<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
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 16
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 29
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
</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
September 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
ECONOMIC GROWTH REMAINED STRONG, UNDERPINNED BY LOW UNEMPLOYMENT AND RISING
PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY SLOWDOWN HAD BEGUN. GROSS
DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT A 5.3
PERCENT ANNUALIZED RATE FOR THE SECOND QUARTER OF 2000. WHILE THIS FIGURE
REPRESENTS A MODEST INCREASE FROM THE PREVIOUS QUARTER, IT SUGGESTS THAT GROWTH
MIGHT BE SETTLING INTO A MORE MODERATE AND SUSTAINABLE PACE THAN ITS RAPID RATE
IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
TOWARD THE END OF THE REPORTING PERIOD, INFLATION FEARS BEGAN TO SUBSIDE DUE TO
A SLOWDOWN IN CONSUMER SPENDING AND A SLACKENING OF THE LABOR MARKET. RISING
INTEREST RATES FINALLY BEGAN TO TEMPER RETAIL SALES, WHICH IN AUGUST POSTED THE
WEAKEST MONTHLY GROWTH SINCE SPRING. ALTHOUGH THE TREND HAS BEEN DOWNWARD THIS
YEAR, CONSUMER SPENDING REMAINS SOUND.
THE JOBLESS RATE CONTINUED TO BE LOW BY HISTORICAL STANDARDS, BUT A RECENT
LEVELING-OFF OF PAYROLL FIGURES AND A SLIGHT RISE IN AUGUST UNEMPLOYMENT SUGGEST
THE LABOR MARKET IS EASING. WHILE EMPLOYER COSTS SUCH AS WAGES AND BENEFITS HAVE
BEEN ON THE RISE OVER THE PAST YEAR, THE LATEST SHIFT IN THE LABOR MARKET HAS
STARTED TO REVERSE THIS TREND--THE EMPLOYMENT COST INDEX SHOWED A MARKED
DECELERATION BETWEEN THE FIRST AND SECOND QUARTERS OF 2000.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
REPORTING PERIOD IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE A MODERATE 3.2 PERCENT,
WHICH INDICATED THAT INFLATION GENERALLY REMAINED UNDER CONTROL.
GIVEN THE STRONG YET SUSTAINABLE PACE OF ECONOMIC GROWTH AND THE FAVORABLE
INFLATIONARY ENVIRONMENT, THE FED MAY HOLD INTEREST RATES STEADY IN THE SHORT
TERM, WHICH COULD HELP TO STABILIZE THE STOCK AND BOND MARKETS.
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 2.1
Sep 98 3.8
Dec 98 5.9
Mar 99 3.5
Jun 99 2.5
Sep 99 5.7
Dec 99 8.3
Mar 00 4.8
Jun 00 5.3
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(August 31, 1998--August 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Aug 98 5.50 1.60
5.25 1.50
5.00 1.50
Nov 98 4.75 1.50
4.75 1.60
4.75 1.70
Feb 99 4.75 1.60
4.75 1.70
4.75 2.30
May 99 4.75 2.10
5.00 2.00
5.00 2.10
Aug 99 5.25 2.30
5.25 2.60
5.25 2.60
Nov 99 5.50 2.60
5.50 2.70
5.50 2.70
Feb 00 5.75 3.20
6.00 3.70
6.00 3.00
May 00 6.50 3.10
6.50 3.70
6.50 3.60
Aug 00 6.50 3.20
</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 August 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 104.41% 102.85% 102.91%
-------------------------------------------------------------------------
One-year total return(2) 92.66% 97.85% 101.91%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 37.69% 38.18% 38.28%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 30.39% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 20.46% 30.47%(3) 30.90%
-------------------------------------------------------------------------
Commencement Date 10/02/70 04/20/92 07/06/93
-------------------------------------------------------------------------
</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"). 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 (5.75% for Class A
Shares) or contingent deferred sales charge ("CDSC"). 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 their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions.
Market forecasts provided in this report may not necessarily come to pass.
The Fund's performance during the period was largely attributable to investments
in the technology sector, which performed favorably for the period. There is no
guarantee that this performance record or the circumstances leading to it can be
replicated in the future.
4
<PAGE> 6
GROWTH OF A $10,000 INVESTMENT
(August 31, 1990--August 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
STANDARD & POOR'S 400 MIDCAP
EMERGING GROWTH FUND INDEX
-------------------- ----------------------------
<S> <C> <C>
8/90 9426 10000
8675 9439
9878 10608
12363 13038
11925 12945
13608 14175
12/91 15847 15909
15455 15831
13878 15340
14670 15936
12/92 17388 17801
18279 18383
19723 18809
21597 19751
12/93 21547 20275
20472 19509
18955 18800
20214 20072
12/94 20012 19554
21656 21151
24354 22990
28002 25230
12/95 28943 25588
30918 27160
34050 27942
35550 28749
12/96 34127 30488
31286 30041
37237 34449
43953 39981
12/97 41410 40311
48000 44742
50494 43785
44013 37459
12/98 55790 47997
63988 44936
67578 51289
70449 46990
12/99 113656 55052
142964 62021
126378 59974
8/00 142040 67584
</TABLE>
THE FUND'S PERFORMANCE DURING THE PERIOD WAS LARGELY ATTRIBUTABLE TO
INVESTMENTS IN THE TECHNOLOGY SECTOR, WHICH PERFORMED FAVORABLY FOR THE
PERIOD. THERE IS NO GUARANTEE THAT THIS PERFORMANCE RECORD OR THE
CIRCUMSTANCES LEADING TO IT CAN BE REPLICATED IN THE FUTURE.
This chart compares your fund's performance to that of the Standard &
Poor's 400 MidCap Index over time.
This index is an unmanaged broad-based, statistical composite that does
not include any commissions or fees that would be paid by an investor
purchasing the securities it represents. Such costs would lower the
performance of this index. The historical performance of the index is
shown for illustrative purposes only; it is not meant to forecast, imply,
or guarantee the future performance of any investment vehicle. It is not
possible to invest directly in an index.
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 Class A shares).
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
fund's performance found in the following pages.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of long-term investments--August 31, 2000)
<TABLE>
<S> <C> <C>
1. CORNING 5.0%
Manufactures technology products
including telecommunications
components, advanced materials, and
information displays.
2. EMC 4.0%
Provides products and services that
help companies store and access large
amounts of computer data.
3. SUN MICROSYSTEMS 3.5%
Develops a wide variety of computer
hardware and software.
4. JDS UNIPHASE 3.5%
Makes products used in optical
networks for the telecommunications
and cable-television industries.
5. NORTEL NETWORKS 3.3%
Supplies network solutions to the
communications industry worldwide.
6. SIEBEL 3.3%
Helps enable electronic business-to-
business commerce.
7. SDL 3.1%
Sells bandwidth-enhancing products
for fiber-optic and satellite commu-
nication networks.
8. JUNIPER NETWORKS 2.7%
Produces hardware and
software to route traffic on
the Internet infrastructure.
9. CHECK POINT SOFTWARE 2.6%
Develops security solutions for
Internet service providers.
10. SANMINA 2.4%
Manufactures electronic components
for the telecommunications, medical,
and computer industries.
</TABLE>
TOP FIVE SECTORS*
(as a percentage of long-term investments)
* These sectors represent broad groupings of related industries.
[BAR GRAPH]
<TABLE>
<CAPTION>
AUGUST 31, 2000 AUGUST 31, 1999
--------------- ---------------
<S> <C> <C>
Technology 69.2 57.5
Producer Manufacturing 7.8 4.2
Energy 6.9 2.2
Finance 5.4 1.1
Health Care 3.3 7.5
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN EMERGING GROWTH
FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED AUGUST 31, 2000. THE
TEAM IS LED BY GARY LEWIS, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE 1989 AND HAS 21 YEARS OF EXPERIENCE IN THE INVESTMENT INDUSTRY. HE IS
JOINED BY SENIOR PORTFOLIO MANAGERS JANET LUBY, DAVID WALKER, AND DUDLEY
BRICKHOUSE, AND PORTFOLIO MANAGER MATTHEW HART.
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
Q HOW WOULD YOU CHARACTERIZE THE
MARKET ENVIRONMENT IN THE SIX MONTHS SINCE YOUR LAST REPORT TO SHAREHOLDERS,
AND TO WHAT DO YOU ATTRIBUTE THE FUND'S 12-MONTH RETURN?
A The fund returned 104.41 percent
for the 12 months ended August 31, 2000. (Class A shares at net asset value; if
the maximum sales charge of 5.75 percent were included, the return would be
lower.) Past performance is no guarantee of future results. As a result of
recent market activity, current performance may vary from the figures shown.
Please refer to the chart and footnotes on page 4 for additional fund
performance results. We attribute the strong return of the fund to several
factors: First, the U.S. economy added another year of solid growth to what has
been a decade-long period of robust economic expansion. Second, worldwide
economies also began to show signs of renewed growth. With such sound economic
growth worldwide, companies have posted strong earnings results, which has
fueled the fund's well-above average performance. In an effort to moderate
economic growth and to control inflation, the Federal Reserve Board (the Fed)
continued raising interest rates throughout the reporting period.
Increased market volatility from March to August reflected investor concerns
that the Fed rate hikes would negatively affect corporate growth. All of the
major market indexes fell sharply in the spring. Most dramatic was the decline
of the technology-heavy NASDAQ index, which peaked at 5048 on March 10, and then
fell to near 3000 in late May. In response to the market sell-off, investors
began to shift away from speculative investments in favor of companies with more
visible earnings streams. June and July continued to be turbulent, but strong
7
<PAGE> 9
corporate earnings results and a halt to interest rate hikes encouraged
investors. In response, the market rallied as the reporting period ended in
August.
In the technology sector, which is the sector with the highest allocation of
the fund's total assets, the market from March to August was quite different
from the first six months of the fiscal year. Many of last year's top-performing
technology stocks had unproven or unprofitable business models and were
reliant on Wall Street to fund continued growth. Interest-rate fears hit these
stocks especially hard. Recently, investors have become more discerning, showing
a preference for companies with more certain earnings prospects.
The fund's strong absolute return outperformed the 39.75 percent return of
the Standard & Poor's Mid Cap 400 Index over the same period. We attribute this
to the disciplined investment process that we use regardless of market
conditions. The S&P Mid Cap 400 Index is an unmanaged, capitalization-weighted
measure of 400 stocks in the midrange sector of the market. This index is a
statistical composite that does not include any commissions or sales charges
that would be paid by an investor purchasing the securities it represents. Such
costs would lower the performance of the index. It is not possible to invest
directly in an index. Past performance is no guarantee of future results.
Although the portfolio did lose ground as a result of the market sell-off in the
spring--the fund's net asset value fell from its high of $128.04 per share on
March 10 to a low of $78.54 on April 14, then closed the year at $109.19 on
August 31--it did not prompt us to revisit our philosophy. Our investment
philosophy is based on "bottom-up" research, which means that we analyze
individual stocks, rather than industry, economic, and market trends. We seek
stocks with rising earnings expectations and rising valuations along with
improving business fundamentals, regardless of the market conditions.
Investors are understandably alarmed when the market falls. But while no one
likes to see it happen, the spring sell-off provided what you might call a
healthy cleansing of marginal stocks--meaning that the stocks which were the
most overpriced relative to their underlying valuations also had the largest
price declines. Prior to the market's decline, it was more speculative than
historical norms. We ended the fiscal year more confident that the market
fundamentals were solid, corporate earnings were strong, and there was no
shortage of attractive investment opportunities.
Q WHICH STOCKS WERE THE
LEADING CONTRIBUTORS TO THE FUND'S RETURN?
A During the reporting period, the
fund's top performers included:
- Corning, a manufacturer of advanced fiber-optic cabling and the fund's largest
holding at the fiscal year-end.
- JDS Uniphase and SDL, two companies that manufacture advanced fiber
optic-related products that help increase Internet bandwidth. These companies
have announced plans to merge.
8
<PAGE> 10
- Network Appliance, a provider of data storage and data-access solutions.
- Calpine, an independent power producer, whose stock has appreciated from the
increased demand for electricity needed to run new technology.
Keep in mind that not all stocks in the portfolio performed favorably, and
there is no guarantee that any of these stocks will perform as well or will be
held by the portfolio in the future.
Q WHICH STOCKS WERE
DISAPPOINTMENTS FOR THE PERIOD?
A In response to concerns that rising
interest rates would hurt economic growth, investors reduced holdings in retail
issues. Circuit City and Best Buy were hurt by weak appliance and software
sales. Declining retail sales also cut into the earnings of Costco, an operator
of wholesale retail stores. As a result, we reduced or eliminated the fund's
holdings in these names. Other disappointments included Level 3 Communications,
Knight Trading, and Lexmark.
Q WHAT'S YOUR FORECAST FOR THE
NEXT SIX MONTHS, AND WHAT KIND OF AN ENVIRONMENT DOES IT ASSUME?
A Our outlook is positive. In recent
comments, Fed Chairman Alan Greenspan indicated that rate hikes initiated
earlier in the year had been effective and that economic growth had moderated to
a more sustainable pace. Inflation has remained relatively benign despite
significant increases in
energy prices. An environment of stable growth and low inflation is generally
good for the market. Remember that our investment discipline has historically
worked in both up and down markets. However, there can be no guarantee that it
will work in the future.
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.
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CLASS A SHARES: Mutual fund shares are generally divided into three groupings,
called Class A, Class B, and Class C shares, each with varying fees and sales
charges.
EARNINGS ESTIMATE: A forecast for a company's net income during a given period.
An earnings estimate can come from a company's management as well as from
independent analysts.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE> 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS* 93.5%
CONSUMER DISTRIBUTION 2.3%
Bed Bath & Beyond, Inc. (a).............................. 2,000,000 $ 35,125,000
Best Buy Co., Inc. (a)................................... 1,500,000 92,625,000
Cardinal Health, Inc. ................................... 1,200,000 98,175,000
Kohl's Corp. (a)......................................... 3,300,000 184,800,000
Limited, Inc. ........................................... 1,500,000 30,000,000
Tiffany & Co. ........................................... 1,000,000 41,625,000
---------------
482,350,000
---------------
CONSUMER DURABLES 0.2%
Harley-Davidson, Inc. ................................... 1,000,000 49,812,500
---------------
CONSUMER SERVICES 2.6%
AT&T Corp.--Liberty Media Group, Class A (a)............. 1,500,000 32,062,500
Clear Channel Communications, Inc. (a)................... 1,000,000 72,375,000
Novellus Systems, Inc. (a)............................... 1,100,000 67,718,750
TMP Worldwide, Inc. (a).................................. 1,000,000 69,187,500
Univision Communications, Inc., Class A (a).............. 1,000,000 44,125,000
Viacom, Inc., Class B (a)................................ 3,500,000 235,593,750
Walt Disney Co. ......................................... 1,000,000 38,937,500
---------------
560,000,000
---------------
ENERGY 6.4%
AES Corp. (a)............................................ 3,000,000 191,250,000
Anadarko Petroleum Corp. ................................ 2,500,000 164,425,000
Apache Corp. ............................................ 2,050,000 129,150,000
Baker Hughes, Inc. ...................................... 3,500,000 127,968,750
BJ Services Co. (a)...................................... 1,250,000 83,750,000
Coastal Corp. ........................................... 700,000 48,212,500
Devon Energy Corp. ...................................... 650,000 38,065,625
Enron Corp. ............................................. 3,500,000 297,062,500
Nabors Industries, Inc. (a).............................. 2,600,000 123,662,500
Noble Drilling Corp. (a)................................. 2,350,000 113,975,000
Phillips Petroleum Co. .................................. 600,000 37,125,000
---------------
1,354,646,875
---------------
FINANCE 5.1%
Citigroup, Inc........................................... 1,000,000 58,375,000
Goldman Sachs Group, Inc. ............................... 475,000 60,829,688
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FINANCE (CONTINUED)
Lehman Brothers Holdings, Inc. .......................... 1,500,000 $ 217,500,000
Marsh & McLennan Cos., Inc. ............................. 1,000,000 118,750,000
MBNA Corp. .............................................. 2,250,000 79,453,125
Merrill Lynch & Co., Inc. ............................... 2,000,000 290,000,000
Northern Trust Corp. .................................... 700,000 59,018,750
State Street Corp. ...................................... 1,000,000 117,750,000
Stilwell Financial, Inc. (a)............................. 1,400,000 67,725,000
---------------
1,069,401,563
---------------
HEALTHCARE 3.1%
Allergan, Inc. .......................................... 1,350,000 98,718,750
Ivax Corp. (a)........................................... 1,500,000 51,937,500
Medimmune, Inc. (a)...................................... 2,500,000 210,312,500
Pharmacia Corp. ......................................... 2,000,000 117,125,000
Teva Pharmaceutical Industries Ltd.--ADR (Israel)........ 1,200,000 72,750,000
UnitedHealth Group, Inc. ................................ 1,000,000 94,500,000
---------------
645,343,750
---------------
PRODUCER MANUFACTURING 7.3%
Celestica, Inc. (a)...................................... 1,500,000 117,187,500
Corning, Inc. ........................................... 3,000,000 983,812,500
General Electric Co. .................................... 2,000,000 117,375,000
Metromedia Fiber Network, Inc., Class A (a).............. 3,000,000 119,812,500
Tyco International Ltd. ................................. 3,500,000 199,500,000
---------------
1,537,687,500
---------------
TECHNOLOGY 64.7%
ADC Telecommunications, Inc. (a)......................... 8,000,000 327,500,000
Adobe Systems, Inc. ..................................... 1,000,000 130,000,000
Advanced Micro Devices, Inc. (a)......................... 1,300,000 48,912,500
Alcatel--ADR (France).................................... 3,250,000 269,343,750
Altera Corp. (a)......................................... 7,000,000 453,687,500
Amdocs Ltd. (a).......................................... 700,000 50,006,250
Analog Devices, Inc. (a)................................. 3,250,000 326,625,000
Applied Micro Circuits Corp. (a)......................... 1,500,000 304,406,250
Ariba, Inc. (a).......................................... 1,500,000 236,062,500
BEA Systems, Inc. (a).................................... 3,500,000 238,218,750
Broadcom Corp., Class A (a).............................. 1,000,000 250,000,000
Brocade Communications Systems, Inc. (a)................. 2,000,000 451,625,000
Check Point Software Technologies Ltd. (a)............... 3,500,000 510,343,750
CIENA Corp. (a).......................................... 1,000,000 221,687,500
Cisco Systems, Inc. (a).................................. 5,000,000 343,125,000
Comverse Technology, Inc. (a)............................ 2,500,000 229,843,750
EMC Corp. (a)............................................ 8,000,000 784,000,000
Exodus Communications, Inc. (a).......................... 1,000,000 68,437,500
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Extreme Networks, Inc. (a)............................... 1,000,000 $ 93,062,500
Flextronics International Ltd. (a)....................... 2,000,000 166,625,000
i2 Technologies, Inc. (a)................................ 2,600,000 439,887,500
Intel Corp. ............................................. 3,000,000 224,625,000
Jabil Circuit, Inc. (a).................................. 1,250,000 79,765,625
JDS Uniphase Corp. (a)................................... 5,500,000 684,664,062
Juniper Networks, Inc. (a)............................... 2,500,000 534,375,000
Linear Technology Corp. ................................. 2,750,000 197,828,125
Mercury Interactive Corp. (a)............................ 1,750,000 213,828,125
Micron Technology, Inc. (a).............................. 2,500,000 204,375,000
Network Appliance, Inc. (a).............................. 4,000,000 468,000,000
Nortel Networks Corp. ................................... 8,000,000 652,500,000
Oracle Corp. (a)......................................... 3,500,000 318,281,250
Paychex, Inc. ........................................... 3,000,000 133,875,000
PMC Sierra, Inc. (a)..................................... 1,000,000 236,000,000
Rational Software Corp. (a).............................. 1,500,000 193,031,250
Sanmina Corp. (a)........................................ 4,000,000 472,000,000
Scientific-Atlanta, Inc. ................................ 3,000,000 233,812,500
SDL, Inc. (a)............................................ 1,550,000 615,834,375
Siebel Systems, Inc. (a)................................. 3,250,000 642,890,625
STMicroelectronics NV--ADR (Netherlands)................. 1,000,000 61,687,500
Sun Microsystems, Inc. (a)............................... 5,500,000 698,156,250
Sycamore Networks, Inc. (a).............................. 1,000,000 137,500,000
TIBCO Software, Inc. (a)................................. 1,250,000 127,421,875
VERITAS Software Corp. (a)............................... 1,500,000 180,843,750
Waters Corp. (a)......................................... 1,800,000 143,212,500
Xilinx, Inc. (a)......................................... 3,000,000 266,625,000
---------------
13,664,532,812
---------------
UTILITIES 1.8%
Calpine Corp. (a)........................................ 2,500,000 247,500,000
China Mobile Hong Kong Ltd.--ADR (China) (a)............. 750,000 28,921,875
Nextel Communications, Inc., Class A (a)................. 2,000,000 110,875,000
---------------
387,296,875
---------------
TOTAL LONG-TERM INVESTMENTS 93.5%
(Cost $11,784,455,061)............................................ 19,751,071,875
---------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS 7.1%
COMMERCIAL PAPER 1.0%
General Electric Capital Corp. ($100,000,000 par, yielding 6.620%,
09/01/00 maturity)................................................ $ 100,000,000
Prudential Funding Corp. ($100,000,000 par, yielding 6.520%,
09/01/00 maturity)................................................ 100,000,000
---------------
200,000,000
---------------
REPURCHASE AGREEMENTS 2.2%
Bank of America Securities ($115,052,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 08/31/00,
to be sold on 09/01/00 at $115,073,157)........................... 115,052,000
DLJ Mortgage Acceptance Corp. ($80,360,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
08/31/00, to be sold on 09/01/00 at $80,374,733).................. 80,360,000
State Street Bank & Trust Co. ($156,074,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
08/31/00, to be sold on 09/01/00 at $156,102,484)................. 156,074,000
Warburg Dillon Reed ($118,820,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 08/31/00,
to be sold on 09/01/00 at $118,841,784)........................... 118,820,000
---------------
470,306,000
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 3.9%
Federal Home Loan Bank Consolidated Discount Notes ($75,000,000 par,
yielding 6.38%, 09/06/00 maturity)................................ 74,933,542
Federal Home Loan Mortgage Discount Notes ($100,000,000 par,
yielding 6.42%, 09/19/00 maturity)................................ 99,679,000
Federal Home Loan Mortgage Discount Notes ($100,000,000 par,
yielding 6.41%, 09/05/00 maturity)................................ 99,928,778
Federal Home Loan Mortgage Discount Notes ($100,000,000 par,
yielding 6.41%, 10/03/00 maturity)................................ 99,430,667
Federal Home Loan Mortgage Discount Notes ($47,596,000 par, yielding
6.53%, 09/01/00 maturity)......................................... 47,596,000
Federal National Mortgage Association Discount Notes ($100,000,000
par, yielding 6.40%, 11/09/00 maturity)........................... 98,773,333
Federal National Mortgage Association Discount Notes ($50,000,000
par, yielding 6.42%, 10/05/00 maturity)........................... 49,696,833
Federal National Mortgage Association Discount Notes ($100,000,000
par, yielding 6.42%, 10/12/00 maturity)........................... 99,268,834
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association Discount Notes ($100,000,000
par, yielding 6.46%, 09/14/00 maturity)............................. $ 99,766,722
Federal National Mortgage Association Discount Notes ($50,000,000
par, yielding 6.49%, 09/21/00 maturity)........................... 49,819,722
---------------
818,893,431
---------------
TOTAL SHORT-TERM INVESTMENTS 7.1%
(Cost $1,489,199,431)............................................. 1,489,199,431
---------------
TOTAL INVESTMENTS 100.6%
(Cost $13,273,654,492)............................................ 21,240,271,306
LIABILITIES IN EXCESS OF OTHER ASSETS (0.6%)....................... (120,702,209)
---------------
NET ASSETS 100.0%.................................................. $21,119,569,097
===============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt
* The common stocks are classified by sectors which represent broad groupings
of related industries.
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $13,273,654,492).................... $21,240,271,306
Receivables:
Investments Sold.......................................... 128,761,418
Fund Shares Sold.......................................... 99,158,022
Dividends................................................. 1,308,337
Other....................................................... 206,939
---------------
Total Assets............................................ 21,469,706,022
---------------
LIABILITIES:
Payables:
Investments Purchased..................................... 283,897,981
Fund Shares Repurchased................................... 43,583,642
Distributor and Affiliates................................ 12,619,829
Investment Advisory Fee................................... 7,017,368
Custodian Bank............................................ 83,486
Accrued Expenses............................................ 2,413,234
Trustees' Deferred Compensation and Retirement Plans........ 521,385
---------------
Total Liabilities....................................... 350,136,925
---------------
NET ASSETS.................................................. $21,119,569,097
===============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $10,131,425,315
Net Unrealized Appreciation................................. 7,966,616,814
Accumulated Net Realized Gain............................... 3,022,007,417
Accumulated Net Investment Loss............................. (480,449)
---------------
NET ASSETS.................................................. $21,119,569,097
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $11,527,605,342 and 105,577,003 shares of
beneficial interest issued and outstanding)............. $ 109.19
Maximum sales charge (5.75%* of offering price)......... 6.66
---------------
Maximum offering price to public........................ $ 115.85
===============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $7,648,003,890 and 77,000,473 shares of
beneficial interest issued and outstanding)............. $ 99.32
===============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,943,959,865 and 19,190,551 shares of
beneficial interest issued and outstanding)............. $ 101.30
===============
</TABLE>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
16
<PAGE> 18
Statement of Operations
For the Year Ended August 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 64,079,613
Dividends (Net of foreign withholding taxes of $246,763).... 10,920,254
--------------
Total Income............................................ 74,999,867
--------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Class
A, B and C of $19,403,653, $54,243,300, and $11,645,033,
respectively)............................................. 85,291,986
Investment Advisory Fee..................................... 62,973,355
Shareholder Services........................................ 20,258,878
Shareholder Reports......................................... 2,945,281
Accounting.................................................. 2,020,789
Custody..................................................... 959,797
Legal....................................................... 582,911
Trustees' Fees and Related Expenses......................... 279,757
Other....................................................... 1,585,113
--------------
Total Expenses.......................................... 176,897,867
Less Credits Earned on Cash Balances.................... 121,746
--------------
Net Expenses............................................ 176,776,121
--------------
NET INVESTMENT LOSS......................................... $ (101,776,254)
==============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $3,031,313,004
--------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 2,171,609,699
End of the Period......................................... 7,966,616,814
--------------
Net Unrealized Appreciation During the Period............... 5,795,007,115
--------------
NET REALIZED AND UNREALIZED GAIN............................ $8,826,320,119
==============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $8,724,543,865
==============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
Statement of Changes in Net Assets
For the Years Ended August 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss............................... $ (101,776,254) $ (44,011,853)
Net Realized Gain................................. 3,031,313,004 1,276,474,142
Net Unrealized Appreciation During the Period..... 5,795,007,115 1,602,280,582
--------------- ---------------
Change in Net Assets from Operations.............. 8,724,543,865 2,834,742,871
--------------- ---------------
Distributions from Net Realized Gain:
Class A Shares.................................. (682,247,093) (128,077,038)
Class B Shares.................................. (512,732,791) (97,408,811)
Class C Shares.................................. (89,607,163) (11,808,076)
--------------- ---------------
Total Distributions............................... (1,284,587,047) (237,293,925)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 7,439,956,818 2,597,448,946
--------------- ---------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 13,942,920,123 8,647,337,210
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 1,137,089,896 220,329,357
Cost of Shares Repurchased........................ (8,861,530,255) (7,517,072,085)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 6,218,479,764 1,350,594,482
--------------- ---------------
TOTAL INCREASE IN NET ASSETS...................... 13,658,436,582 3,948,043,428
NET ASSETS:
Beginning of the Period........................... 7,461,132,515 3,513,089,087
--------------- ---------------
End of the Period (Including accumulated net
investment loss of $480,449 and $268,493,
respectively)................................... $21,119,569,097 $ 7,461,132,515
=============== ===============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS A SHARES ---------------------------------------------------------
2000(A) 1999(A) 1998(A) 1997 1996(A)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $ 60.00 $ 36.13 $ 40.84 $ 34.35 $ 31.59
--------- -------- -------- -------- --------
Net Investment Loss........... (.32) (.23) (.21) (.13) (.09)
Net Realized and Unrealized
Gain/Loss................... 58.81 26.41 (.75) 8.17 6.04
--------- -------- -------- -------- --------
Total from Investment
Operations.................... 58.49 26.18 (.96) 8.04 5.95
Less Distributions from Net
Realized Gain................. 9.30 2.31 3.75 1.55 3.19
--------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD........................ $ 109.19 $ 60.00 $ 36.13 $ 40.84 $ 34.35
========= ======== ======== ======== ========
Total Return (b)................ 104.41% 75.10% (2.19%) 24.44% 20.54%
Net Assets at End of the Period
(In millions)................. $11,527.6 $4,156.4 $1,990.8 $1,970.7 $1,438.5
Ratio of Expenses to Average Net
Assets (c).................... .87% .97% 1.00% 1.05% 1.10%
Ratio of Net Investment Loss to
Average Net Assets (c)........ (.35%) (.45%) (.50%) (.30%) (.29%)
Portfolio Turnover.............. 110% 124% 103% 92% 91%
</TABLE>
(a) Based on average shares outstanding.
(b) 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 CDSC 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.
(c) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS B SHARES ------------------------------------------------------
2000(A) 1999(A) 1998(A) 1997 1996(A)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $ 55.56 $ 33.84 $ 38.79 $ 32.94 $ 30.65
------- -------- -------- -------- -------
Net Investment Loss........... (.93) (.57) (.52) (.27) (.35)
Net Realized and Unrealized
Gain/Loss................... 53.99 24.60 (.68) 7.67 5.83
------- -------- -------- -------- -------
Total from Investment
Operations.................... 53.06 24.03 (1.20) 7.40 5.48
Less Distributions from Net
Realized Gain................. 9.30 2.31 3.75 1.55 3.19
------- -------- -------- -------- -------
NET ASSET VALUE, END OF THE
PERIOD........................ $ 99.32 $ 55.56 $ 33.84 $ 38.79 $ 32.94
======= ======== ======== ======== =======
Total Return (b)................ 102.85% 73.78% (2.98%) 23.51% 19.61%
Net Assets at End of the Period
(In millions)................. $7,648.0 $2,850.2 $1,357.6 $1,220.4 $ 757.3
Ratio of Expenses to Average Net
Assets (c).................... 1.63% 1.74% 1.79% 1.85% 1.90%
Ratio of Net Investment Loss to
Average Net Assets (c)........ (1.12%) (1.22%) (1.29%) (1.10%) (1.10%)
Portfolio Turnover.............. 110% 124% 103% 92% 91%
</TABLE>
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC 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.
(c) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
20
<PAGE> 22
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS C SHARES ---------------------------------------------------
2000(A) 1999(A) 1998(A) 1997 1996(A)
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 56.52 $34.39 $39.35 $33.38 $31.02
-------- ------ ------ ------ ------
Net Investment Loss................ (.95) (.58) (.52) (.27) (.35)
Net Realized and Unrealized
Gain/Loss........................ 55.03 25.02 (.69) 7.79 5.90
-------- ------ ------ ------ ------
Total from Investment Operations..... 54.08 24.44 (1.21) 7.52 5.55
Less Distributions from Net Realized
Gain............................... 9.30 2.31 3.75 1.55 3.19
-------- ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $ 101.30 $56.52 $34.39 $39.35 $33.38
======== ====== ====== ====== ======
Total Return (b)..................... 102.91% 73.79% (2.96%) 23.56% 19.60%
Net Assets at End of the Period (In
millions).......................... $1,944.0 $454.5 $164.7 $139.9 $ 82.4
Ratio of Expenses to Average Net
Assets (c)......................... 1.64% 1.74% 1.79% 1.85% 1.89%
Ratio of Net Investment Loss to
Average Net Assets (c)............. (1.11%) (1.21%) (1.29%) (1.10%) (1.10%)
Portfolio Turnover................... 110% 124% 103% 92% 91%
</TABLE>
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
(c) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Emerging Growth 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 seeks capital
appreciation by investing primarily in common stock of companies that are
considered by the Fund's investment adviser to be emerging growth companies. The
Fund commenced investment operations on October 2, 1970. The distribution of the
Fund's Class B and Class C Shares commenced on April 20, 1992 and July 6, 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 accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
A. SECURITY VALUATION Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the mean of the bid and asked prices or, if not
available, their fair value as determined using 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.
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 invest in repurchase agreements, which are short-term
investments whereby the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due to the Fund.
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
C. INCOME AND EXPENSES Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts on debt securities
purchased 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.
Accumulated realized gain/loss differs for financial and tax reporting
purposes as a result of the deferral of losses relating to wash sale
transactions.
At August 31, 2000, for federal income tax purposes, cost of long- and
short-term investments is $13,285,365,340; the aggregate gross unrealized
appreciation is $8,020,088,919 and the aggregate gross unrealized depreciation
is $65,182,953, resulting in net unrealized appreciation of $7,954,905,966.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and from net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains and gains on option and futures transactions. All short-term
capital gains and a portion of option and futures gains are included in ordinary
income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. For federal
income tax purposes, a net operating loss recognized in the current year cannot
be used to offset future years net investment income. Therefore, $101,564,298 of
net operating loss generated by the Fund has been reclassified from accumulated
net investment loss to capital.
F. EXPENSE REDUCTIONS During the year ended August 31, 2000, the Fund's custody
fee was reduced by $121,746 as a result of credits earned on overnight cash
balances.
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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.......................................... .575 of 1%
Next $350 million........................................... .525 of 1%
Next $350 million........................................... .475 of 1%
Over $1.05 billion.......................................... .425 of 1%
</TABLE>
For the year ended August 31, 2000, the Fund recognized expenses of
approximately $582,900 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 August 31, 2000, the Fund recognized expenses of
approximately $1,045,400 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 year ended August 31,
2000, the Fund recognized expenses of approximately $13,597,300. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive 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.
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
3. CAPITAL TRANSACTIONS
At August 31, 2000, capital aggregated $5,119,797,181, $3,745,706,944 and
$1,265,921,190 for Classes A, B, and C, respectively. For the year ended August
31, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A........................................... 119,635,633 $ 9,881,218,487
Class B........................................... 35,148,565 2,951,947,468
Class C........................................... 12,769,795 1,109,754,168
------------ ---------------
Total Sales......................................... 167,553,993 $13,942,920,123
============ ===============
Dividend Reinvestment:
Class A........................................... 7,839,482 $ 590,861,726
Class B........................................... 6,861,910 472,991,465
Class C........................................... 1,041,922 73,236,705
------------ ---------------
Total Dividend Reinvestment......................... 15,743,314 $ 1,137,089,896
============ ===============
Repurchases:
Class A........................................... (91,172,518) $(7,276,818,708)
Class B........................................... (16,310,933) (1,365,261,654)
Class C........................................... (2,662,437) (219,449,893)
------------ ---------------
Total Repurchases................................... (110,145,888) $(8,861,530,255)
============ ===============
</TABLE>
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
At August 31, 1999, capital aggregated $1,979,972,088, $1,722,809,021 and
$311,728,740 for Classes A, B, and C, respectively. For the year ended August
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................ 147,365,988 $ 7,385,533,602
Class B............................................ 20,174,832 961,208,279
Class C............................................ 6,262,136 300,595,329
------------ ---------------
Total Sales.......................................... 173,802,956 $ 8,647,337,210
============ ===============
Dividend Reinvestment:
Class A............................................ 2,789,895 $ 118,849,554
Class B............................................ 2,309,440 91,592,399
Class C............................................ 245,102 9,887,404
------------ ---------------
Total Dividend Reinvestment.......................... 5,344,437 $ 220,329,357
============ ===============
Repurchases:
Class A............................................ (135,984,083) $(6,833,274,241)
Class B............................................ (11,300,817) (534,381,291)
Class C............................................ (3,254,698) (149,416,553)
------------ ---------------
Total Repurchases.................................... (150,539,598) $(7,517,072,085)
============ ===============
</TABLE>
Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, 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 thereon, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the years ended August 31, 2000 and 1999,
6,215,105 and 3,288,828 Class B Shares converted to Class A Shares,
respectively, and are shown in the above tables 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 Class C Shares received thereon,
automatically convert to Class A Shares ten years after the end of the calendar
month in which such shares were purchased. Class C Shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the years ended August
31, 2000 and 1999, 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 for Class B and C Shares will
be imposed on most redemptions made within five years
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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 year ended August 31, 2000, Van Kampen, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A Shares of approximately
$7,626,300 and CDSC on redeemed shares of approximately $5,987,500. Sales
charges do not represent expenses to the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $18,794,828,589 and $14,838,981,128,
respectively.
5. 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 year ended August 31, 2000, are payments retained by Van Kampen of
approximately $48,301,400.
6. 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 in to a $650,000,000 committed line of credit
facility
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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-rate percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Emerging Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Emerging Growth Fund (the "Fund"),
as of August 31, 2000, and the related statement of operations, changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The statement of changes in net assets of the
Fund for the year ended August 31, 1999, and the financial highlights for each
of the four years in the period then ended were audited by other auditors whose
report dated October 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 2000, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of August 31, 2000, and the results of its operations,
changes in its net assets and its financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United
States.
SIG
Chicago, Illinois
October 5, 2000
29
<PAGE> 31
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
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
30
<PAGE> 32
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN EMERGING GROWTH 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
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended August 31, 2000.
The Fund designated and paid $1,284,587,047 as a 20% rate gain distribution.
For corporate shareholders 0% of the distributions qualify for the dividend
received reductions. In January 2000, the Fund provided tax information to
shareholders for the 1999 calendar year.
(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 March 31, 2001, the report, if used with prospective investors, must
be accompanied by a quarterly performance update.
31
