<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 23
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 - June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 - June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 4.70% 4.34% 4.31%
-------------------------------------------------------------------------
Six-month total return(2) -1.31% -0.66% 3.31%
-------------------------------------------------------------------------
One-year total return(2) 30.71% 32.82% 36.66%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 17.93% 18.27% 18.42%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 13.42% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 10.57% 13.51%(3) 14.22%
-------------------------------------------------------------------------
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 Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C shares. On
purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated without the effect of the maximum 5% CDSC,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. Returns for Class C shares
are calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge of 5.75% for Class A
shares or contingent deferred sales charge ("CDSC") for Class B and C
shares. On purchases of Class A shares of $1 million or more, a CDSC of 1%
may be imposed on certain redemptions made within one year of purchase.
Returns for Class B shares are calculated with the effect of the maximum 5%
CDSC, charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. Returns for Class C shares
are calculated with the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares
were purchased. See Footnote 3 in the Notes to Financial Statements for
additional information.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than
4
<PAGE> 6
their original cost. Past performance is no guarantee of future results.
Investment return and net asset value will fluctuate with market conditions.
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.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of long-term investments--June 30, 2000)
<TABLE>
<S> <C> <C>
1. COMVERSE TECHNOLOGY 6.2%
Develops systems and software for
multimedia communications and infor-
mation processing applications.
2. OAK INDUSTRIES 4.7%
Manufactures components for the
telecommunications industry.
3. LSI LOGIC 4.0%
Develops semiconductor products and
computer-storage systems solutions.
4. VERITAS SOFTWARE 3.3%
Makes software designed to enhance
electronic information storage.
5. IVAX 2.8%
Develops generic pharmaceuticals,
respiratory drugs, and oncology
treatments.
6. STMICROELECTRONICS 2.4%
Manufactures a wide variety of
semiconductor devices.
7. SIEBEL SYSTEMS 2.4%
Helps enable electronic business-to-
business commerce.
8. EMC 2.3%
Provides products and services that
help companies store and access large
amounts of computer data.
9. TELEFONOS DE MEXICO 1.9%
Provides telecommunications services
to residents of Mexico.
10. ENRON 1.9%
Explores for and produces natural gas
and crude oil and develops and
distributes energy throughout the
United States.
</TABLE>
TOP FIVE SECTORS*
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Technology 52.50 57.00
Energy 13.30 6.40
Utility 12.30 13.30
Health Care 10.00 5.90
Finance 4.80 2.80
</TABLE>
*These sector categories represent broad groupings of related industries.
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN HARBOR FUND ABOUT
THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE
FUND'S RETURN DURING THE SIX MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
CHRISTINE DRUSCH, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE
FEBRUARY 1998 (ASSOCIATE MANAGER SINCE 1991) AND HAS WORKED IN THE INVESTMENT
INDUSTRY SINCE 1985. SHE IS JOINED BY DAVID MCLAUGHLIN, PORTFOLIO MANAGER. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE FUND OPERATED, AND HOW DID THE FUND PERFORM
IN THAT ENVIRONMENT?
A From the first quarter to the
second quarter of 2000, two different markets emerged, especially with regard to
technology stocks' performance. Technology stocks led the performance of the
broad market in the first quarter. However, the broad market encountered
turbulence in the second quarter when investors began to worry about these
stocks' high valuations and the effects of continued interest-rate increases on
U.S. corporate earnings.
The convertible securities market, sensitive to the movements of the stock
market, also declined, as some of the highest-growth names fell in the second
quarter. However, technology securities were still the top contributors to the
fund's performance, and, as a result, the fund returned 4.70 percent for the
six-month period ended June 30, 2000 (Class A shares at net asset value; if the
maximum sales charge of 5.75 percent were included, the return would have been
lower). By comparison, the Russell 2000 Index returned 3.04 percent, and the
Lipper Convertible Securities Fund Index, which more closely resembles the fund,
returned 6.30 percent for the same period. As a result of recent market
activity, current performance may vary from figures shown. Of course, past
performance is no guarantee of future results. The 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 indexes are unmanaged 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 indexes. It is not possible to invest directly in an index.
Please refer to the chart and footnotes on page 4 for additional fund
performance results.
7
<PAGE> 9
Q WHAT WAS YOUR STRATEGY FOR
MANAGING THE FUND IN THIS ENVIRONMENT?
A The fund had heavy exposure to technology during the reporting period. When
we did reduce some of the fund's technology holdings, it was in response to
negative changes in the specific companies rather than to the overall market
conditions.
We also liked health care, energy, and telecommunications. Energy was a
strong performer in the first quarter, and health care surged in the second
quarter. Telecommunications was also a strong sector as competition among these
companies continued to grow.
Q WHAT SECURITIES PERFORMED WELL?
A Telecommunications securities were among the strongest contributors to the
fund's performance during the reporting period. The fund's largest holding,
Comverse Technologies, was also its top performer. Comverse provides the
technology that phone companies need to offer advanced services such as
voicemail, one-touch call back, and message groups, and it is the top provider
of these services. Oak Industries, a subsidiary of fiber-optics manufacturer
Corning, and Amdocs, a telecommunications billing-services provider, also
performed well in light of the expanding demand for telecommunications.
Semiconductor securities LSI Logic and STMicroelectronics also helped the
fund's overall performance. These companies manufacture microchips for computers
and communications networks.
Keep in mind that not all securities in the portfolio performed favorably,
and there is no guarantee that any of these securities will perform well or will
be held by the fund in the future. For additional fund portfolio highlights,
please refer to page 6.
Q WHAT SECURITIES
WERE DISAPPOINTMENTS?
A Qualcomm, the best performer of 1999 not only for the fund but also for the
U.S. stock market, as measured by the technology-heavy NASDAQ Index, became one
of the fund's poorest performers in the first half of 2000. We eliminated this
holding from the portfolio as it no longer fit our objectives of capital
appreciation, current income, and preservation of capital. Many investors also
sold the stock upon hearing the June announcement that China was no longer
considering Qualcomm's code-division multiple access technology for use in
cellular phones.
Retail was also a troublesome area for the fund. In particular, Home Depot,
Costco, and Ann Taylor were poor performers. In a rising interest-rate
environment, consumer spending tends to slow, and these companies suffered as a
result of investors' expectations of diminishing demand. Consequently, we
eliminated these stocks from the fund's portfolio.
8
<PAGE> 10
Q WHAT IS YOUR OUTLOOK FOR THE
FUND IN THE COMING MONTHS?
A We believe the Federal Reserve Board has done a good job of moderating the
economy so far, and we hope it will succeed in slowing the economy without
causing a recession. At the same time, we expect to see strong growth potential
in the technology, health-care, and telecommunications companies. In our
opinion, as technology advances, it will continue to make both the economy and
businesses more efficient, providing investment opportunities in all
businesses--not just technology companies.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have 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.
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.
RECESSION: A period of zero or negative economic growth and high unemployment.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund.
VALUATION: The estimated or determined worth of a security, based on financial
measures such as the security's current price relative to earnings, revenue,
book value, and cash flow.
10
<PAGE> 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE
OBLIGATIONS** 55.4%
CONSUMER DISTRIBUTION 0.3%
$5,031 eToys, Inc., 144A--Private Placement (a).... 6.250% 12/01/04 $ 2,138,175
------------
CONSUMER NON-DURABLES 0.6%
5,150 Loews Corp. (Convertible into 79,185 Diamond
Offshore Drilling, Inc. common shares)...... 3.125 09/15/07 4,313,125
------------
CONSUMER SERVICES 1.9%
4,000 Interpublic Group of Companies.............. 1.870 06/01/06 3,886,880
2,530 Interpublic Group of Companies, Inc., 144A--
Private Placement (a)....................... 1.870 06/01/06 2,447,775
1,700 Omnicom Group, Inc.......................... 2.250 01/06/13 3,144,694
1,250 Omnicom Group, Inc., 144A--Private Placement
(a)......................................... 4.250 01/03/07 3,510,937
------------
12,990,286
------------
ENERGY 2.4%
4,940 Anadarko Petroleum Corp. ................... * 03/07/20 3,238,615
4,206 Devon Energy Corp. ......................... 4.950 08/15/08 4,048,275
1,898 Kerr-Mcgee Corp. ........................... 5.250 02/15/10 2,183,516
4,071 Kerr-Mcgee Corp. ........................... 7.500 05/15/14 3,892,894
5,133 Transocean Sedco Forex, Inc. ............... * 05/24/20 3,117,065
------------
16,480,365
------------
HEALTHCARE 6.4%
2,441 Affymetrix Inc., 144A--Private Placement
(a)......................................... 4.750 02/15/07 1,902,833
2,347 Alpharma, Inc., 144A--Private Placement
(a)......................................... 3.000 06/01/06 4,512,107
3,588 COR Therapeutics Inc., 144A--Private
Placement (a)............................... 5.000 03/01/07 4,794,465
1,853 Inhale Therapeutic Systems, Inc., 144A--
Private Placement (a)....................... 5.000 02/08/07 2,650,438
2,758 Invitrogen Corp., 144A--Private Placement
(a)......................................... 5.500 03/01/07 2,882,579
13,398 IVAX Corp., 144A--Private Placement (a)..... 5.500 05/15/07 17,534,231
3,368 Millennium Pharmaceuticals, 144A--Private
Placement (a)............................... 5.500 01/15/07 5,042,334
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
HEALTHCARE (CONTINUED)
$2,804 Roche Holdings, Inc., LYON, 144A--Private
Placement (a)............................... * 01/19/15 $ 2,513,085
4,285 Universal Health Services, Inc., 144A--
Private Placement (a)....................... 0.426% 06/23/20 2,043,216
------------
43,875,288
------------
PRODUCER MANUFACTURING 1.9%
5,302 Advanced Energy Industries, Inc............. 5.250 11/15/06 7,124,563
6,760 Magna International, Inc. .................. 4.875 02/15/05 6,125,033
------------
13,249,596
------------
REAL ESTATE 0.4%
2,969 Pinnacle Holdings, Inc., 144A--Private
Placement (a)............................... 5.500 09/15/07 2,622,755
------------
TECHNOLOGY 36.9%
10,481 America Online, Inc. ....................... * 12/06/19 5,325,711
765 America Online, Inc. ....................... 4.000 11/15/02 6,197,349
5,092 Amkor Technology Inc., 144A--Private
Placement (a)............................... 5.000 03/15/07 4,688,917
555 Bea Systems, Inc............................ 4.000 06/15/05 4,125,731
3,794 Bea Systems, Inc., 144A--Private Placement
(a)......................................... 4.000 12/15/06 5,991,750
8,875 Comverse Technology Inc., 144A--Private
Placement (a)............................... 4.500 07/01/05 38,251,250
3,877 Corecomm Ltd., 144A--Private Placement
(a)......................................... 6.000 10/01/06 3,702,535
3,822 Critical Path, 144A--Private Placement
(a)......................................... 5.750 04/01/05 3,198,555
3,370 Cypress Semiconductor Corp.................. 4.000 02/01/05 3,926,050
4,060 Cypress Semiconductor Corp.................. 6.000 10/01/02 7,216,650
5,065 DSC Communications Corp. ................... 7.000 08/01/04 5,786,763
5,870 Echostar Communications Corp., 144A--
Private Placement (a)....................... 4.875 01/01/07 5,627,217
10,070 Hewlett Packard Co., LYON................... * 10/14/17 9,516,150
2,524 i2 Technologies Inc., 144A--Private
Placement (a)............................... 5.250 12/15/06 3,864,875
5,605 Juniper Networks, Inc. ..................... 4.750 03/15/07 6,130,469
4,245 Kulicke & Soffa Industries, Inc., 144A--
Private Placement (a)....................... 4.750 12/15/06 6,171,890
5,320 Lam Research Corp. ......................... 5.000 09/01/02 7,228,550
1,682 Lattice Semiconductor Corp., 144A--Private
Placement (a)............................... 4.750 11/01/06 3,027,600
7,000 LSI Logic Corp., 144A--Private Placement
(a)......................................... 4.250 03/15/04 24,596,250
4,956 Oak Industries, Inc. ....................... 4.875 03/01/08 28,769,580
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TECHNOLOGY (CONTINUED)
$2,530 Rational Software Corp., 144A--Private
Placement (a)............................... 5.000% 02/01/07 $ 3,772,863
4,810 Sanmina Corp. .............................. 4.250 05/01/04 9,758,913
1,127 Sanmina Corp., 144A--Private Placement
(a)......................................... 4.250 05/01/04 2,254,000
4,231 SCI Systems, Inc. .......................... 3.000 03/15/07 4,158,735
1,340 Siebel Systems, Inc......................... 5.500 09/15/06 4,812,275
4,200 Siebel Systems, Inc., 144A--Private
Placement (a)............................... 5.500 09/15/06 15,057,000
3,377 Triquint Semiconductor, Inc., 144A --
Private Placement (a)....................... 4.000 03/01/07 3,151,585
6,241 Veritas Software Corp. ..................... 1.856 08/13/06 20,294,921
7,612 Vitesse Semiconductor Corp., 144A--Private
Placement (a)............................... 4.000 03/15/05 6,959,575
------------
253,563,709
------------
UTILITIES 4.6%
5,065 American Tower, 144A--Private Placement
(a)......................................... 5.000 02/15/10 5,188,941
5,913 Level 3 Communications, Inc................. 6.000 03/15/10 5,440,551
3,860 Nextel Communications, Inc., 144A--Private
Placement (a)............................... 4.750 07/01/07 10,200,050
4,300 NTL, Inc., 144A--Private Placement (a)...... 7.000 12/15/08 6,901,500
5,909 Primus Telecom Group Inc., 144A--Private
Placement (a)............................... 5.750 02/15/07 4,128,914
------------
31,859,956
------------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 55.4%................. 381,093,255
------------
FOREIGN CONVERTIBLE CORPORATE
OBLIGATIONS 6.2%
5,200 ASM Lithography Holding (Netherlands),
144A--Private Placement (a)................. 4.250 11/30/04 7,049,276
8,730 STMicroelectronics NV (Netherlands), LYON... * 09/22/09 15,075,401
6,002 Swiss Life Finance Ltd. (United Kingdom)
(Convertible into 81,712 shares of Royal
Dutch Petroleum Co.)........................ 2.000 05/20/05 6,002,000
2,748 Swiss Life Finance Ltd., 144A--Private
Placement (United Kingdom) (Convertible into
37,412 shares of Royal Dutch Petroleum Co.)
(a)......................................... 2.000 05/20/05 2,748,000
8,600 Telefonos de Mexico, SA (Mexico)............ 4.250 06/15/04 11,534,750
------------
TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS......................... 42,409,427
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK** 13.5%
AEROSPACE & DEFENSE 0.9%
Titan Capital Trust, 144A--Private Placement, TIDES, 5.750%
(a)....................................................... 118,100 $ 6,465,975
------------
ENERGY 5.8%
Apache Corp., ACES, 6.500%.................................. 203,600 10,536,300
Calpine Capital Trust II, 144A--Private Placement, TIDES,
5.500% (a)................................................ 99,800 7,210,550
El Paso Energy Capital Trust I, 4.750%...................... 95,750 6,163,906
Kerr-Mcgee Corp., DECS, 5.500%, (Convertible into 71,360
shares of Devon Energy common stock)...................... 84,200 4,188,950
Pogo Trust I, 6.500%........................................ 50,600 2,732,400
Tosco Financing Trust, 5.750%............................... 124,700 6,063,538
Valero Energy Corp., PEPS, 5.750%........................... 128,600 3,423,975
------------
40,319,619
------------
HEALTHCARE 0.8%
Biovail Corp., 6.750%....................................... 101,800 5,509,925
------------
TECHNOLOGY 1.2%
McLeodUSA, Inc., 6.750%..................................... 13,600 8,161,700
------------
UTILITIES 4.8%
Amdocs Ltd., TRACES, 6.750%................................. 170,700 10,775,438
Calpine Capital Trust, TIDES, 5.750%........................ 90,500 10,826,062
Intermedia Communications, Inc., Ser E, 7.000%.............. 69,000 1,897,500
Nextlink Communications Inc., 6.500%, 144A--Private
Placement, 6.500% (a)..................................... 12,600 2,254,757
Omnipoint Corp., 144A--Private Placement, 7.000% (a)........ 41,100 7,007,550
------------
32,761,307
------------
TOTAL CONVERTIBLE PREFERRED STOCK.................................... 93,218,526
------------
COMMON STOCK** 14.7%
CONSUMER SERVICES 0.7%
Cendant Corp., (Rights to purchase common shares) PRIDES
(b)....................................................... 187,500 1,582,031
Starwood Hotels & Resorts, Class B.......................... 110,000 3,581,875
------------
5,163,906
------------
ENERGY 3.7%
Baker Hughes, Inc........................................... 173,500 5,552,000
Dynegy, Inc................................................. 57,700 3,941,631
Enron Corp.................................................. 178,500 11,513,250
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ENERGY (CONTINUED)
Grant Prideco, Inc. (b)..................................... 65,000 $ 1,625,000
Weatherford International, Inc. (b)......................... 65,000 2,587,813
------------
25,219,694
------------
FINANCE 3.0%
American Express Co......................................... 66,000 3,440,250
Citigroup, Inc.............................................. 111,000 6,687,750
Lehman Brothers Holdings, Inc. ............................. 110,800 10,477,525
------------
20,605,525
------------
HEALTHCARE 1.4%
Genentech, Inc. (b)......................................... 56,300 9,683,600
------------
TECHNOLOGY 5.9%
Applied Materials, Inc. (b)................................. 40,000 3,625,000
EMC Corp. (b)............................................... 181,856 13,991,546
Lam Research Corp. (b)...................................... 140,000 5,250,000
Micron Technology, Inc. (b)................................. 80,000 7,045,000
RF Micro Devices, Inc. (b).................................. 27,500 2,409,687
SCI Systems, Inc. (b)....................................... 40,708 1,595,245
Texas Instruments, Inc...................................... 98,000 6,731,375
------------
40,647,853
------------
TOTAL COMMON STOCK 14.7%............................................ 101,320,578
------------
TOTAL LONG-TERM INVESTMENTS 99.7%
(Cost $436,704,366).................................................. 618,041,786
------------
SHORT-TERM INVESTMENTS 9.9%
COMMERCIAL PAPER 5.0%
Prudential Funding Corp. ($34,000,000 par, yielding 4.33%, 07/03/00
maturity).......................................................... 33,987,722
REPURCHASE AGREEMENT 4.9%
DLJ Mortgage Acceptance Corp. ($33,953,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 06/30/00, to
be sold on 07/03/00 at $33,971,618)................................ 33,953,000
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS 9.9%
(Cost $67,940,722)................................................. $ 67,940,722
------------
TOTAL INVESTMENTS 99.7%
(Cost $504,645,088)................................................ 685,982,508
OTHER ASSETS IN EXCESS OF LIABILITIES 0.3%.......................... 2,331,974
------------
NET ASSETS 100.0%................................................... $688,314,482
============
</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, as amended. These securities may only be resold in
transactions exempt form registration which are normally transactions with
qualified institutional buyers.
(b) Non-income producing security as this stock currently does not declare
dividends.
ACES--Automatically convertible equity securities
DECS--Debt exchange for common stock
LYON--Liquid yield option note
PEPS--Premium equity participating securities
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
16
<PAGE> 18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $504,645,088)....................... $685,982,508
Cash........................................................ 18,771
Receivables:
Interest.................................................. 2,833,157
Fund Shares Sold.......................................... 1,491,137
Dividends................................................. 103,161
Other....................................................... 60,303
------------
Total Assets............................................ 690,489,037
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 710,740
Distributor and Affiliates................................ 469,921
Investment Advisory Fee................................... 291,934
Investments Purchased..................................... 84,186
Accrued Expenses............................................ 429,648
Trustees' Deferred Compensation and Retirement Plans........ 188,126
------------
Total Liabilities....................................... 2,174,555
------------
NET ASSETS.................................................. $688,314,482
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $463,727,222
Net Unrealized Appreciation................................. 181,337,420
Accumulated Net Realized Gain............................... 41,567,814
Accumulated Undistributed Net Investment Income............. 1,682,026
------------
NET ASSETS.................................................. $688,314,482
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $577,912,260 and 27,306,198 shares of
beneficial interest issued and outstanding)............. $ 21.16
Maximum sales charge (5.75%* of offering price)......... 1.29
------------
Maximum offering price to public........................ $ 22.45
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $92,996,462 and 4,417,170 shares of
beneficial interest issued and outstanding)............. $ 21.05
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $17,405,760 and 821,511 shares of
beneficial interest issued and outstanding)............. $ 21.19
============
</TABLE>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 19
Statement of Operations
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 6,936,592
Dividends (Net of foreign withholding taxes of $90,780)..... 2,233,613
------------
Total Income............................................ 9,170,205
------------
EXPENSES:
Investment Advisory Fee..................................... 1,715,822
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $680,154, $398,952 and $65,621,
respectively)............................................. 1,144,727
Shareholder Services........................................ 239,009
Trustees' Fees and Related Expenses......................... 32,986
Custody..................................................... 19,108
Legal....................................................... 9,074
Other....................................................... 179,607
------------
Total Expenses.......................................... 3,340,333
Less Credits Earned on Cash Balances.................... 3,227
------------
Net Expenses............................................ 3,337,106
------------
NET INVESTMENT INCOME....................................... $ 5,833,099
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 46,566,923
Futures................................................... (1,685,327)
------------
Net Realized Gain........................................... 44,881,596
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 206,654,872
End of the Period:
Investments............................................. 181,337,420
------------
Net Unrealized Depreciation During the Period............... (25,317,452)
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 19,564,144
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 25,397,243
============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Statement of Changes in Net Assets
For the Six Months Ended June 30, 2000
and the Year Ended December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 5,833,099 $ 12,211,269
Net Realized Gain................................. 44,881,596 24,803,086
Net Unrealized Appreciation/Depreciation During
the Period...................................... (25,317,452) 165,959,297
------------ -------------
Change in Net Assets from Operations.............. 25,397,243 202,973,652
------------ -------------
Distributions from Net Investment Income*......... (4,625,547) (14,327,136)
------------ -------------
Distributions from Net Realized Gain.............. -0- (28,705,189)
Distributions in Excess of Net Realized Gain...... -0- (2,077,438)
------------ -------------
Distributions from and in Excess of Net Realized
Gains*.......................................... -0- (30,782,627)
------------ -------------
Total Distributions............................... (4,625,547) (45,109,763)
------------ -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 20,771,696 157,863,889
------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 166,287,074 541,840,484
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 3,722,466 37,594,378
Cost of Shares Repurchased........................ (90,093,917) (597,692,087)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 79,915,623 (18,257,225)
------------ -------------
TOTAL INCREASE IN NET ASSETS...................... 100,687,319 139,606,664
NET ASSETS:
Beginning of the Period........................... 587,627,163 448,020,499
------------ -------------
End of the Period (Including accumulated
undistributed net investment income of
$1,682,026 and $474,474, respectively).......... $688,314,482 $ 587,627,163
============ =============
* Distributions by Class
--------------------------------------------------
Distributions from Net Investment Income:
Class A Shares.................................. $ (4,271,661) $ (12,803,586)
Class B Shares.................................. (302,830) (1,367,708)
Class C Shares.................................. (51,056) (155,842)
------------ -------------
$ (4,625,547) $ (14,327,136)
============ =============
Distributions from and in Excess of Net Realized
Gains:
Class A Shares.................................. $ -0- $ (26,844,667)
Class B Shares.................................. -0- (3,493,077)
Class C Shares.................................. -0- (444,883)
------------ -------------
$ -0- $ (30,782,627)
============ =============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES JUNE 30, ----------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $20.347 $14.835 $15.059 $15.054 $ 15.05
------- ------- ------- ------- -------
Net Investment Income............ .196 .447 .520 .600 .566
Net Realized and Unrealized
Gain........................... .781 6.687 .546 1.854 1.173
------- ------- ------- ------- -------
Total from Investment Operations... .977 7.134 1.066 2.454 1.739
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .160 .520 .537 .730 .555
Distributions from and in Excess
of Net Realized Gain........... -0- 1.102 .753 1.719 1.180
------- ------- ------- ------- -------
Total Distributions................ .160 1.622 1.290 2.449 1.735
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $21.164 $20.347 $14.835 $15.059 $15.054
======= ======= ======= ======= =======
Total Return (a)................... 4.70%* 50.01% 7.52% 16.91% 12.08%
Net Assets at End of the Period
(In millions).................... $ 577.9 $ 516.1 $ 375.4 $ 376.4 $ 373.1
Ratio of Expenses to Average Net
Assets........................... .92% 1.00% 1.02% 1.04% 1.09%
Ratio of Net Investment Income to
Average Net Assets............... 1.90% 2.69% 3.48% 3.58% 3.60%
Portfolio Turnover................. 42%* 103% 156% 170% 129%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 5.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
See Notes to Financial Statements
20
<PAGE> 22
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES JUNE 30, ----------------------------------------
2000 1999(B) 1998(B) 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $20.240 $14.755 $14.981 $14.992 $ 14.99
------- ------- ------- ------- -------
Net Investment Income............ .111 .320 .397 .470 .437
Net Realized and Unrealized
Gain........................... .775 6.667 .547 1.848 1.180
------- ------- ------- ------- -------
Total from Investment Operations... .886 6.987 .944 2.318 1.617
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .073 .400 .417 .610 .435
Distributions from and in Excess
of Net Realized Gain........... -0- 1.102 .753 1.719 1.180
------- ------- ------- ------- -------
Total Distributions................ .073 1.502 1.170 2.329 1.615
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $21.053 $20.240 $14.755 $14.981 $14.992
======= ======= ======= ======= =======
Total Return (a)................... 4.34%* 49.02% 6.70% 15.98% 11.19%
Net Assets at End of the Period (In
millions)........................ $ 93.0 $ 62.5 $ 66.7 $ 81.3 $ 78.9
Ratio of Expenses to Average Net
Assets........................... 1.68% 1.77% 1.81% 1.82% 1.88%
Ratio of Net Investment Income to
Average Net Assets............... 1.16% 1.97% 2.66% 2.80% 2.81%
Portfolio Turnover................. 42%* 103% 156% 170% 129%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 5%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. If the sales charge was
included, total returns would be lower.
(b) Based on average shares outstanding.
See Notes to Financial Statements
21
<PAGE> 23
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES JUNE 30, ----------------------------------------
2000 1999(B) 1998(B) 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $20.376 $14.855 $15.080 $15.079 $ 15.07
------- ------- ------- ------- -------
Net Investment Income............ .094 .316 .405 .448 .439
Net Realized and Unrealized
Gain........................... .790 6.707 .540 1.882 1.185
------- ------- ------- ------- -------
Total from Investment Operations... .884 7.023 .945 2.330 1.624
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .073 .400 .417 .610 .435
Distributions from and in Excess
of Net Realized Gain........... -0- 1.102 .753 1.719 1.180
------- ------- ------- ------- -------
Total Distributions................ .073 1.502 1.170 2.329 1.615
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $21.187 $20.376 $14.855 $15.080 $15.079
======= ======= ======= ======= =======
Total Return (a)................... 4.31%* 48.95% 6.65% 15.96% 11.20%
Net Assets at End of the Period (In
millions)........................ $ 17.4 $ 9.0 $ 5.9 $ 4.6 $ 3.6
Ratio of Expenses to Average Net
Assets........................... 1.68% 1.76% 1.81% 1.82% 1.88%
Ratio of Net Investment Income to
Average Net Assets............... 1.17% 1.91% 2.71% 2.79% 2.81%
Portfolio Turnover................. 42%* 103% 156% 170% 129%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(b) Based on average shares outstanding.
See Notes to Financial Statements
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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 to provide current income, capital appreciation, and conservation of
capital by investing primarily in convertible bonds and convertible 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. 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 approximates 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 59% 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,
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
with settlement to occur at a later date. The value of the security so purchased
is subject to market fluctuations during this period. The Fund will maintain, in
a segregated account with its custodian, assets having an aggregate value at
least equal to the amount of the when-issued or delayed delivery purchase
commitments until payment is made. At June 30, 2000, 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 Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Discounts are accreted 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.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $504,645,088; the aggregate gross unrealized
appreciation is $195,938,432 and the aggregate gross unrealized depreciation is
$14,601,012, resulting in net unrealized appreciation on long- and short-term
investments of $181,337,420.
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.
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
F. EXPENSE REDUCTIONS During the six months ended June 30, 2000, the Fund's
custody fee was reduced by $3,227 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 DAILY 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 six months ended June 30, 2000, the Fund recognized expenses of
approximately $9,100 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 six months ended June 30, 2000, the Fund recognized expenses of
approximately $15,100 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended June 30,
2000, the Fund recognized expenses of approximately $229,900. 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.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At June 30, 2000, capital aggregated $374,018,353, $74,462,309, and $15,246,560
for Classes A, B, and C, respectively. For the six months ended June 30, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A.................................................. 4,788,440 $103,178,874
Class B.................................................. 2,447,930 52,787,872
Class C.................................................. 473,884 10,320,328
---------- ------------
Total Sales................................................ 7,710,254 $166,287,074
========== ============
Dividend Reinvestment:
Class A.................................................. 148,404 $ 3,411,731
Class B.................................................. 11,727 267,377
Class C.................................................. 1,895 43,358
---------- ------------
Total Dividend Reinvestment................................ 162,026 $ 3,722,466
========== ============
Repurchases:
Class A.................................................. (2,994,890) $(63,772,692)
Class B.................................................. (1,130,213) (24,199,030)
Class C.................................................. (98,017) (2,122,195)
---------- ------------
Total Repurchases.......................................... (4,223,120) $(90,093,917)
========== ============
</TABLE>
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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>
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 six months ended June 30, 2000 and the year
ended December 31, 1999, 624,571 and 1,281,550, Class B shares, respectively,
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 six months ended June 30, 2000, no Class C shares converted to Class A
shares. Class B and C shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). The CDSC will be
imposed on most redemptions
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO 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 six months ended June 30, 2000, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $185,400 and CDSC on the redeemed shares of Classes B and C of
approximately $53,300. 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 $320,074,995 and $254,035,739,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or to generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when 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.
The Fund may invest in futures contracts, a type of derivative. A futures
contract is an agreement involving the delivery of a particular asset on a
specified future date at an agreed upon price. The Fund generally invests in
stock index futures.
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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).
Transactions in futures contracts, for the six months ended June 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at December 31, 1999............................ 75
Futures Opened.............................................. -0-
Futures Closed.............................................. (75)
----
Outstanding at June 30, 2000................................ -0-
====
</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, as amended, 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 six months ended June 30, 2000, are payments retained by Van Kampen of
approximately $366,800.
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, 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
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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.
8. FUND MERGER
On May 9, 2000, the Board of Trustees approved the merger of the Van Kampen
Convertible Securities Fund ("VKCS Fund") into the Harbor Fund through a tax-
free reorganization subject to the approval by the VKCS Fund shareholders. The
VKCS Fund shareholders approved the merger on August 9, 2000. The merger is
scheduled to take place August 18, 2000.
30
<PAGE> 32
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- 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.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
31
<PAGE> 33
FUND OFFICERS AND IMPORTANT ADDRESSES
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
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.
PricewaterhouseCoopers LLP ceased being the Fund's independent auditors
effective May 18, 2000. The cessation of the client-auditor relationship
between the Fund and PricewaterhouseCoopers was based solely on a possible
future business relationship by PricewaterhouseCoopers with an affiliate of
the Fund's Investment Adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other pertinent
data. After December 31, 2000, the report, if used with prospective investors,
must be accompanied by a quarterly performance update, if applicable.
32
