider on a case-by-case basis proposals urging
diversity of board membership with respect to social, religious or
ethnic group.
4. Majority voting: We generally support proposals requesting or
requiring majority voting policies in election of directors, so long
as there is a carve-out for plurality voting in the case of contested
elections.
5. Proposals to elect all directors annually: We generally support
proposals to elect all directors annually at public companies (to
"declassify" the Board of Directors) where such action is supported by
the board, and otherwise consider the issue on a case-by-case basis.
6. Cumulative voting: We generally support proposals to eliminate
cumulative voting (which provides that shareholders may concentrate
their votes for one or a handful of candidates, a system that can
enable a minority bloc to place representation on a board). Proposals
to establish cumulative voting in the election of directors generally
will not be supported.
7. Separation of Chairman and CEO positions: We vote on shareholder
proposals to separate the Chairman and CEO positions and/or to appoint
a non-executive Chairman based in part on prevailing practice in
particular markets, since the context for such a practice varies. In
many non-U.S. markets, we view separation of the roles as a market
standard practice, and support division of the roles in that context.
8. Director retirement age: Proposals recommending set director
retirement ages are voted on a case-by-case basis.
9. Proposals to limit directors' liability and/or broaden indemnification
of directors. Generally, we will support such proposals provided that
the officers and directors are eligible for indemnification and
liability protection if they have acted in good faith on company
business and were found innocent of any civil or criminal charges for
duties performed on behalf of the company.
C. CORPORATE TRANSACTIONS AND PROXY FIGHTS. We examine proposals relating to
mergers, acquisitions and other special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations, restructurings and
recapitalizations) on a case-by-case basis. However, proposals for mergers or
other significant transactions that are friendly and approved by the Research
Providers generally will be supported and in those instances will not need to be
reviewed by the Proxy Review Committee, where there is no portfolio manager
objection and where there is no material conflict of interest. We also analyze
proxy contests on a case-by-case basis.
D. CHANGES IN LEGAL AND CAPITAL STRUCTURE. We generally vote in favor of
management proposals for technical and administrative changes to a company's
charter, articles of association or bylaws. We review non-routine proposals,
including reincorporation to a different jurisdiction, on a case-by-case basis.
1. We generally support the following:
- Proposals that eliminate other classes of stock and/or
eliminate unequal voting rights.
- Proposals to increase the authorization of existing classes
of common stock (or securities convertible into common
stock) if: (i) a clear and legitimate business purpose is
stated; (ii) the number of shares requested is reasonable in
relation to the purpose for which authorization is
requested; and (iii) the authorization does not exceed 100%
of shares currently authorized and at least 30% of the new
authorization will be outstanding.
- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals to authorize share repurchase plans.
- Proposals to reduce the number of authorized shares of
common or preferred stock, or to eliminate classes of
preferred stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits that do
not adjust proportionately to the authorized share amount
generally will be approved if the resulting increase in
authorized shares coincides with the proxy guidelines set
forth above for common stock increases.
- Proposals for higher dividend payouts.
2. We generally oppose the following (notwithstanding management
support):
- Proposals that add classes of stock that would substantially
dilute the voting interests of existing shareholders.
- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.
- Proposals to create "blank check" preferred stock.
- Proposals relating to changes in capitalization by 100% or
more.
E. TAKEOVER DEFENSES AND SHAREHOLDER RIGHTS
1. Shareholder rights plans: We support proposals to require shareholder
approval or ratification of shareholder rights plans (poison pills).
2. Supermajority voting requirements: We generally oppose requirements
for supermajority votes to amend the charter or bylaws, unless the
provisions protect minority shareholders where there is a large
shareholder. In line with this view, in the absence of a large
shareholder we support reasonable shareholder proposals to limit such
supermajority voting requirements.
3. Shareholder rights to call meetings: We consider proposals to enhance
shareholder rights to call meetings on a case-by-case basis.
4. Anti-greenmail provisions: Proposals relating to the adoption of
anti-greenmail provisions will be supported, provided that the
proposal: (i) defines greenmail; (ii) prohibits buyback offers to
large block holders (holders of at least 1% of the outstanding shares
and in certain cases, a greater amount, as determined by the Proxy
Review Committee) not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights of shareholders.
F. AUDITORS. We generally support management proposals for selection or
ratification of independent auditors. However, we may consider opposing such
proposals with reference to incumbent audit firms if the company has suffered
from serious accounting irregularities, or if fees paid to the auditor for
non-audit-related services are excessive. Generally, to determine if non-audit
fees are excessive, a 50% test will be applied (i.e., non-audit-related fees
should be less than 50% of the total fees paid to the auditor). Proposals
requiring auditors to attend the annual meeting of shareholders will be
supported. We generally vote against proposals to indemnify auditors.
G. EXECUTIVE AND DIRECTOR REMUNERATION.
1. We generally support the following proposals:
- Proposals relating to director fees, provided the amounts
are not excessive relative to other companies in the country
or industry.
- Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part of a
broad-based employee plan, including all non-executive
employees.
- Proposals for employee equity compensation plans and other
employee ownership plans, provided that our research does
not indicate that approval of the plan would be against
shareholder interest. Such approval may be against
shareholder interest if it authorizes excessive dilution and
shareholder cost, particularly in the context of high usage
("run rate") of equity compensation in the recent past; or
if there are objectionable plan design and provisions.
- Proposals for the establishment of employee retirement and
severance plans, provided that our research does not
indicate that approval of the plan would be against
shareholder interest.
2. Blanket proposals requiring shareholder approval of all severance
agreements will not be supported, but proposals that require
shareholder approval for agreements in excess of three times the
annual compensation (salary and bonus) generally will be supported.
3. Proposals advocating stronger and/or particular pay-for-performance
models will be evaluated on a case-by-case basis, with consideration
of the merits of the individual proposal within the context of the
particular company and its current and past practices.
4. Proposals to U.S. companies that request disclosure of executive
compensation in addition to the disclosure required by the Securities
and Exchange Commission ("SEC") regulations generally will not be
supported.
5. We generally support proposals advocating reasonable senior executive
and director stock ownership guidelines and holding requirements for
shares gained in option exercises.
6. Management proposals effectively to re-price stock options are
considered on a case-by-case basis. Considerations include the
company's reasons and justifications for a re-pricing, the company's
competitive position, whether senior executives and outside directors
are excluded, potential cost to shareholders, whether the re-pricing
or share exchange is on a value-for-value basis, and whether vesting
requirements are extended.
H. SOCIAL, POLITICAL AND ENVIRONMENTAL ISSUES. We consider proposals relating to
social, political and environmental issues on a case-by-case basis to determine
whether they will have a financial impact on shareholder value. However, we
generally vote against proposals requesting reports that are duplicative,
related to matters not material to the business, or that would impose
unnecessary or excessive costs. We may abstain from voting on proposals that do
not have a readily determinable financial impact on shareholder value. We
generally oppose proposals requiring adherence to workplace standards that are
not required or customary in market(s) to which the proposals relate.
I. FUND OF FUNDS. Certain Funds advised by an MSIM Affiliate invest only in
other MSIM Funds. If an underlying fund has a shareholder meeting, in order to
avoid any potential conflict of interest, such proposals will be voted in the
same proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.
III. ADMINISTRATION OF POLICY
The MSIM Proxy Review Committee (the "Committee") has overall responsibility for
creating and implementing the Policy, working with an MSIM staff group (the
"Corporate Governance Team"). The Committee, which is appointed by MSIM's Chief
Investment Officer of Global Equities ("CIO"), consists of senior investment
professionals who represent the different investment disciplines and geographic
locations of the firm. Because proxy voting is an investment responsibility and
impacts shareholder value, and because of their knowledge of companies and
markets, portfolio managers and other members of investment staff play a key
role in proxy voting, although the Committee has final authority over proxy
votes.
The Committee Chairperson is the head of the Corporate Governance Team, and is
responsible for identifying issues that require Committee deliberation or
ratification. The Corporate Governance Team, working with advice of investment
teams and the Committee, is responsible for voting on routine items and on
matters that can be addressed in line with these Policy guidelines. The
Corporate Governance Team has responsibility for voting case-by-case where
guidelines and precedent provide adequate guidance, and to refer other
case-by-case decisions to the Proxy Review Committee.
The Committee will periodically review and have the authority to amend, as
necessary, the Policy and establish and direct voting positions consistent with
the Client Proxy Standard.
A. COMMITTEE PROCEDURES
The Committee will meet at least monthly to (among other matters) address any
outstanding issues relating to the Policy or its implementation. The Corporate
Governance Team will timely communicate to ISS MSIM's Policy (and any amendments
and/or any additional guidelines or procedures the Committee may adopt).
The Committee will meet on an ad hoc basis to (among other matters): (1)
authorize "split voting" (i.e., allowing certain shares of the same issuer that
are the subject of the same proxy solicitation and held by one or more MSIM
portfolios to be voted differently than other shares) and/or "override voting"
(i.e., voting all MSIM portfolio shares in a manner contrary to the Policy); (2)
review and approve upcoming votes, as appropriate, for matters for which
specific direction has been provided in this Policy; and (3) determine how to
vote matters for which specific direction has not been provided in this Policy.
Members of the Committee may take into account Research Providers'
recommendations and research as well as any other relevant information they may
request or receive, including portfolio manager and/or analyst research, as
applicable. Generally, proxies related to securities held in accounts that are
managed pursuant to quantitative, index or index-like strategies ("Index
Strategies") will be voted in the same manner as those held in actively managed
accounts, unless economic interests of the accounts differ. Because accounts
managed using Index Strategies are passively managed accounts, research from
portfolio managers and/or analysts related to securities held in these accounts
may not be available. If the affected securities are held only in accounts that
are managed pursuant to Index Strategies, and the proxy relates to a matter that
is not described in this Policy, the Committee will consider all available
information from the Research Providers, and to the extent that the holdings are
significant, from the portfolio managers and/or analysts.
B. MATERIAL CONFLICTS OF INTEREST
In addition to the procedures discussed above, if the Committee determines that
an issue raises a material conflict of interest, the Committee will request a
special committee to review, and recommend a course of action with respect to,
the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairperson of the Proxy Review
Committee, the Chief Compliance Officer or his/her designee, a senior portfolio
manager (if practicable, one who is a member of the Proxy Review Committee)
designated by the Proxy Review Committee, and MSIM's relevant Chief Investment
Officer or his/her designee, and any other persons deemed necessary by the
Chairperson. The Special Committee may request the assistance of MSIM's General
Counsel or his/her designee who will have sole discretion to cast a vote. In
addition to the research provided by Research Providers, the Special Committee
may request analysis from MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
C. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
A potential material conflict of interest could exist in the following
situations, among others:
1. The issuer soliciting the vote is a client of MSIM or an affiliate of
MSIM and the vote is on a material matter affecting the issuer.
2. The proxy relates to Morgan Stanley common stock or any other security
issued by Morgan Stanley or its affiliates except if echo voting is
used, as with MSIM Funds, as described herein.
3. Morgan Stanley has a material pecuniary interest in the matter
submitted for a vote (e.g., acting as a financial advisor to a party
to a merger or acquisition for which Morgan Stanley will be paid a
success fee if completed).
If the Chairperson of the Committee determines that an issue raises a potential
material conflict of interest, depending on the facts and circumstances, the
Chairperson will address the issue as follows:
1. If the matter relates to a topic that is discussed in this Policy, the
proposal will be voted as per the Policy.
2. If the matter is not discussed in this Policy or the Policy indicates
that the issue is to be decided case-by-case, the proposal will be
voted in a manner consistent with the Research Providers, provided
that all the Research Providers have the same recommendation, no
portfolio manager objects to that vote, and the vote is consistent
with MSIM's Client Proxy Standard.
3. If the Research Providers' recommendations differ, the Chairperson
will refer the matter to the Committee to vote on the proposal. If the
Committee determines that an issue raises a material conflict of
interest, the Committee will request a Special Committee to review and
recommend a course of action, as described above. Notwithstanding the
above, the Chairperson of the Committee may request a Special
Committee to review a matter at any time as he/she deems necessary to
resolve a conflict.
D. PROXY VOTING REPORTING
The Committee and the Special Committee, or their designee(s), will document in
writing all of their decisions and actions, which documentation will be
maintained by the Committee and the Special Committee, or their designee(s), for
a period of at least 6 years. To the extent these decisions relate to a security
held by a MSIM Fund, the Committee and Special Committee, or their designee(s),
will report their decisions to each applicable Board of Trustees/Directors of
those Funds at each Board's next regularly scheduled Board meeting. The report
will contain information concerning decisions made by the Committee and Special
Committee during the most recently ended calendar quarter immediately preceding
the Board meeting.
The Corporate Governance Team will timely communicate to applicable portfolio
managers and to ISS, decisions of the Committee and Special Committee so that,
among other things, ISS will vote proxies consistent with their decisions.
MSIM will promptly provide a copy of this Policy to any client requesting it.
MSIM will also, upon client request, promptly provide a report indicating how
each proxy was voted with respect to securities held in that client's account.
MSIM's Legal Department is responsible for filing an annual Form N-PX on behalf
of each MSIM Fund for which such filing is required, indicating how all proxies
were voted with respect to such Fund's holdings.
APPENDIX A
The following procedures apply to accounts managed by Morgan Stanley AIP GP LP
("AIP").
Generally, AIP will follow the guidelines set forth in Section II of MSIM's
Proxy Voting Policy and Procedures. To the extent that such guidelines do not
provide specific direction, or AIP determines that consistent with the Client
Proxy Standard, the guidelines should not be followed, the Proxy Review
Committee has delegated the voting authority to vote securities held by accounts
managed by AIP to the Liquid Markets investment team and the Private Markets
investment team of AIP. A summary of decisions made by the investment teams will
be made available to the Proxy Review Committee for its information at the next
scheduled meeting of the Proxy Review Committee.
In certain cases, AIP may determine to abstain from determining (or
recommending) how a proxy should be voted (and therefore abstain from voting
such proxy or recommending how such proxy should be voted), such as where the
expected cost of giving due consideration to the proxy does not justify the
potential benefits to the affected account(s) that might result from adopting or
rejecting (as the case may be) the measure in question.
Waiver of Voting Rights
For regulatory reasons, AIP may either 1) invest in a class of securities of an
underlying fund (the "Fund") that does not provide for voting rights; or 2)
waive 100% of its voting rights with respect to the following:
1. Any rights with respect to the removal or replacement of a director,
general partner, managing member or other person acting in a similar
capacity for or on behalf of the Fund (each individually a "Designated
Person," and collectively, the "Designated Persons"), which may
include, but are not limited to, voting on the election or removal of
a Designated Person in the event of such Designated Person's death,
disability, insolvency, bankruptcy, incapacity, or other event
requiring a vote of interest holders of the Fund to remove or replace
a Designated Person; and
2. Any rights in connection with a determination to renew, dissolve,
liquidate, or otherwise terminate or continue the Fund, which may
include, but are not limited to, voting on the renewal, dissolution,
liquidation, termination or continuance of the Fund upon the
occurrence of an event described in the Fund's organizational
documents; provided, however, that, if the Fund's organizational
documents require the consent of the Fund's general partner or
manager, as the case may be, for any such termination or continuation
of the Fund to be effective, then AIP may exercise its voting rights
with respect to such matter.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
FUND MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by
members of the Taxable Fixed Income team. The team consists of portfolio
managers and analysts. Current members of the team jointly and primarily
responsible for the day-to-day management of the Fund's portfolio and the
overall execution of the strategy of the Fund are Howard T. Tiffen, a Managing
Director of the Adviser and Christina Jamieson, an Executive Director of the
Adviser.
Mr. Tiffen has been associated with the Adviser in an investment management
capacity since December 1999 and began managing the Fund at its inception in
June 2007. Ms. Jamieson has been associated with the Adviser in an investment
management capacity since March 2000 and began managing the Fund at its
inception in June 2007.
The composition of the team may change from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of July 31, 2007, Mr. Tiffen managed six registered investment companies with
a total of approximately $7.8 billion in assets; no pooled investment vehicles
other than registered investment companies; and one other account with a total
of approximately $586.7 million in assets.
As of July 31, 2007, Ms. Jamieson managed three registered investment companies
with a total of approximately $6.0 billion in assets; no pooled investment
vehicles other than registered investment companies; and no other accounts.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one client over another resulting in conflicts of interest.
For instance, the Adviser may receive fees from certain accounts that are higher
than the fee it receives from the Fund, or it may receive a performance-based
fee on certain accounts. In those instances, the portfolio managers may have an
incentive to favor the higher and/or performance-based fee accounts over the
Fund. The portfolio managers of the Fund do not currently manage accounts for
other investment companies, pooled investment vehicles or other accounts that
charge a performance-based fee. In addition, a conflict of interest could exist
to the extent the Adviser has proprietary investments in certain accounts, where
portfolio managers have personal investments in certain accounts or when certain
accounts are investment options in the Adviser's employee benefits and/or
deferred compensation plans. The portfolio manager may have an incentive to
favor these accounts over others. If the Adviser manages accounts that engage in
short sales of securities of the type in which the Fund invests, the Adviser
could be seen as harming the performance of the Fund for the benefit of the
accounts engaged in short sales if the short sales cause the market value of the
securities to fall. The Adviser has adopted trade allocation and other policies
and procedures that it believes are reasonably designed to address these and
other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all accounts managed by the portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Long-Term Incentive Compensation Program awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards or other
investments based on Morgan Stanley common stock that are subject to
vesting and other conditions;
- Investment Management Alignment Plan (IMAP) awards -- a mandatory program
that defers a portion of discretionary year-end compensation and notionally
invests it in designated funds advised by the Adviser or its affiliates.
The award is subject to vesting and other conditions. Portfolio managers
must notionally invest a minimum of 25% to a maximum of 100% of the IMAP
deferral into a combination of the designated open-end funds they manage
that are included in the IMAP Fund menu;
- Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment funds, including funds
advised by the Adviser or its affiliates; and/or (2) in Morgan Stanley
stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured against an appropriate securities market
index (or indices) for the funds/accounts managed by the portfolio manager.
The assets managed by the portfolio managers in funds, pooled investment
vehicles and other accounts are described in "Other Accounts Managed by the
Portfolio Managers" above. Generally, the greatest weight is placed on the
three- and five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles
and other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management
Inc., and the overall performance of the investment team(s) of which the
portfolio is a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of July 31, 2007, the portfolio managers did not own any shares of the Fund.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the 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) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(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 Dynamic
Credit Opportunities Fund
By: /s/ Ronald E. Robison
---------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: September 20, 2007
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: September 20, 2007
By: /s/ Stuart N. Schuldt
--------------------------------
Name: Stuart N. Schuldt
Title: Principal Financial Officer
Date: September 20, 2007