<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 21
Report of Independent Accountants................ 29
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder:
As we enter a new century--and millennium--it seems appropriate to take a
look back at the progress that's been made over the last 100 years and how the
world of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Some that have stood the test of time include:
- INVESTING FOR THE LONG-TERM
- BASING INVESTMENT DECISIONS ON SOUND RESEARCH
- BUILDING A DIVERSIFIED PORTFOLIO
- BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE
While no one can predict the future, at Van Kampen we believe that these
ideas will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Richard F. Powers, III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
The nation's brisk rate of economic growth continued throughout 1999,
bringing the United States to the verge of its longest economic expansion on
record. High levels of consumer spending, a host of new jobs, and increasing
productivity kept the economy strong. Gross domestic product, the primary
measure of economic growth, increased 4.2 percent for the year, including an
impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent
in the fourth quarter.
EMPLOYMENT
The job market remained vibrant throughout the year, with more than 2.7
million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1
percent in October--its lowest rate in three decades. With jobs plentiful and
wages on the rise, most Americans were optimistic about the future. At the end
of the year the consumer confidence index hit its highest level since 1968.
Although wage pressures caused some concerns about the potential erosion of
corporate profits, productivity gains helped keep those concerns muted through
the end of the year.
INFLATION AND INTEREST RATES
Although the Consumer Price Index continued to reflect historically low
inflation--rising only 2.7 percent during 1999--concerns about future increases
in inflation were prevalent throughout the reporting period. The Federal Reserve
Board remained active in guarding against inflation and trying to temper
economic growth. The Fed reversed its three interest-rate cuts from the fall of
1998 by raising rates in June, August, and November 1999.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Fourth Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4
97Q4 3.10
98Q1 6.70
98Q2 2.10
98Q3 3.80
98Q4 5.90
99Q1 3.70
99Q2 1.90
99Q3 5.70
99Q4 5.80
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999
VAN KAMPEN HARBOR FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... 50.01% 49.02% 48.95%
One-year total return(2)................. 41.35% 44.02% 47.95%
Five-year average annual total
return(2)................................ 19.52% 19.87% 20.01%
Ten-year average annual total
return(2)................................ 13.21% N/A N/A
Life-of-Fund average annual total
return(2)................................ 10.58% 14.40% 14.67%
Commencement date........................ 11/15/56 12/20/91 10/26/93
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (5.75% for A shares) or contingent deferred
sales charge for early withdrawal (5% for B shares and 1% for C shares). If the
sales charges were included, total return would be lower.
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
See the Comparative Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Fund shares may decline. The
Fund may invest up to 15% of the total assets in foreign securities which may
subject the Fund to special risks including currency exchange rate fluctuations,
and political and economic instability. In addition, the Fund is subject to
other risks. These risks include, but are not limited to: market risk -- the
possibility that the market values of securities owned by the Fund will decline;
derivative investments risk -- a derivative investment is one whose value
depends on (or is derived from) the value of an underlying asset, interest rate
or index and involves risks different from investment in the underlying
security; and manager risk -- management may not be successful in selecting the
best performing securities and the Fund's performance may lag behind that of
similar funds. Past performance does not guarantee future results. Investment
return and net asset value will fluctuate with market conditions. Fund shares,
when redeemed, may be worth more or less than their original cost.
Debt securities acquired by the Fund are not subject to any ratings limitations
and may include high-, medium-, lower- and non-rated debt securities.
Lower-rated and comparable non-rated securities are regarded as speculative with
respect to capacity to pay interest and repay principal.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the
broad-based Russell 2000 Stock Index and the Lipper Convertible Securities Fund
Index over time. These indices are statistical composites that do not include
any commissions or fees that would be paid by an investor purchasing the
securities they represent. Such costs would lower the performance of these
indices. An investment cannot be made directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Harbor Fund vs. the Russell 2000 Stock Index and the Lipper
Convertible Securities Fund Index (December 31, 1989, through December 31,
1999)
- ------------------------------
Fund's Total Return
1 Year Avg. Annual = 41.35%
5 Year Avg. Annual = 19.52%
10 Year Avg. Annual = 13.21%
Inception Avg. Annual = 10.58%
- ------------------------------
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER CONVERTIBLE SECURITIES
VAN KAMPEN HARBOR FUND RUSSELL 2000 STOCK INDEX FUND INDEX
---------------------- ------------------------ -----------------------------
<S> <C> <C> <C>
Dec 1989 9424 10000 10000
9075 9126 9635
9115 9410 9742
9284 9776 9877
9060 9457 9695
9670 10126 10170
9687 10146 10191
9694 9700 10125
9207 8408 9597
8868 7664 9190
8769 7196 8927
9137 7745 9333
Dec 1990 9308 8052 9564
9560 8781 9939
9941 9760 10440
10108 10447 10592
10116 10420 10715
10284 10917 10964
10070 10281 10696
10419 10642 10951
10730 11036 11256
10746 11122 11311
10957 11416 11531
10799 10888 11239
Dec 1991 11456 11760 11867
11486 12713 12171
11609 13084 12390
11440 12641 12239
11456 12198 12278
11666 12360 12487
11486 11776 12358
11803 12185 12684
11747 11841 12615
11937 12115 12859
12025 12500 12981
12289 13456 13303
Dec 1992 12569 13925 13577
12863 14396 13882
12863 14064 13883
13244 14520 14337
13082 14121 14246
13390 14746 14565
13573 14838 14684
13521 15043 14773
13989 15693 15177
14120 16136 15289
14190 16551 15520
13927 16007 15381
Dec 1993 14274 16554 15591
14680 17073 15987
14453 17011 15850
13729 16113 15292
13575 16209 15098
13604 16027 15077
13331 15482 14951
13603 15737 15195
13886 16614 15625
13669 16558 15501
13699 16493 15472
13354 15827 15040
Dec 1994 13356 16252 15022
13588 16047 15161
13851 16714 15521
14049 17002 15880
14345 17380 16153
14682 17679 16503
14958 18596 16851
15474 19667 17357
15526 20074 17486
15835 20433 17751
15647 19519 17462
16127 20339 17986
Dec 1995 16357 20876 18187
16650 20853 18512
16813 21503 18799
16932 21941 18980
17199 23114 19422
17522 24025 19738
17354 23038 19477
16669 21026 18792
17186 22247 19458
17827 23116 20075
17907 22760 20170
18360 23698 20862
Dec 1996 18332 24319 20848
18965 24805 21473
18843 24204 21376
18206 23061 20955
18379 23126 21098
19305 26698 22102
19911 26800 22805
20906 28047 23858
20757 28689 23853
21816 30788 24925
21076 29436 24298
21189 29246 24219
Dec 1997 21432 29757 24371
21318 29288 24408
22499 31453 25479
23256 32751 26268
23271 32932 26390
22517 31158 25861
22739 31224 25760
22578 28696 25285
19115 23124 22343
19638 24934 22666
20671 25950 23310
21616 27310 24252
Dec 1998 23044 29000 25060
24146 29385 25875
22982 27005 24975
24303 27427 25549
25301 29885 26754
25000 30321 26866
26094 31692 27814
26014 30823 27569
25950 29682 27323
26041 29688 27069
27827 29609 27971
29855 31589 29374
Dec 1999 34569 35164 32150
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (5.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN HARBOR FUND
We recently spoke with representatives of the adviser of the Van Kampen Harbor
Fund about the key events and economic forces that shaped the markets during the
past 12 months. The representatives include Christine Drusch, senior portfolio
manager, who has been the Fund's lead manager since February 1998 (associate
manager since 1991) and has worked in the investment industry since 1985. She is
joined by Matthew Hart and David McLaughlin, portfolio managers, and Stephen L.
Boyd, chief investment officer for equity investments. The following discussion
reflects their views on the Fund's performance during the 12 months ended
December 31, 1999.
Q WHAT MARKET FACTORS AFFECTED THE FUND DURING THE REPORTING PERIOD?
A The Dow Jones Industrial Average--perhaps the country's most widely
recognized stock market index--began the reporting period near 9200,
crossing several key milestones in the first half of the year: 10,000 in
March and 11,000 in May. Major fluctuations followed, however, as the index
nearly retreated below 10,000 in the difficult third quarter before once again
lifting to a record high in December. While the Dow performed well overall
during 1999, it was actually the technology-heavy NASDAQ stock index that stole
the show, returning a phenomenal 86 percent for the year. However, these high
returns helped to mask that not all securities shared in the good fortune--the
indices were fueled by the outstanding performance of a relatively small group
of investments.
Q GIVEN THIS ENVIRONMENT, WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A We consistently manage the Fund to seek current income, capital
appreciation, and conservation of capital by investing primarily in
convertible securities. In seeking to meet this objective, we continued to
focus on growth companies and to diversify across market sectors. This approach
helped the Fund's returns during the reporting period because of the outstanding
performance of many growth investments in 1999.
During the reporting period, the portfolio was weighted heavily in
technology and communications-services--two of the market's fastest-growing
areas. This concentration had an extremely favorable impact on the Fund's
performance. Of course, there's no guarantee that the factors that contributed
to this strong performance will continue to occur in the future.
We also decided to decrease the Fund's exposure to companies in industries
that have tended to perform poorly in an environment of rising interest rates,
as we experienced in 1999. As a result, we minimized our investments in
financial services, utilities, real estate, and transportation. This reduction
was most significant with regard to electric utilities, in which the Fund had
been heavily invested early in the reporting period. We opted to eliminate most
of our holdings in this area because of poor recent
5
<PAGE> 7
performance and because we don't see an indication on the horizon that electric
utilities will perform better.
Q WHAT WERE SOME OF THE INVESTMENTS THAT HAD THE MOST POSITIVE EFFECT ON THE
FUND'S RETURN?
A The Fund benefited from its investments in companies we believe are
positioned to gain from the exploding demand for wireless communications.
The Fund was most helped by its holding in Qualcomm, which owns the patent
on wireless CDMA technology, widely becoming the standard in U.S. cellular
phones. Qualcomm's stock skyrocketed during the period, especially during the
fourth quarter. Along similar lines, the Fund was helped by its significant
weighting in Comverse Technology, which makes telecommunications systems such as
voice-mail services; Omnipoint, a cellular-service provider; and LSI Logic, a
maker of semiconductors used in wireless-communications devices.
Internet companies were also big winners in 1999. During the first half of
the reporting period, we avoided many "pure" Internet companies because we saw
their valuations as extremely high and because sales-growth estimates were
falling. As the reporting period went on, we started to increase the Fund's
exposure to this area, focusing on high-quality companies whose sales and,
possibly, earnings estimates again were rising. We remain concerned about
Internet valuations, however, and are investing the Fund's assets in this area
selectively. One extremely successful Internet company that met our criteria and
helped the Fund's return was America Online, the leading Internet service
provider.
Other securities whose performance contributed greatly to our results were
Conexant Systems (semiconductors), Veritas Software (maker of software for data
storage), NTL (an integrated cable and telephone operator in the U.K.), and Home
Depot (home products superstore). Not all securities in the Fund performed as
favorably as these, nor is there any guarantee they will continue to do so. For
additional Fund portfolio highlights, please refer to page 9.
Q WHICH INVESTMENTS HAD THE MOST NEGATIVE EFFECT ON THE FUND?
A On the down side, Unisys, a major systems integrator for large businesses,
saw its stock price plummet early in the fourth quarter after the company
announced that revenue and earnings for the third quarter would be less
than expected. Other securities whose performance hurt the Fund's return during
1999 were automotive-component manufacturer Tower Automotive, communications
provider AT&T, home-building company Lennar, and holding company Roche Holdings.
Q HOW DID THE FUND PERFORM DURING THE LAST 12 MONTHS?
A Thanks to successful security selection and the Fund's substantial
weighting in technology and communications services, the Fund performed
very well during the reporting period, with a 12-month total return of
50.01(1) (Class A shares at net asset
6
<PAGE> 8
value) as of December 31, 1999. By comparison, the Russell 2000 Index returned
21.26 percent, and the Lipper Convertible Securities Fund Index, which more
closely resembles the Fund, returned 28.30 percent. The unmanaged Russell 2000
Index reflects the average performance of small-cap stocks, and the Lipper
Convertible Securities Fund Index represents the average performance of the 10
largest convertible securities funds.
These indices are statistical composites that do not include any commissions
or sales charges that would be paid by an investor purchasing the securities
they represent. Such costs would lower the performance of the indices. An
investment cannot be made directly in an index. Please refer to the chart and
footnotes on page 3 for additional Fund performance results. Past performance
doesn't guarantee future performance.
Q WHAT IS YOUR SIX-MONTH OUTLOOK FOR THE FUND?
A Barring any unforeseen events, we envision continued worldwide economic
health, low inflation, and strong earnings growth. Of course, our outlook
may in part depend on the timing and frequency of Federal Reserve
interest-rate changes. Although recent rate increases have had only a moderately
negative effect on stock prices, an additional rate hike could have a more
substantial impact. We're also keeping our eye on stock valuations, because the
higher they get, the greater the negative impact on the Fund if investors were
to lose their enthusiasm for growth stocks.
We believe convertibles offer investors a less aggressive means of investing
in growth companies--particularly in emerging industries such as Internet
technology. Investing in this area of the market can be risky, and convertibles
may enable investors to participate in potential market gains and income while
enjoying the potential for reduced volatility. This can be an attractive feature
in uncertain economic times.
7
<PAGE> 9
GLOSSARY OF TERMS
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CONVERTIBLE SECURITY: A security that can be exchanged for common stock at the
option of the security holder for a specified price or rate. Examples
include convertible bonds and convertible preferred stock.
DOW JONES INDUSTRIAL AVERAGE: The oldest and most widely recognized stock market
average, which reflects the performance of 30 actively traded stocks of
well-established, blue-chip companies.
EARNINGS ESTIMATES: A forecast for a company's net income during a given period.
Earnings estimates can come from the company's management as well as from
independent analysts.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
GROWTH INVESTING: An investment strategy that seeks to identify stocks that tend
to offer greater-than-average earnings growth. Growth stocks typically trade
at higher prices relative to their earnings than value stocks, due to their
higher expected earnings growth.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing
this amount by the number of shares outstanding. The NAV does not include
any initial or contingent deferred sales charge.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue,
book value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HARBOR FUND
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999*
<TABLE>
<S> <C>
COMVERSE TECHNOLOGY develops computer and telecommunications
systems and software for multimedia communications and
information processing applications......................... 5.7%
QUALCOMM is a leading designer, developer, and manufacturer
of digital wireless communications products................. 5.3%
VERITAS SOFTWARE is a leading maker of software designed to
enhance electronic information storage...................... 3.8%
HOME DEPOT operates retail stores that sell building
materials and home-improvement products..................... 3.7%
CONEXANT SYSTEMS supplies semiconductor products for a broad
range of communications applications........................ 3.3%
LSI LOGIC designs, manufactures, and markets semiconductor
products and computer-storage systems solutions............. 3.0%
STMICROELECTRONICS manufactures a wide variety of
semiconductor devices....................................... 2.8%
OMNIPOINT is a wireless-communications service provider in
New England, the mid-Atlantic region, and South Florida..... 2.6%
NTL provides cable, Internet, and telecommunications
services to customers in the United Kingdom................. 2.1%
TELEFONOS DE MEXICO provides telecommunications services to
domestic and international telephone users in Mexico........ 2.1%
</TABLE>
TOP FIVE PORTFOLIO INDUSTRIES*(1)
[BAR GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Technology 57.0 29.6
Utilities 13.3 15.2
Consumer Services 7.5 10.0
Health Care 5.9 9.0
Energy 6.4 6.8
</TABLE>
* As a percentage of long-term investments
(1) These sectors represent broad groupings of related industries.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE
OBLIGATIONS** 51.4%
CONSUMER DISTRIBUTION 1.2%
$ 5,901 AnnTaylor Stores Corp., 144A -
Private Placement (a)................ 0.550% 06/18/19 $ 3,189,078
3,390 Costco Wholesale Corp. .............. * 08/19/17 3,610,350
------------
6,799,428
------------
CONSUMER NON-DURABLES 0.7%
5,150 Loews Corp. (convertible into 79,185
Diamond Offshore Drilling, Inc.
common shares)....................... 3.125 09/15/07 4,223,000
------------
CONSUMER SERVICES 3.7%
5,031 Etoys, Inc., 144A - Private Placement
(a).................................. 6.250 12/01/04 3,075,199
2,530 Interpublic Group of Companies, Inc.,
144A - Private Placement (a)......... 1.870 06/01/06 2,874,713
5,800 Jacor Communications, Inc., LYON..... * 02/09/18 3,900,500
1,700 Omnicom Group, Inc................... 2.250 01/06/13 3,471,094
1,250 Omnicom Group, Inc., 144A -
Private Placement (a)................ 4.250 01/03/07 3,981,250
9,300 Times Mirror Co., LYON............... * 04/15/17 4,545,375
------------
21,848,131
------------
ENERGY 1.4%
4,207 Devon Energy Corp.................... 4.950 08/15/08 4,122,860
4,300 Kerr-McGee Corp. .................... 7.500 05/15/14 3,993,625
------------
8,116,485
------------
FINANCE 0.5%
1,680 Checkfree Holdings Corp., 144A -
Private Placement (a)................ 6.500 12/01/06 2,675,400
------------
HEALTHCARE 3.5%
2,347 Alpharma, Inc., 144A - Private
Placement (a)........................ 3.000 06/01/06 2,528,892
3,060 ALZA Corp............................ 5.000 05/01/06 3,220,650
5,080 Centocor, Inc........................ 4.750 02/15/05 6,788,150
2,750 Human Genome Sciences, Inc.,
144A - Private Placement (a)......... 5.000 12/15/06 3,313,750
7,860 Roche Holdings, Inc., LYON, 144A -
Private Placement (a)................ * 04/20/10 4,750,427
------------
20,601,869
------------
PRODUCER MANUFACTURING 0.4%
2,102 Advanced Energy Industries, Inc...... 5.250 11/15/06 2,511,890
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TECHNOLOGY 36.6%
$ 5,520 Adaptec, Inc......................... 4.750% 02/01/04 $ 5,996,100
10,481 America Online, Inc.................. * 12/06/19 6,021,334
765 America Online, Inc.................. 4.000 11/15/02 8,865,814
2,280 Automatic Data Processing, Inc.,
LYON................................. * 02/20/12 3,180,600
555 Bea Systems, Inc..................... 4.000 06/15/05 2,947,050
3,794 Bea Systems, Inc., 144A - Private
Placement (a)........................ 4.000 12/15/06 4,435,110
1,260 Commscope, Inc., 144A - Private
Placement (a)........................ 4.000 12/15/06 1,352,686
8,875 Comverse Technology Inc., 144A -
Private Placement (a)................ 4.500 07/01/05 30,274,844
1,660 Conexant Systems, Inc................ 4.250 05/01/06 4,870,025
5,990 Conexant Systems, Inc.,
144A - Private Placement (a)......... 4.250 05/01/06 17,573,162
3,877 Corecomm Limited Co., 144A - Private
Placement (a)........................ 6.000 10/01/06 6,067,505
4,060 Cypress Semiconductor Corp........... 6.000 10/01/02 5,861,625
1,480 DoubleClick, Inc., 144A - Private
Placement (a)........................ 4.750 03/15/06 4,599,100
5,065 DSC Communications Corp.............. 7.000 08/01/04 5,318,250
5,870 Echostar Communications Corp.,
144A -
Private Placement (a)................ 4.875 01/01/07 7,168,033
1,030 EMC Corp............................. 3.250 03/15/02 9,947,225
5,031 Exodus Communications, Inc., 144A -
Private Placement (a)................ 4.750 07/15/08 6,967,331
10,070 Hewlett-Packard Co., LYON............ * 10/14/17 6,935,713
2,110 HNC Software, Inc.................... 4.750 03/01/03 5,132,575
2,524 I2 Technologies, Inc., 144A -
Private Placement (a)................ 5.250 12/15/06 3,625,095
5,320 Lam Research Corp.................... 5.000 09/01/02 7,308,350
1,682 Lattice Semiconductor Corp., 144A -
Private Placement (a)................ 4.750 11/01/06 2,205,523
7,000 LSI Logic Corp., 144A - Private
Placement (a)........................ 4.250 03/15/04 15,898,750
1,820 Micron Technology, Inc............... 7.000 07/01/04 2,350,075
1,000 Oak Industries, Inc.................. 4.875 03/01/08 2,797,850
1,127 Sanmina Corp., 144A - Private
Placement (a)........................ 4.250 05/01/04 1,490,458
4,200 Siebel Systems, Inc., 144A - Private
Placement (a)........................ 5.500 09/15/06 8,142,750
5,060 Solectron Corp., LYON, 144A -
Private Placement (a)................ * 01/27/19 3,869,787
5,000 Solectron Corp., LYON................ * 01/27/19 3,781,250
7,491 Veritas Software Corp................ 1.856 08/13/06 20,325,405
------------
215,309,375
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 3.4%
$ 3,860 Nextel Communications, Inc., 144A -
Private Placement (a)................ 4.750% 07/01/07 $ 8,757,375
4,300 NTL, Inc., 144A - Private Placement
(a).................................. 7.000 12/15/08 11,373,500
------------
20,130,875
------------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 51.4%.... 302,216,453
------------
FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS** 6.2%
5,200 ASM Lithography Holding,
(Netherlands) 144A -
Private Placement (a)................ 4.250 11/30/04 6,290,492
10,740 STMicroelectronics NV, LYON,
(Netherlands)........................ * 09/22/09 14,801,438
1,000 Swiss Life Finance Ltd., (United
Kingdom), (Convertible into 13,614
shares of Royal Dutch Petroleum Co.),
144A - Private Placement (a)......... 2.000 05/20/05 995,000
3,250 Swiss Life Finance Ltd., (United
Kingdom),
(Convertible into 44,246 shares of
Royal Dutch Petroleum Co.)........... 2.000 05/20/05 3,233,750
8,600 Telefonos de Mexico, SA (Mexico)..... 4.250 06/15/04 11,212,250
------------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS............ 36,532,930
------------
</TABLE>
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS** 20.4%
CONSUMER SERVICES 2.4%
Adelphia Communications Corp., Ser D, 5.500%......... 10,100 $ 1,902,588
Cox Communications, Inc., PRIDES, 7.000%............. 64,700 4,399,600
Entercom Communications Capital Trust, TIDES,
6.250%............................................. 42,000 3,407,250
UNITEDGLOBALCOM, Ser D, 7.000%....................... 67,100 4,101,487
------------
13,810,925
------------
ENERGY 3.7%
Apache Corp., ACES, 6.500%........................... 203,600 7,227,800
El Paso Energy Capital Trust I, 4.750%............... 95,750 4,823,406
Kerr-McGee Corp., DECS, 5.500% (Convertible into
71,360 shares of Devon Energy common stock).......... 84,200 2,778,600
Pogo Trust I Co., Ser A, QUIPS, 6.500%............... 50,600 2,492,050
Tosco Financing Trust, 5.750%........................ 94,700 4,510,088
------------
21,831,944
------------
FINANCE 0.4%
American General Corp., 7.000%....................... 35,000 2,117,500
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 0.3%
Monsanto Co., ACES, 6.500%........................... 59,050 $ 1,956,031
------------
TECHNOLOGY 7.0%
Amdocs Ltd., TRACES, 6.750%.......................... 64,000 2,056,000
Echostar Communications Corp., Ser C, 6.750%......... 7,300 6,058,772
PSINet, Inc., Ser C, 6.750%.......................... 49,800 2,907,075
Qualcomm Financial Trust, 5.750%..................... 28,500 28,051,125
Verio, Inc., 6.750%, 144A - Private Placement (a).... 32,600 1,841,900
------------
40,914,872
------------
UTILITIES 6.6%
Calpine Capital Trust, TIDES, 5.750%................. 90,500 5,939,063
MCI Worldcom, Inc., 2.250%........................... 56,500 2,899,156
McLeodUSA, Inc., Ser A, 6.750%....................... 13,599 7,003,715
Nextlink Communications Inc., 6.500%, 144A -
Private Placement (a)................................ 12,600 2,435,353
Omnipoint Corp., 7.000%, 144A - Private Placement
(a)................................................ 71,100 14,015,587
WinStar Communications, Inc., Ser D, 7.000%.......... 84,500 6,707,188
------------
39,000,062
------------
TOTAL CONVERTIBLE PREFERRED STOCK 20.4%.......................... 119,631,334
------------
COMMON STOCKS** 12.2%
CONSUMER DISTRIBUTION 3.4%
Home Depot, Inc...................................... 287,739 19,728,105
------------
CONSUMER SERVICES 0.7%
Cable Vision Systems Corp., Class A (b).............. 51,898 3,918,299
Jazztel PLC (United Kingdom) (b)..................... 3,500 227,938
------------
4,146,237
------------
FINANCE 1.7%
American Express Co.................................. 22,000 3,657,500
Citigroup, Inc....................................... 111,000 6,167,437
------------
9,824,937
------------
HEALTHCARE 1.8%
Genentech, Inc. (b).................................. 79,600 10,706,200
------------
TECHNOLOGY 4.2%
Lam Research Corp. (b)............................... 60,000 6,693,750
Motorola, Inc........................................ 52,500 7,730,625
SCI Systems, Inc. (b)................................ 67,654 5,560,313
Texas Instruments, Inc............................... 49,000 4,746,875
------------
24,731,563
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT 0.4%
Royal Caribbean Cruises Ltd.......................... 53,000 $ 2,613,562
------------
UTILITIES 0.0%
Winstar Communications, Inc. (b)..................... 1 64
------------
TOTAL COMMON STOCKS 12.2%........................... 71,750,668
------------
TOTAL LONG-TERM INVESTMENTS 90.2%
(Cost $323,505,746).................................. 530,131,385
------------
SHORT-TERM INVESTMENTS 8.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS 0.8%
Federal Home Loan Bank Discount Note ($5,000,000 par,
yielding 5.579%, 03/10/00 maturity) (c)............ 4,947,100
REPURCHASE AGREEMENT 7.4%
State Street Bank & Trust Co. ($43,311,000 par
collateralized by U.S. government obligations in a
pooled cash account, dated 12/31/99, to be sold on
01/03/00 at $43,321,828) (c)......................... 43,311,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $48,258,100)................................... 48,258,100
------------
TOTAL INVESTMENTS 98.4%
(Cost $371,763,846).................................. 578,389,485
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%........... 9,237,678
------------
NET ASSETS 100.0%................................... $587,627,163
============
</TABLE>
- ---------------
* Zero coupon bond
** The securities are classified by sectors which represent broad groupings of
related industries.
(a) 144A securities are those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may only be resold in transactions
exempt from registration which are normally transactions with qualified
institutional buyers.
(b) Non-income producing security as this stock currently does not declare
dividends.
(c) Assets segregated as collateral for open futures transactions.
ACES--Automatically convertible equity securities
DECS--Debt exchange for common stock
LYON--Liquid yield option note
PRIDES--Preferred redeemable increased dividend equity security, traded in
shares
TIDES--Term income deferrable equity securities
TRACES--Trust automatic common exchange securities
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $371,763,846)....................... $578,389,485
Cash........................................................ 5,769,026
Receivables:
Investments Sold.......................................... 3,231,480
Interest.................................................. 1,690,151
Fund Shares Sold.......................................... 424,876
Dividends................................................. 101,718
Variation Margin on Futures............................... 63,750
Other....................................................... 66,097
------------
Total Assets.......................................... 589,736,583
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 635,339
Income Distributions...................................... 424,254
Distributor and Affiliates................................ 395,620
Investment Advisory Fee................................... 246,820
Accrued Expenses............................................ 230,425
Trustees' Deferred Compensation and Retirement Plans........ 176,962
------------
Total Liabilities..................................... 2,109,420
------------
NET ASSETS.................................................. $587,627,163
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $383,811,599
Net Unrealized Appreciation................................. 206,654,872
Accumulated Undistributed Net Investment Income............. 474,474
Accumulated Distributions in Excess of Net Realized Gains... (3,313,782)
------------
NET ASSETS.................................................. $587,627,163
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $516,089,311 and 25,364,244 shares of
beneficial interest issued and outstanding)........... $ 20.35
Maximum sales charge (5.75%* of offering price)......... 1.24
------------
Maximum offering price to public........................ $ 21.59
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $62,496,048 and 3,087,726 shares of
beneficial interest issued and outstanding)........... $ 20.24
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $9,041,804 and 443,749 shares of
beneficial interest issued and outstanding)........... $ 20.38
============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 9,747,550
Dividends................................................... 7,678,344
------------
Total Income............................................ 17,425,894
------------
EXPENSES:
Investment Advisory Fee..................................... 2,516,827
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $966,474, $575,098 and $64,107,
respectively)............................................. 1,605,679
Shareholder Services........................................ 690,596
Custody..................................................... 60,228
Trustees' Fees and Related Expenses......................... 43,495
Legal....................................................... 18,615
Other....................................................... 318,288
------------
Total Expenses.......................................... 5,253,728
Less Credits Earned on Cash Balances.................... 39,103
------------
Net Expenses............................................ 5,214,625
------------
NET INVESTMENT INCOME....................................... $ 12,211,269
============
REALIZED AND UNREALIZED GAIN:
Realized Gain/Loss:
Investments............................................... $ 22,093,223
Futures................................................... 2,709,863
------------
Net Realized Gain........................................... 24,803,086
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 40,695,575
------------
End of the Period:
Investments............................................. 206,625,639
Futures................................................. 29,233
------------
206,654,872
------------
Net Unrealized Appreciation During the Period............... 165,959,297
------------
NET REALIZED AND UNREALIZED GAIN............................ $190,762,383
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $202,973,652
============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 12,211,269 $ 15,238,836
Net Realized Gain.............................. 24,803,086 21,993,591
Net Unrealized Appreciation/Depreciation During
the Period................................... 165,959,297 (6,888,564)
------------ ------------
Change in Net Assets from Operations........... 202,973,652 30,343,863
------------ ------------
Distributions from Net Investment Income*:..... (14,327,136) (15,692,022)
------------ ------------
Distributions from Net Realized Gains:......... (28,705,189) (22,599,003)
Distributions in Excess of Net Realized
Gains:....................................... (2,077,438) -0-
------------ ------------
Distributions from and in Excess of Net
Realized Gains*:............................. (30,782,627) (22,599,003)
------------ ------------
Total Distributions............................ (45,109,763) (38,291,025)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... 157,863,889 (7,947,162)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 541,840,484 211,066,810
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 37,594,378 31,243,567
Cost of Shares Repurchased..................... (597,692,087) (248,677,411)
------------ ------------
Net Change in Net Assets from Capital
Transactions................................. (18,257,225) (6,367,034)
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.......... 139,606,664 (14,314,196)
NET ASSETS:
Beginning of the Period........................ 448,020,499 462,334,695
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$474,474 and $1,353,997, respectively)....... $587,627,163 $448,020,499
============ ============
* Distributions by Class
- -------------------------------------------------------------------------------------
Distributions from Net Investment Income:
Class A Shares............................... $(12,803,586) $(13,495,042)
Class B Shares............................... (1,367,708) (2,044,075)
Class C Shares............................... (155,842) (152,905)
------------ ------------
$(14,327,136) $(15,692,022)
============ ============
Distributions from and in Excess of Net
Realized Gains:
Class A Shares............................... $(26,844,667) $(18,851,717)
Class B Shares............................... (3,493,077) (3,468,896)
Class C Shares............................... (444,883) (278,390)
------------ ------------
$(30,782,627) $(22,599,003)
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
Class A Shares 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period...................... $14.835 $15.059 $15.054 $ 15.05 $13.24
------- ------- ------- ------- ------
Net Investment Income........... .447 .520 .600 .566 .68
Net Realized and Unrealized
Gain.......................... 6.687 .546 1.854 1.173 2.25
------- ------- ------- ------- ------
Total from Investment
Operations...................... 7.134 1.066 2.454 1.739 2.93
------- ------- ------- ------- ------
Less:
Distributions from and in Excess
of Net Investment Income...... .520 .537 .730 .555 .7025
Distributions from and in Excess
of Net Realized Gain.......... 1.102 .753 1.719 1.180 .4175
------- ------- ------- ------- ------
Total Distributions............... 1.622 1.290 2.449 1.735 1.12
------- ------- ------- ------- ------
Net Asset Value, End of the
Period.......................... $20.347 $14.835 $15.059 $15.054 $15.05
======= ======= ======= ======= ======
Total Return (a).................. 50.01% 7.52% 16.91% 12.08% 22.46%
Net Assets at End of the Period
(In millions)................... $ 516.1 $ 375.4 $ 376.4 $ 373.1 $394.5
Ratio of Expenses to Average Net
Assets.......................... 1.00% 1.02% 1.04% 1.09% 1.00%
Ratio of Net Investment Income to
Average Net Assets.............. 2.69% 3.48% 3.58% 3.60% 4.62%
Portfolio Turnover................ 103% 156% 170% 129% 130%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Class B Shares 1999(b) 1998(b) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $14.755 $14.981 $14.992 $ 14.99 $ 13.20
------- ------- ------- ------- -------
Net Investment Income.......... .320 .397 .470 .437 .56
Net Realized and Unrealized
Gain......................... 6.667 .547 1.848 1.180 2.23
------- ------- ------- ------- -------
Total from Investment
Operations................... 6.987 .944 2.318 1.617 2.79
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .400 .417 .610 .435 .5825
Distributions from and in
Excess of Net Realized
Gain....................... 1.102 .753 1.719 1.180 .4175
------- ------- ------- ------- -------
Total Distributions............ 1.502 1.170 2.329 1.615 1.00
------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $20.240 $14.755 $14.981 $14.992 $ 14.99
======= ======= ======= ======= =======
Total Return (a)............... 49.02% 6.70% 15.98% 11.19% 21.46%
Net Assets at End of the Period
(In millions)................ $ 62.5 $ 66.7 $ 81.3 $ 78.9 $ 78.1
Ratio of Expenses to Average
Net Assets................... 1.77% 1.81% 1.82% 1.88% 1.81%
Ratio of Net Investment Income
to Average Net Assets........ 1.97% 2.66% 2.80% 2.81% 3.81%
Portfolio Turnover............. 103% 156% 170% 129% 130%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Class C Shares 1999(b) 1998(b) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $14.855 $15.080 $15.079 $ 15.07 $ 13.25
------- ------- ------- ------- -------
Net Investment Income......... .316 .405 .448 .439 .56
Net Realized and Unrealized
Gain........................ 6.707 .540 1.882 1.185 2.26
------- ------- ------- ------- -------
Total from Investment
Operations.................. 7.023 .945 2.330 1.624 2.82
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .400 .417 .610 .435 .5825
Distributions from and in
Excess of Net Realized
Gain...................... 1.102 .753 1.719 1.180 .4175
------- ------- ------- ------- -------
Total Distributions........... 1.502 1.170 2.329 1.615 1.00
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $20.376 $14.855 $15.080 $15.079 $ 15.07
======= ======= ======= ======= =======
Total Return (a).............. 48.95% 6.65% 15.96% 11.20% 21.52%
Net Assets at End of the
Period (In millions)........ $ 9.0 $ 5.9 $ 4.6 $ 3.6 $ 3.6
Ratio of Expenses to Average
Net Assets (b).............. 1.76% 1.81% 1.82% 1.88% 1.80%
Ratio of Net Investment Income
to Average Net Assets....... 1.91% 2.71% 2.79% 2.81% 3.80%
Portfolio Turnover............ 103% 156% 170% 129% 130%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Based on average shares outstanding.
See Notes to Financial Statements
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Harbor Fund (the "Fund") is organized as a Delaware business trust,
and is registered as a diversified open-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek income, capital appreciation, and conservation of capital by
investing primarily in convertible bonds and preferred stocks. The Fund
commenced investment operations on November 15, 1956. The distribution of the
Fund's Class B and Class C shares commenced on December 20, 1991 and October 26,
1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Listed and unlisted securities for which the last sale price is not available
are valued at the mean of the bid and asked prices. Unlisted convertible
securities are valued at the mean of the bid and asked prices. Fixed income
investments and preferred stock are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. Short-term securities with remaining maturities of 60 days or less
are valued at amortized cost which is considered to approximate market value.
Fund investments include lower rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. Debt securities rated below investment grade and comparable
unrated securities represented approximately 64% of the long-term investments at
the end of the period.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
market fluctuations during this period. The Fund will maintain, in a segregated
account with its custodian, assets having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At December 31, 1999, there were no when-issued or delayed
delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such security only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts are amortized over
the expected life of each applicable security. Premiums on debt securities are
not amortized. Income and expenses of the Fund are allocated on a pro rata basis
to each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post-October losses, which may not be
recognized for tax purposes until the first day of the following fiscal year,
and gains recognized for tax purposes on open futures positions at December 31,
1999.
At December 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $371,763,846; the aggregate gross unrealized
appreciation is $210,815,134 and the aggregate gross unrealized depreciation is
$4,189,495, resulting in net unrealized appreciation on long- and short-term
investments of $206,625,639.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains which are included in ordinary income for
tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1999 fiscal year have been identified and appropriately reclassified.
For the year ended December 31, 1999, a permanent book and tax difference
relating to market discount on bonds sold in the amount of $1,239,431 was
reclassified from accumulated distributions in excess of net realized gains to
accumulated undistributed net investment income. Additionally, a permanent book
and tax difference, relating to distributions, in the amount of $3,087, was
reclassified from accumulated distributions in excess of net realized gains to
accumulated undistributed net investment income.
F. EXPENSE REDUCTIONS--During the year ended December 31, 1999, the Fund's
custody fee was reduced by $39,103 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $350 million.................................... .55 of 1%
Next $350 million..................................... .50 of 1%
Next $350 million..................................... .45 of 1%
Over $1.05 billion.................................... .40 of 1%
</TABLE>
For the year ended December 31, 1999, the Fund recognized expenses of
approximately $18,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1999, the Fund recognized expenses of
approximately $114,900 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended December 31,
1999, the Fund recognized expenses of approximately $529,600. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
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
At December 31, 1999, capital aggregated $331,200,440, $45,606,090 and
$7,005,069 for Classes A, B, and C, respectively. For the year ended December
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 31,887,984 $ 523,256,330
Class B.................................... 979,139 16,286,030
Class C.................................... 135,289 2,298,124
----------- -------------
Total Sales.................................. 33,002,412 $ 541,840,484
=========== =============
Dividend Reinvestment:
Class A.................................... 1,861,452 $ 32,807,194
Class B.................................... 245,403 4,272,549
Class C.................................... 28,976 514,635
----------- -------------
Total Dividend Reinvestment.................. 2,135,831 $ 37,594,378
=========== =============
Repurchases:
Class A.................................... (33,692,071) $(553,098,912)
Class B.................................... (2,656,393) (42,699,223)
Class C.................................... (117,843) (1,893,952)
----------- -------------
Total Repurchases............................ (36,466,307) $(597,692,087)
=========== =============
</TABLE>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
At December 31, 1998, capital aggregated $328,235,828, $67,746,734, and
$6,086,262 for Classes A, B, and C, respectively. For the year ended December
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 12,927,991 $ 193,998,609
Class B.................................... 949,046 14,318,709
Class C.................................... 179,950 2,749,492
----------- -------------
Total Sales.................................. 14,056,987 $ 211,066,810
=========== =============
Dividend Reinvestment:
Class A.................................... 1,786,990 $ 26,175,448
Class B.................................... 321,906 4,707,544
Class C.................................... 24,679 360,575
----------- -------------
Total Dividend Reinvestment.................. 2,133,575 $ 31,243,567
=========== =============
Repurchases:
Class A.................................... (14,405,527) $(214,599,359)
Class B.................................... (2,177,447) (32,400,387)
Class C.................................... (112,483) (1,677,665)
----------- -------------
Total Repurchases............................ (16,695,457) $(248,677,411)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996, and any dividend reinvestment Class B shares received
on such shares, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares six years after
the end of the calendar month in which the shares were purchased. For the year
ended December 31, 1999, 1,281,550 Class B shares automatically converted to
Class A shares and are shown in the above table as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received on such shares,
automatically convert to Class A shares ten years after the end of the calendar
month in which the shares are purchased. Class C shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the year ended December
31, 1999, no Class C shares converted to Class A shares. The CDSC will be
imposed on most
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
redemptions made within five years of the purchase for Class B and one year of
the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
-----------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First.................................................. 5.00% 1.00%
Second................................................. 4.00% None
Third.................................................. 3.00% None
Fourth................................................. 2.50% None
Fifth.................................................. 1.50% None
Sixth and Thereafter................................... None None
</TABLE>
For the year ended December 31, 1999, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $50,000 and CDSC on the redeemed shares of Classes B and C of
approximately $105,700. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $451,351,462 and $528,069,066,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or to generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in stock index futures.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
These contracts are generally used to provide the return of an index without
purchasing all of the securities underlying the index or to manage the Fund's
overall exposure to the equity markets.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts, for the year ended December 31, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1998............................ 90
Futures Opened.............................................. 135
Futures Closed.............................................. (150)
---
Outstanding at December 31, 1999............................ 75
===
</TABLE>
The futures contracts outstanding at December 31, 1999, and the description
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- March 2000 S&P 500 Index
Future
(Current Notional Value of $371,050 per
contract)................................. 75 $29,233
== =======
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1999, are payments retained by Van Kampen of
approximately $514,600.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each Fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each Fund will be limited to its pro-rata percentage based on the net
assets of each participating Fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each Fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Harbor Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Harbor Fund (the "Fund")
at December 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian provide
a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 2000
29
<PAGE> 31
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE> 32
VAN KAMPEN HARBOR FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
2800 Post Oak Blvd.
Houston, Texas 77056
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 2000 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
December 31, 1999. The Fund designated and paid $23,160,221 as a 20% rate gain
distribution. Shareholders were sent a 1999 Form 1099-DIV in January 2000,
representing their proportionate share of this capital gain distribution. For
corporate shareholders 34.74% of the distributions qualify for the dividend
received deductions.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 2000, the report, if used with prospective
investors, must be accompanied by a quarterly performance update, if applicable.
31
<PAGE> 33
RESULTS OF SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the selection of
independent public accountants.
1) With regard to the election of the following trustees by the shareholders
of the Fund:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------
IN FAVOR WITHHELD
- -------------------------------------------------------------------------
<S> <C> <C>
J. Miles Branagan............................... 15,599,828 227,064
Jerry D. Choate................................. 15,600,683 226,209
Linda Hutton Heagy.............................. 15,599,168 227,724
R. Craig Kennedy................................ 15,605,588 221,304
Mitchell M. Merin............................... 15,602,330 224,562
Jack E. Nelson.................................. 15,605,417 221,475
Richard F. Powers, III.......................... 15,601,990 224,902
Phillip B. Rooney............................... 15,602,010 224,882
Fernando Sisto.................................. 15,587,351 239,541
Wayne W. Whalen................................. 15,608,096 218,796
Suzanne H. Woolsey.............................. 15,604,901 221,991
Paul G. Yovovich................................ 15,602,619 224,273
</TABLE>
2) With regard to the ratification of PricewaterhouseCoopers as independent
public accountants for the Fund, 15,453,184 shares voted in favor of the
proposal, 81,351 shares voted against, and 292,356 shares abstained.
32
<PAGE> 34
YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your investment portfolio. We look forward to
continuing to serve your investment needs.
