UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22043

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)

Edward C. Wood III
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: 1/31/10

 

 

Item 1. Report to Shareholders.
The Fund’s semi-annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:

SEMIANNUAL REPORT

January 31, 2010

 

Welcome, Shareholder

 

In this report, you’ll learn about how your investment in Van Kampen Dynamic Credit Opportunities Fund performed during the semiannual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the fund’s financial statements and a list of fund investments as of January 31, 2010.

 

 

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.

 

Performance Summary as of 1/31/10 (Unaudited)

 

 

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. Periods of less than one year are not annualized.

 

 

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Fund Report

For the six-month period ended January 31, 2010

 

Market Conditions

 

The senior loan market continued to rally strongly throughout the reporting period. For the six-month period ended January 31, 2010, the S&P LSTA Leveraged Loan Index (the “Index”) gained 11.75 percent, while average loan prices rose from 81.20 cents on the dollar to 89.49 cents on the dollar. Within the Index, lower quality loans outperformed for the period, with CCC rated issuers (+26.53 percent) significantly outpacing higher credit quality BB (+4.74 percent) and B (+11.81 percent) issuers.

 

From a technical standpoint, the loan market continued to benefit from increasing demand, loan repayments and relatively tepid new loan issuance. The bank loan category of retail mutual funds continued to enjoy strong inflows over the course of the period sparked by the opportunity to purchase senior loans at a discount and the prospect of higher short-term interest rates in the future. Additionally, loan repayments were strong as the trend of companies issuing new high yield bonds and using the proceeds to pre-pay bank debt at par continued. New loan issuance, on the other hand, remained weak, especially in the first half of the reporting period. In the later part of the fourth quarter of 2009 and continuing into 2010, new issuance did pick up substantially; however, in the fourth quarter of 2009, the pool of investable loans still contracted as loan repayments of $32 billion were well in excess of the $26 billion of new loan issuance.

 

The loan market benefited from a substantial improvement in credit fundamentals. Borrowers’ performance generally reflected the growth in U.S. GDP that we experienced in the second half of 2009, and this growth is expected to continue in 2010. The improved macroeconomic conditions translated into an improving default picture. The senior loan default rate peaked in November 2009 at 10.8 percent and by the end of January 2010 had declined to 8.8 percent. We expect the rate to fall to the mid-single digits by the end of 2010.

 

The European high yield market has followed much the same trend as the U.S. market. The loan and bond markets performed strongly as many of the technical factors noted above that have driven the U.S. market have also been in play in Europe. The European bond market has seen new issuance surge, while the European loan market has yet to experience any meaningful amount of new issuance.

 

Although we are cautiously optimistic that the loan rally will continue in 2010, albeit at a much slower pace than in 2009, it is clear that risks and uncertainties remain that could negatively impact the markets. The economic recovery is likely to be less robust than previous recoveries as the consumer remains stressed with unemployment just below 10 percent and foreclosures still at an elevated level. There is uncertainty as to how the economy will react as governments and central banks begin to remove the global stimulus as well as concerns about the size of the budget deficit both here in the U.S. and in other countries around the world.

 

 

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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 six months ended January 31, 2010, the Fund returned 31.71 percent on a market price basis and 20.01 percent on an NAV basis.

 

Total return for the six-month period ended January 31, 2010

 

 

 

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.

 

The Fund invests primarily in senior secured loans to non-investment grade companies. Although non-investment grade companies have a higher probability of defaulting than investment grade companies, our loans are typically secured by the assets of the company and are senior in the capital structure and thus are generally repaid before any of the company’s other obligations. As of the end of the reporting period, 72 percent of the Fund’s assets are first lien senior secured loans. The remainder is a mix of second lien senior secured loans and high yield bonds. Concentration in the portfolio by both industry and borrower remains low.

 

We continued to adhere to our research-intensive investment process, employing a bottom-up security selection process driven by thorough analysis of individual company fundamentals. We focus primarily on investing in companies that we believe will have consistent cash flows and strong collateral coverage and thus we typically have a bias toward more defensive industries such as health care, utilities, food and cable.

 

The Fund used leverage, which enhanced returns as loan prices increased during the period. Leverage 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 rates since the income from senior loans generally adjusts to changes in interest rates, as do the rates which determine the Fund’s borrowing costs. The use of leverage could, however, increase the fund’s volatility. (Similarly, should short-term rates fall, borrowing costs would also decline.) We believe the modest use of leverage will continue to benefit shareholders in the periods ahead.

 

As of the end of the reporting period, approximately 37 percent of the Fund’s assets were invested internationally, primarily in Europe, and continued to be managed by

 

 

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Van Kampen’s subadvisor, Avenue Europe International Management, L.P. This exposure to non-dollar assets was entirely hedged into U.S. dollars, effectively eliminating currency risk in the portfolio. International assets are split roughly evenly between high yield bonds and loans, whereas the vast majority of the portfolio’s U.S. assets are senior secured loans.

 

The Fund also used a limited amount of credit derivatives for investment purposes. Credit derivatives provide the opportunity to gain exposure in loans and bonds often at higher yields than if we invested in the underlying loan or bond directly, albeit with the risk of greater volatility. We adhere to the same research-intensive investment process when investing in credit derivatives. At the end of the reporting period, credit derivatives accounted for approximately 15 percent of the Fund’s total investments.

 

 

Market Outlook

 

While we have certainly witnessed a dramatic rally in loan prices over the past year, given current price levels and the potential for declining default rates this year, we believe there are still compelling investment opportunities in senior secured loans. Additionally, while investors continue to have the ability to purchase loans at what we believe are relatively attractive values, they are also positioning themselves well should short-term interest rates begin to rise in the future. Because senior loans pay a floating interest rate, should short-term rates move higher, senior loan investors may benefit through increasing distribution yields. This can act as a nice complement to fixed rate investments that typically face a headwind in a rising interest rate environment.

 

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.

 

 

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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. All percentages include total exposure of loans and bonds, with unfunded loan commitments being treated as if they were funded. This method of aggregation is reflected in both the numerator and denominator of each calculation. 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.

 

 

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Derivatives Policy

 

The Fund has amended and restated its policy on derivatives to permit it to invest in the derivative investments discussed below.

 

The Fund may use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based on the value of another underlying asset, interest rate, index or financial instrument. A derivative instrument often has risks similar to its underlying instrument and may have additional risks, including imperfect correlation between the value of the derivative and the underlying instrument, risks of default by the other party to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which they relate, and risks that the transactions may not be liquid. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. Certain derivative transactions may give rise to a form of leverage. Leverage associated with derivative transactions may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable SEC rules and regulations, or may cause the Fund to be more volatile than if the Fund had not been leveraged. Although the Investment Adviser and/or Subadviser seek to use derivatives to further the Fund’s investment objective, there is no assurance that the use of derivatives will achieve this result.

 

Following is a description of the derivative instruments and techniques that the Fund may use and their associated risks:

 

Futures. A futures contract is a standardized agreement between two parties to buy or sell a specific quantity of an underlying instrument at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Futures contracts are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. A decision as to whether, when and how to use futures involves the exercise of skill and judgment and even a well conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures can be highly volatile, using futures can lower total return, and the potential loss from futures can exceed the Fund’s initial investment in such contracts.

 

Options. If a Fund buys an option, it buys a legal contract giving it the right to buy or sell a specific amount of the underlying instrument or futures contract on the underlying instrument such as a security, currency or index, at an agreed upon price typically in exchange for a premium paid by the Fund. If a Fund sells an option, it

 

 

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sells to another person the right to buy from or sell to the Fund a specific amount of the underlying instrument or futures contract on the underlying instrument at an agreed upon price typically in exchange for a premium received by the Fund. A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.

 

Swaps. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indexes, reference rates, currencies or other instruments. Most swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund’s obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each counterparty. Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore, swaps are subject to credit risk or the risk of default or non-performance by the counterparty. Swaps could result in losses if interest rate or foreign currency exchange rates or credit quality changes are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. The Fund’s use of swaps may include those based on the credit of an underlying security and commonly referred to as “credit default swaps.” Where the Fund is the buyer of a credit default swap contract, it would be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default by a third party on the debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments but is obligated to pay upon default of the referenced debt obligation.

 

Structured Investments. The Fund also may invest a portion of its assets in structured notes and other types of structured investments. A structured note is a derivative security for which the amount of principal repayment and/or interest payments is based on the movement of one or more “factors.” These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate or LIBOR), referenced bonds and stock indices. Investments in structured notes involve risks including interest rate risk, credit risk and market risk. Changes in interest rates and movement of the factor may cause significant price fluctuations and changes in the reference factor may cause the interest rate on the structured note to be reduced to zero and any further changes in the reference factor may then reduce the principal amount payable on maturity. Other types of structured investments include interests in entities organized and operated for the purpose of restructuring the investment characteristics of underlying investment interests or securities. These investment entities may be structured as trusts or other types of pooled investment vehicles.

 

 

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Holders of structured investments bear risks of the underlying investment and are subject to counterparty risk. Certain structured investments may be thinly traded or have a limited trading market and may have the effect of increasing the Fund’s illiquidity to the extent that the Fund, at a particular point in time, may be unable to find qualified buyers for these securities.

 

Foreign Currency Forward Contracts. In connection with its investments in foreign securities, the Fund also may enter into contracts with banks, brokers or dealers to purchase or sell securities or foreign currencies at a future date (“forward contracts”). A foreign currency forward contract is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. Forward foreign currency exchange contracts may be used to protect against uncertainty in the level of future foreign currency exchange rates or to gain or modify exposure to a particular currency. In addition, the Fund may use cross currency hedging or proxy hedging with respect to currencies in which the Fund has or expects to have portfolio or currency exposure. Cross currency hedges involve the sale of one currency against the positive exposure to a different currency and may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies. Hedging the Fund’s currency risks involves the risk of mismatching the Fund’s objectives under a forward or futures contract with the value of securities denominated in a particular currency. Furthermore, such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken. There is an additional risk to the effect that currency contracts create exposure to currencies in which the Fund’s securities are not denominated. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts.

 

 

Portfolio Management

 

Van Kampen Dynamic Credit Opportunities Fund is managed by members of the Adviser’s Senior Loan Group, which currently includes Gerard Fogarty, a Vice President of the Adviser, and Jeffrey Scott and Philip Yarrow, each an Executive Director of the Adviser. All team members are responsible for the day-to-day management of the Adviser’s portion of the Fund’s portfolio.

 

Mr. Fogarty joined the Adviser in 2007 and began managing the Fund in July 2008. Mr. Fogarty has approximately 12 years of investment experience. From 2003 to 2007 and prior to joining the Adviser, Mr. Fogarty was employed by JPMorgan and held a number of positions including Director in the financial institutions group, and, most recently as a Credit Executive in the commercial real estate group. Prior to joining JPMorgan, Mr. Fogarty was employed as an Associate in the financial institutions group at Bank of America. Mr. Fogarty received a B.S. from Indiana University and an M.B.A. from the University of Chicago Graduate School of Business.

 

 

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Mr. Scott joined the Adviser in 2005 and began managing the Fund in July 2008. Mr. Scott has approximately 19 years of investment industry experience. Prior to joining the Adviser, Mr. Scott was employed by State Farm Insurance Companies where he served as an Assistant Vice President in the Mutual Fund Group responsible for product development and strategy as well as a Regional Vice President for Sales for the Financial Services Division. Mr. Scott received a B.S. from Elmhurst College and an M.B.A. from the University of Chicago Graduate School of Business. Mr. Scott also holds the Chartered Financial Analyst designation.

 

Mr. Yarrow joined the Adviser in 2005 and began managing the Fund in June 2007. Mr. Yarrow has over 14 years of investment experience. Prior to joining the Adviser, Mr. Yarrow was a credit analyst and a portfolio manager at Bank One/JPMorgan. Mr. Yarrow received a bachelor’s degree in mathematics and economics from the University of Nottingham and an M.B.A. in finance from Northwestern University. Mr. Yarrow also holds the Chartered Financial Analyst designation.

 

The Fund is also managed by Avenue Europe International Management, L.P., the Fund’s investment subadviser (the “Subadviser”). Richard Furst, Senior Portfolio Manager of the Subadviser, and Raul Ramirez, a Portfolio Manager of the Subadviser, are responsible for the day-to-day management of the Subadviser’s portion of the Fund’s portfolio.

 

Mr. Furst has been associated with the Subadviser in an investment management capacity since 2004. Prior to joining the Subadviser, he was a portfolio manager with Moore Capital Group, managing approximately $1 billion of U.S. and European distressed and high yield securities. Prior to that, he was a Managing Director and Head of U.S. Special Situations Trading group for Bank of America. Previously, Mr. Furst was a Vice President in the High Yield and Distressed Trading and Research department of Salomon Brothers, Inc., after serving as an Analyst in their Mergers, Acquisitions, and Restructuring group.

 

Mr. Ramirez has been associated with the Subadviser in an investment management capacity since 2006. Prior to joining the Subadviser, Mr. Ramirez was a portfolio manager based in London at Goldentree Asset Management UK, focused on European investments. Previously, Mr. Ramirez was Executive Director of the Special Situations Group at Morgan Stanley, focused on the European energy sector. While at Morgan Stanley, Mr. Ramirez was also the Head of European Distressed Research.

 

 

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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 email address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-1520.

 

You may obtain copies of a fund’s fiscal quarter filings by contacting Van Kampen Client Relations at (800) 847-2424.

 

Proxy Voting Policy and Procedures and Proxy Voting Record

 

You may obtain a copy of the Fund’s Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 847-2424 or by visiting our Web site at www.vankampen.com. It is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting our Web site at www.vankampen.com. This information is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

 

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Investment Advisory Agreement Approval

 

The current investment adviser for the Fund is Van Kampen Asset Management (the “Adviser”) pursuant to the investment advisory agreement approved by the Board on May 20-21, 2009. The Adviser is a wholly owned subsidiary of Van Kampen Investments Inc. (“Van Kampen Investments”), which is an indirect wholly owned subsidiary of Morgan Stanley. The current investment subadviser for the Fund is Avenue Europe International Management, L.P. (the “Subadviser”) pursuant to the investment subadvisory agreement approved by the Board on May 20-21, 2009. The Subadviser is a part of Avenue Capital Group. Morgan Stanley owns an indirect, non-controlling interest in the Subadviser.

 

On October 19, 2009, Morgan Stanley entered into a definitive agreement to sell substantially all of its retail asset management business, including Van Kampen Investments, to Invesco Ltd., a leading independent global investment management company (the “Transaction”). As a result of this Transaction, the asset management business of Van Kampen Investments will be combined with that of Invesco Advisers, Inc. (“Invesco”), a subsidiary of Invesco Ltd.

 

The closing of the Transaction (currently expected to be in mid-2010) will constitute an “assignment” of the current advisory agreements for the Fund and, therefore, pursuant to the Investment Company Act of 1940 (the “1940 Act”), will result in the automatic termination of the Fund’s current advisory agreements. The 1940 Act requires that shareholders of the Fund approve any new advisory agreements for the Fund.

 

In connection with the Transaction, the Fund’s Board of Trustees has approved a new investment advisory arrangement between the Fund and Invesco, which arrangement includes (i) a new advisory agreement with Invesco, which agreement allows Invesco to enter into subadvisory agreements and delegate any or all of its rights, duties or obligations to one or more wholly owned affiliates of Invesco Ltd. as subadvisers and (ii) that Invesco enter into a master subadvisory agreement with several of Invesco Ltd.’s wholly owned affiliates. In addition, the Fund’s Board of Trustees has approved a new investment subadvisory agreement between Invesco and the Subadviser, such that the Subadviser can continue to provide investment subadvisory services to the Fund. The new advisory agreement with Invesco, the new master subadvisory agreement and the new investment subadvisory agreement with the Subadviser are collectively referred to herein as the “New Advisory Agreements.”

 

The Fund’s Board of Trustees is seeking shareholder approval of the New Advisory Agreements at a special meeting of shareholders and a proxy statement is being sent to shareholders in advance of the special meeting. Closing of the Transaction and shareholder approval of the New Advisory Agreements are conditions precedent to the effectiveness of the New Advisory Agreements. As part of the Transaction, it is also expected that Invesco and its affiliates will provide the Fund with administrative and client servicing services that are currently provided by Van Kampen Investments and its affiliates.

 

 

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At several in-person and telephonic meetings held in August, September, October, November and December 2009, the Board discussed and ultimately approved the New Advisory Agreements. At these meetings, the Board considered information provided by Morgan Stanley, Van Kampen Investments and Invesco regarding, among other things: Invesco’s organization and personnel; business strategy; ownership structure; financial strength; affiliations (including other asset management affiliations); asset management practices and capabilities; legal and regulatory matters; and compliance matters. Emphasis during these meetings focused on Invesco being a global investment management leader with momentum in the U.S. retail market, and that the combination of Invesco and Morgan Stanley’s retail asset management business, including Van Kampen Investments, can bring additional value to the Fund’s shareholders. The parties discussed Invesco’s independence as a publicly traded entity, its strategic focus solely on the investment management business (including Invesco’s investment reputation, broad product line, service quality, industry relationships and objective of putting investors’ interests first) and its significant depth in resources, diversification, performance and experience. The parties discussed how the current Invesco and Van Kampen Investments businesses compare and complement each other and the synergies of the combined organization which management believes will benefit the Fund’s shareholders. The parties discussed aligning the Fund and other funds currently advised by the Adviser together with other funds and products currently advised by Invesco and its affiliates towards using a single, common operating platform (which includes, among other things, common investment operating platforms, common global performance measurement and risk analysis, and common compliance policies and procedures).

 

In connection with the Board’s consideration of the New Advisory Agreements, the Trustees considered the factors discussed above as well as the following:

 

Nature, Extent and Quality of the Services to be Provided. The Board considered the roles and responsibilities of each of the adviser (and its affiliates) and the Subadviser, including those specific to portfolio management, support and trading functions anticipated to be servicing the Fund. The Board noted that the current portfolio management team for the Fund is expected to remain the same under the New Advisory Agreements. The Trustees discussed with Invesco the resources available in managing the Fund. The Trustees also discussed certain other services that are to be provided by Invesco or its affiliates to the Fund including subadvisory services, certain global performance measurement and risk analysis, compliance, accounting, and administrative services. The Board has determined that the nature, extent and quality of the services to be provided by Invesco (and its affiliates) and the Subadviser support its decision to approve the New Advisory Agreements.

 

Projected Fees and Expenses of the Fund. The Board considered that the advisory fee rate for the Fund would remain the same under the New Advisory Agreements as they are under the current advisory agreement and the current subadvisory agreement. The Board had previously determined that such fees were acceptable under the current advisory agreement and the current subadvisory agreement. The Board has determined that the projected fees and expenses of the Fund support its decision to approve the New Advisory Agreements.

 

 

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Expenses in Providing the Service and Profitability. At least annually, the Trustees expect to review expenses in providing services to the Fund and other funds advised by Invesco and the Subadviser and the profitability of Invesco and the Subadviser. In connection with the Fund, the Trustees discussed revenues and expenses, including among other things, revenues for advisory services, portfolio management-related expenses, and other costs. The Board has determined that the analysis of expenses and profitability support its decision to approve the New Advisory Agreements.

 

Economies of Scale. The Board noted that economies of scale were already reflected in the advisory fees. In future determinations of whether to approve the continuation of the New Advisory Agreements, the Board will consider whether economies of scale exist and should be passed along to shareholders.

 

Other Benefits of the Relationship. The Board considered other benefits to Invesco and its affiliates derived from its relationship with the Fund and other funds advised by Invesco. These benefits include, among other things, fees for administrative services (which is reimbursement of Invesco’s cost or such reasonable compensation as may be approved by the Board), transfer agency services provided to other funds in the fund family, in certain cases research to be received by Invesco or its affiliates generated from commission dollars spent on funds’ portfolio trading, and in certain cases distribution or service related fees related to sales of other funds in the fund family. The Trustees reviewed with Invesco 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 Invesco or its affiliates support its decision to approve the New Advisory Agreements.

 

 

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Van Kampen Dynamic Credit Opportunities Fund

Portfolio of Investments  n  January 31, 2010 (Unaudited)

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued

 

 

 

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See Notes to Financial Statements

Van Kampen Dynamic Credit Opportunities Fund
Portfolio of Investments  n  January 31, 2010 (Unaudited)  continued