<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 22
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder:
As we enter a new century--and millennium--it seems appropriate to take a
look back at the progress that's been made over the last 100 years and how the
world of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Some that have stood the test of time include:
- INVESTING FOR THE LONG-TERM
- BASING INVESTMENT DECISIONS ON SOUND RESEARCH
- BUILDING A DIVERSIFIED PORTFOLIO
- BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE
While no one can predict the future, at Van Kampen we believe that these
ideas will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Richard F. Powers, III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
The nation's brisk rate of economic growth continued throughout 1999,
bringing the United States to the verge of its longest economic expansion on
record. High levels of consumer spending, a host of new jobs, and increasing
productivity kept the economy strong. Gross domestic product, the primary
measure of economic growth, increased 4.2 percent for the year, including an
impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent
in the fourth quarter.
EMPLOYMENT
The job market remained vibrant throughout the year, with more than 2.7
million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1
percent in October--its lowest rate in three decades. With jobs plentiful and
wages on the rise, most Americans were optimistic about the future. At the end
of the year the consumer confidence index hit its highest level since 1968.
Although wage pressures caused some concerns about the potential erosion of
corporate profits, productivity gains helped keep those concerns muted through
the end of the year.
INFLATION AND INTEREST RATES
Although the Consumer Price Index continued to reflect historically low
inflation--rising only 2.7 percent during 1999--concerns about future increases
in inflation were prevalent throughout the reporting period. The Federal Reserve
Board remained active in guarding against inflation and trying to temper
economic growth. The Fed reversed its three interest-rate cuts from the fall of
1998 by raising rates in June, August, and November 1999.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Fourth Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4.0
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.7
99Q4 5.8
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999
VAN KAMPEN PACE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 5.46% 5.05% 4.97%
Six-month total return(2)................ -0.58% 0.58% 4.08%
One-year total return(2)................. 7.33% 8.17% 11.99%
Five-year average annual total
return(2)................................ 22.23% 22.60% 22.69%
Ten-year average annual total
return(2)................................ 14.20% N/A N/A
Life-of-Fund average annual total
return(2)................................ 13.48% 14.78% 17.02%
Commencement Date........................ 07/22/69 01/10/92 08/27/93
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (5.75% for A shares) or contingent deferred
sales charge for early withdrawal (5% for B shares and 1% for C shares). If the
sales charge was included, total return would be lower.
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
See the Comparative Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Fund shares may decline. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
Because the prices of common stocks and other securities fluctuate, the value of
an investment in the Fund will vary upon the Fund's investment performance.
Foreign securities may magnify volatility due to changes in foreign exchange
rates, the political and economic uncertainties in foreign countries, and the
potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN PACE FUND
We recently spoke to representatives of the adviser of the Van Kampen Pace Fund
about the key events and economic forces that shaped the markets during the past
six months. The representatives include John M. Cunniff, senior portfolio
manager, who has managed the Fund since November 1996 and has worked in the
investment industry since 1992. Mr. Cunniff is joined by Thomas Copper,
portfolio manager, and Stephen L. Boyd, chief investment officer for equity
investments. The following discussion reflects their views on the Fund's
performance during the six months ended December 31, 1999.
Q CAN YOU DESCRIBE THE STOCK MARKET ENVIRONMENT FOR THE FUND DURING THE
REPORTING PERIOD?
A The Dow Jones Industrial Average--perhaps the most widely recognized stock
market index--endured a difficult third quarter of 1999, losing more than
6 percent of its value. But the Dow recovered dramatically in the fourth
quarter, rising more than 11 percent to a record high on December 31. While the
Dow performed well overall during 1999, it was the technology-heavy NASDAQ stock
index that stole the show, returning a phenomenal 86 percent for the year.
However, these high returns masked the fact that not all stocks shared in the
good fortune. In fact, more stocks lost than gained value in 1999--the indices
were fueled by the outstanding performance of a relatively small number of
stocks.
Q GIVEN THESE EVENTS, WHAT WAS YOUR APPROACH TO MANAGING THE FUND?
A We maintained a consistent approach of investing primarily in stocks of
large, well-established companies with above-average growth rates. In
selecting stocks for the Fund, we consistently use a "bottom-up"
stock-selection strategy. In other words, we evaluate stocks one by one and make
purchases wherever we find good investment opportunities, while preserving a
portfolio diversified across economic sectors. Under normal market conditions,
we keep the Fund heavily invested in stocks.
During the reporting period, the Fund's performance moderately lagged that
of our benchmark, the Standard & Poor's 500 Index, because some stocks in the
portfolio performed worse than expected. We did, of course, have many successful
investments--especially in the technology area--but these were unable to fully
make up for a handful of disappointments.
Q WHAT SIGNIFICANT CHANGES DID YOU MAKE TO THE PORTFOLIO?
A Because we use a bottom-up selection process, the changes we made to the
portfolio were driven by our preference for individual stocks, not for
achieving a target weighting in any particular sector of the market.
4
<PAGE> 6
The Fund's largest purchases during the reporting period were SBC
Communications, Procter & Gamble, and Motorola. We purchased SBC Communications
for the Fund because we believed the company occupied a competitive position
among the Regional Bell Operating Companies, the descendants of "Ma Bell"
following its breakup in the 1980s. Consumer products giant Procter & Gamble
appeared attractive to us after the company's improved financial performance
after the second quarter of 1999. And Motorola's improved profit margins and
favorable position in semiconductors and cellular-telephone handsets led us to
initiate a position in that company.
Our largest sales during the period were Intel, Abbott Laboratories, and
Lucent Technologies. We sold the Fund's position in Intel, the dominant maker of
personal-computer chips, because of the company's decreased earnings
expectations. The decrease resulted from both a slowdown in corporate spending
and lower-than-anticipated shipments of Intel's new Pentium III chip. We also
sold the Fund's holdings in Abbott because we were concerned that the company
may have difficulty bringing new products to market in a timely fashion.
Finally, we replaced the Fund's position in Lucent Technologies with that of
Nortel Networks because we believe that Nortel has a superior position in
optic-fiber technology.
Q WHICH STOCKS SUPPORTED THE FUND'S PERFORMANCE?
A As we mentioned, technology stocks were, as a group, extremely successful
during the reporting period, and most of the Fund's best-performing stocks
were in this area. As new technologies such as the Internet continue to
enhance business productivity, companies are continuing to spend to upgrade
their existing systems.
The Fund's top three contributors to performance--Oracle (database
management software), Cisco Systems (maker of essential computer-networking
products), and Microsoft (consumer and business software manufacturer)--were
each well positioned to take advantage of this trend. Other technology companies
whose performance boosted the Fund's six-month results were Internet service
provider America Online and computer makers Apple and Gateway. In other areas of
the market, well-known stocks such as General Electric and Wal-Mart Stores also
helped the Fund's performance during the reporting period.
Keep in mind that not all stocks in the Fund performed as favorably, and
there is no guarantee that any of these stocks will perform as well in the
future. For additional Fund portfolio highlights, please turn to page 8.
Q DID ANY STOCKS HURT THE FUND?
A Philip Morris stood out as the largest detractor to the Fund's
performance, as concerns about ongoing litigation in the tobacco industry
continued to trouble investors. The stock's price fell throughout the
reporting period, declining sharply in October in response to an unfavorable
judgment by a Florida court.
5
<PAGE> 7
Other stocks also had a negative impact on the Fund's returns, including
- Bank of America and Bank One, as bank stocks suffered as a result of
rising interests rates. Bank One also experienced earnings problems in its
credit-card division;
- Xerox, which reported decreasing earnings; and
- IBM, which announced a slowdown in earnings.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A Excellent performance by the Fund's technology stocks in particular was
counterbalanced by the poor results of some of our other stock selections.
As a result, the Fund achieved a six-month return of 5.46 percent(1)
(Class A shares at net asset value) as of December 31, 1999. By comparison, the
Standard & Poor's 500 Index returned 7.03 percent.* The S&P 500 is a
broad-based, unmanaged index that reflects the general performance of the stock
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.
An investment cannot be made directly in an index.
Please refer to the chart and footnotes on page 3 for additional Fund
performance results. Past performance does not guarantee future results.
Q WHAT DO YOU SEE AHEAD FOR THE FUND?
A Barring any unforeseen events, we envision continued worldwide economic
health, low inflation, and strong earnings growth. Of course, our outlook
may in part depend on whether the Federal Reserve again increases interest
rates soon. Although recent rate increases haven't had a substantially negative
effect on stock prices, another one could have a greater impact. We're also
monitoring growth-stock valuations, because the higher they get, the greater the
negative impact on the market if investors were to lose their enthusiasm for
these stocks. Regardless of the short-term market environment, we believe that
the best long-term course of action for the Fund is to stick with our investment
discipline by focusing on companies that continue to demonstrate above-average
earnings-growth rates.
* Since Lipper Analytical Services has reclassified how it categorizes its
indices, we will no longer be using Lipper comparisons because we believe the
new system is less applicable. As a result, the Lipper Growth Fund Index will
not appear in this or future reports.
6
<PAGE> 8
GLOSSARY OF TERMS
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
DOW JONES INDUSTRIAL AVERAGE: The oldest and most widely recognized stock market
average, which reflects the performance of 30 actively traded stocks of
well-established, blue-chip companies.
EARNINGS ESTIMATES: A forecast for a company's net income during a given period.
Earnings estimates can come from the company's management as well as from
independent analysts.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
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 its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge; if these charges were included, the NAV
would decrease.
REGIONAL BELL OPERATING COMPANIES (RBOCS): Local telephone service companies,
formed in 1984 after the break-up of "Ma Bell." Sometimes referred to as
LECs, or local exchange companies, RBOCs are currently able to compete with
long-distance companies to offer long-distance and international calls.
STANDARD & POOR'S 500 INDEX: A broad-based measurement of changes in stock-
market conditions based on the average performance of 500 widely held common
stocks. The index, which tracks industrial, transportation, financial, and
utility stocks, is an indicator of the overall health of the U.S. stock
market. The S&P 500 is a broader index than the Dow Jones Industrial Average
and reflects the general stock market more fully.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN PACE FUND
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999*
<TABLE>
<S> <C>
MICROSOFT develops, manufactures, licenses, and supports a
range of software products.................................. 5.4%
GENERAL ELECTRIC is a diversified industrial corporation
whose products include appliances, lighting products,
aircraft engines, and plastics.............................. 4.2%
CISCO SYSTEMS provides networking solutions that connect
computing devices and computer networks..................... 3.3%
EXXON MOBIL is a worldwide leader in the petroleum and
petrochemicals business..................................... 2.8%
ORACLE supplies software products for information management
and also offers consulting and systems integration
services.................................................... 2.3%
CITIGROUP provides financial services to consumer and
corporate customers around the world........................ 2.2%
WAL-MART STORES operates discount department stores,
warehouse membership clubs, and a combination supermarket
and discount department store............................... 2.1%
INTEL designs, manufactures, and markets microcomputer
components.................................................. 1.9%
AMERICA ONLINE provides Internet online services, as well as
electronic-commerce and enterprise solutions to
businesses.................................................. 1.9%
INTERNATIONAL BUSINESS MACHINES (IBM) develops,
manufactures, and sells advanced technology processing
products, including computers, software, networking systems,
and related services........................................ 1.8%
</TABLE>
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Technology 30.40 20.20
Finance 13.50 14.80
Utilities 10.00 14.70
Health Care 9.30 11.70
Energy 7.20 7.60
</TABLE>
* As a percentage of long-term investments
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 90.7%
CONSUMER DISTRIBUTION 6.1%
Albertsons, Inc. ................................. 143,600 $ 4,631,100
Best Buy Co., Inc. (a)............................ 278,200 13,962,162
Circuit City Stores-Circuit City Group............ 481,100 21,679,569
Dayton Hudson Corp. .............................. 106,200 7,799,063
Federated Department Stores, Inc. (a)............. 225,800 11,417,012
Home Depot, Inc. ................................. 269,100 18,450,169
Kmart Corp. (a)................................... 1,115,800 11,227,738
Kroger Co. (a).................................... 411,600 7,768,950
Lexmark International Group Inc., Class A (a)..... 192,600 17,430,300
Lowe's Cos., Inc. ................................ 27,100 1,619,225
May Department Stores Co. ........................ 620,550 20,012,737
Safeway, Inc. (a)................................. 131,000 4,658,688
Sears Roebuck & Co. .............................. 214,200 6,519,713
TJX Cos., Inc. ................................... 425,400 8,694,113
Tricon Global Restaurants, Inc. (a)............... 362,700 14,009,287
Wal-Mart Stores, Inc. ............................ 1,079,900 74,648,087
--------------
244,627,913
--------------
CONSUMER DURABLES 1.8%
Delphi Automotive Systems Corp. .................. 312,271 4,918,268
Ford Motor Co. ................................... 730,200 39,020,062
General Motors Corp. ............................. 235,000 17,081,563
Whirlpool Corp. .................................. 184,400 11,997,525
--------------
73,017,418
--------------
CONSUMER NON-DURABLES 6.2%
Anheuser-Busch Cos., Inc. ........................ 331,500 23,495,063
Coca-Cola Co. .................................... 294,000 17,125,500
General Mills, Inc. .............................. 521,100 18,629,325
Jones Apparel Group, Inc. (a)..................... 266,500 7,228,813
Kimberly Clark Corp. ............................. 500,800 32,677,200
Loews Corp. ...................................... 103,500 6,281,156
Pepsi Bottling Group, Inc. ....................... 460,000 7,618,750
PepsiCo, Inc. .................................... 786,300 27,717,075
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
Philip Morris Cos., Inc. ......................... 1,365,400 $ 31,660,212
Procter & Gamble Co. ............................. 506,800 55,526,275
Tommy Hilfiger Corp. (a).......................... 346,900 8,087,106
Tyson Foods, Inc., Class A........................ 760,600 12,359,750
--------------
248,406,225
--------------
CONSUMER SERVICES 3.1%
Brinker International, Inc. (a)................... 554,400 13,305,600
CBS Corp. (a)..................................... 242,400 15,498,450
Comcast Corp., Class A............................ 147,000 7,432,687
Cox Communications, Inc., Class A (a)............. 286,850 14,772,775
Darden Restaurants, Inc. ......................... 496,400 8,997,250
Harrah's Entertainment, Inc. (a).................. 665,300 17,588,869
Infinity Broadcasting Corp., Class A (a).......... 130,200 4,711,613
New York Times Co., Class A....................... 214,200 10,522,575
Time Warner, Inc. ................................ 412,900 29,909,444
--------------
122,739,263
--------------
ENERGY 6.6%
Apache Corp. ..................................... 283,000 10,453,312
Ashland, Inc. .................................... 255,000 8,399,063
Chevron Corp. .................................... 193,700 16,779,262
Coastal Corp. .................................... 589,500 20,890,406
Columbia Energy Group............................. 93,300 5,901,225
El Paso Energy Corp. ............................. 262,600 10,192,163
Enron Corp. ...................................... 183,100 8,125,063
Exxon Mobil Corp. ................................ 1,258,181 101,362,207
McDermott International, Inc. .................... 496,900 4,503,156
Phillips Petroleum Co. ........................... 233,700 10,983,900
Royal Dutch Petroleum Co. - ADR (Netherlands)..... 336,100 20,313,044
Texaco, Inc. ..................................... 139,200 7,560,300
Transocean Offshore, Inc. ........................ 297,900 10,035,506
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
Ultramar Diamond Shamrock Corp. .................. 348,000 $ 7,895,250
USX--Marathon Group............................... 800,100 19,752,469
--------------
263,146,326
--------------
FINANCE 12.2%
Allstate Corp. ................................... 223,200 5,356,800
AMBAC Financial Group, Inc. ...................... 173,900 9,075,406
American Express Co. ............................. 76,300 12,684,875
American General Corp. (b)........................ 182,600 13,854,775
American International Group, Inc. ............... 271,690 29,376,481
Bank of America Corp. ............................ 563,179 28,264,546
Bank One Corp. ................................... 772,248 24,760,201
Chase Manhattan Corp. ............................ 352,300 27,369,306
CIGNA Corp. ...................................... 141,000 11,359,313
Citigroup, Inc. .................................. 1,445,387 80,309,315
Conseco, Inc. .................................... 550,578 9,841,582
Countrywide Credit Industries, Inc. .............. 406,000 10,251,500
Federal Home Loan Mortgage Corp. ................. 267,900 12,608,044
Federal National Mortgage Association............. 647,300 40,415,794
First Union Corp. ................................ 364,533 11,961,239
Fleet Financial Corp. ............................ 761,200 26,499,275
Lehman Brothers Holdings, Inc. ................... 282,700 23,941,156
Lincoln National Corp. ........................... 278,200 11,128,000
MBNA Corp. ....................................... 481,900 13,131,775
Mellon Financial Corp. ........................... 218,500 7,442,656
Merrill Lynch & Co., Inc. ........................ 144,400 12,057,400
MGIC Investment Corp. ............................ 208,600 12,555,113
Nationwide Financial Services, Inc., Class A...... 136,200 3,805,088
Providian Financial Corp. ........................ 268,600 24,459,387
Radian Group, Inc. ............................... 174,700 8,341,925
Schwab Charles Corp. ............................. 228,600 8,772,525
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Washington Mutual, Inc. .......................... 327,800 $ 8,522,800
Wells Fargo Co. .................................. 39,700 1,605,369
--------------
489,751,646
--------------
HEALTHCARE 8.4%
Abbott Laboratories, Inc. ........................ 406,800 14,771,925
Aetna, Inc. ...................................... 161,400 9,008,138
Amgen, Inc. (a)................................... 567,000 34,055,437
Baxter International, Inc. ....................... 89,500 5,621,719
Bristol-Myers Squibb Co. ......................... 836,700 53,705,681
Johnson & Johnson................................. 565,700 52,680,812
Merck & Co., Inc. ................................ 695,300 46,628,556
PacifiCare Health Systems, Inc. (a)............... 73,000 3,869,000
Pfizer, Inc. ..................................... 1,224,600 39,722,962
Pharmacia & Upjohn, Inc. ......................... 50,700 2,281,500
Schering-Plough Corp. ............................ 183,700 7,749,844
Tenet Healthcare Corp. (a)........................ 146,050 3,432,175
United HealthCare Corp. .......................... 235,700 12,521,563
Warner-Lambert Co. ............................... 513,500 42,074,906
Wellpoint Health Networks, Inc., Class A (a)...... 151,400 9,982,938
--------------
338,107,156
--------------
PRODUCER MANUFACTURING 6.2%
Cummins Engine, Inc. ............................. 238,300 11,512,869
General Electric Co. ............................. 998,100 154,455,975
Honeywell, Inc. .................................. 232,687 13,423,131
Johnson Controls, Inc. ........................... 225,900 12,848,063
Minnesota Mining & Manufacturing Co. ............. 149,000 14,583,375
Navistar International Corp. (a).................. 342,900 16,244,887
Parker Hannifin Corp. ............................ 99,800 5,120,988
Rockwell International Corp. ..................... 119,200 5,706,700
TRW, Inc. ........................................ 173,600 9,016,350
United Technologies Corp. ........................ 97,325 6,326,125
--------------
249,238,463
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 2.8%
Corus Group PLC--ADR (United Kingdom)............. 318,000 $ 8,228,250
Dow Chemical Co. ................................. 204,700 27,353,037
Du Pont (E.I.) de Nemours & Co. .................. 448,818 29,565,886
Freeport-McMoRan Copper & Gold, Inc., Class B
(a)............................................. 179,200 3,785,600
Mead Corp. ....................................... 415,800 18,061,313
Praxair, Inc. .................................... 236,500 11,898,906
Union Carbide Corp. .............................. 58,200 3,884,850
USX U.S. Steel Group, Inc. ....................... 333,200 10,995,600
--------------
113,773,442
--------------
TECHNOLOGY 27.5%
Adaptec, Inc. (a)................................. 119,100 5,940,113
ADC Telecommunications, Inc. (a).................. 186,900 13,561,931
Alcatel--ADR (France)............................. 316,700 14,251,500
America Online, Inc. (a).......................... 906,220 68,362,971
Apple Computer, Inc. (a).......................... 133,300 13,704,906
BMC Software, Inc. (a)............................ 41,800 3,341,388
Cisco Systems, Inc. (a)........................... 1,107,400 118,630,225
Compuware Corp. (a)............................... 244,500 9,107,625
Dell Computer Corp. (a)........................... 429,100 21,884,100
Electronic Data Systems Corp. .................... 397,700 26,621,044
Electronics for Imaging, Inc. (a)................. 139,000 8,079,375
EMC Corp. (a)..................................... 151,200 16,518,600
First Data Corp. ................................. 59,700 2,943,956
Gateway, Inc. (a)................................. 132,000 9,512,250
General Instrument Corp. (a)...................... 43,450 3,693,250
Hewlett-Packard Co. .............................. 549,400 62,597,262
Intel Corp. ...................................... 837,500 68,936,719
International Business Machines Corp.............. 621,200 67,089,600
LSI Logic Corp. (a)............................... 104,300 7,040,250
Lucent Technologies, Inc. ........................ 691,300 51,717,881
Microsoft Corp. (a)............................... 1,696,400 198,054,700
Motorola, Inc. ................................... 288,200 42,437,450
Network Appliance, Inc. (a)....................... 89,600 7,442,400
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Nokia Corp.--ADR (Finland)........................ 69,200 $ 13,148,000
Nortel Networks Corp. ............................ 450,100 45,460,100
Northrop Grumman Corp. ........................... 25,000 1,351,563
Oracle Corp. (a).................................. 760,550 85,229,134
Pitney Bowes, Inc. ............................... 158,900 7,676,856
Sanmina Corp. (a)................................. 79,500 7,940,063
SCI Systems, Inc. (a)............................. 149,100 12,254,156
Seagate Technology, Inc. (a)...................... 430,900 20,063,781
Solectron Corp. (a)............................... 278,100 26,454,262
Sun Microsystems, Inc. (a)........................ 79,400 6,148,538
Tellabs, Inc. (a)................................. 314,200 20,167,712
Xerox Corp. ...................................... 754,200 17,110,913
--------------
1,104,474,574
--------------
TRANSPORTATION 0.7%
AMR Corp. (a)..................................... 55,500 3,718,500
CNF Transportation, Inc. ......................... 202,700 6,993,150
Delta Air Lines, Inc. ............................ 137,800 6,864,163
Union Pacific Corp. .............................. 248,300 10,832,087
--------------
28,407,900
--------------
UTILITIES 9.1%
AT & T Corp. ..................................... 880,732 44,697,149
BellSouth Corp. .................................. 582,000 27,244,875
DTE Energy Co. ................................... 389,700 12,226,838
GPU, Inc. ........................................ 145,100 4,343,931
GTE Corp. ........................................ 911,400 64,310,662
MCI Worldcom, Inc. (a)............................ 997,800 52,945,762
Nextel Communications Inc. (a).................... 139,650 14,401,406
NSTAR............................................. 214,331 8,680,406
Qwest Communications International Inc. (a)....... 843,600 36,274,800
SBC Communications, Inc. ......................... 1,048,520 51,115,350
Sprint Corp. ..................................... 470,900 31,697,456
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Texas Utilities Co. .............................. 198,700 $ 7,066,269
U.S. West, Inc. .................................. 113,900 8,200,800
--------------
363,205,704
--------------
TOTAL LONG-TERM INVESTMENTS 90.7%
(Cost $2,577,656,370)............................................ 3,638,796,030
--------------
SHORT-TERM INVESTMENTS 8.4%
REPURCHASE AGREEMENTS 3.4%
DLJ Mortgage Acceptance Corp., ($85,478,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
12/31/99, to be sold on 01/03/00 at $85,492,246)............... 85,478,000
State Street Bank & Trust Co., ($47,972,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
12/31/99, to be sold on 01/03/00 at $47,983,933)............... 47,972,000
--------------
TOTAL REPURCHASE AGREEMENTS...................................... 133,450,000
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 5.0%
Federal Home Loan Bank Consolidated Discount Notes ($49,696,000
par, yielding 1.40%, 01/03/00 maturity) (b).................... 49,692,135
Federal Home Loan Mortgage Discount notes ($50,000,000 par,
yielding 5.50%, 02/25/00 maturity) (b)......................... 49,579,861
Federal National Mortgage Association Discount Notes ($25,000,000
par, yielding 5.59%, 02/24/00 maturity) (b).................... 24,790,375
Federal National Mortgage Association Discount Notes ($50,000,000
par, yielding 5.64%, 01/07/00 maturity) (b).................... 49,953,000
Federal National Mortgage Association Discount Notes ($25,000,000
par, yielding 5.64%, 03/02/00 maturity) (b).................... 24,761,083
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS................................ 198,776,454
--------------
TOTAL SHORT-TERM INVESTMENTS 8.4%
(Cost $332,226,455)............................................ 332,226,455
--------------
TOTAL INVESTMENTS 99.0%
(Cost $2,909,882,825).......................................... 3,971,022,485
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%...................... 33,986,073
--------------
NET ASSETS 100.0%............................................... $4,005,008,558
==============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) Assets segregated for open futures transactions.
ADR -- American Depositary Receipt
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,909,882,825)..................... $3,971,022,485
Cash........................................................ 40,072,850
Receivables:
Investments Sold........................................... 9,025,529
Dividends.................................................. 4,614,207
Variation Margin on Futures................................ 488,750
Fund Shares Sold........................................... 336,514
Interest................................................... 10,883
Other....................................................... 231,698
--------------
Total Assets........................................... 4,025,802,916
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased.................................... 10,380,286
Investments Purchased...................................... 3,728,847
Capital Gains Distribution................................. 2,995,602
Distributor and Affiliates................................. 1,702,513
Investment Advisory Fee.................................... 1,419,428
Trustees' Deferred Compensation and Retirement Plans........ 412,905
Accrued Expenses............................................ 154,777
--------------
Total Liabilities...................................... 20,794,358
--------------
NET ASSETS.................................................. $4,005,008,558
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized)............................... $2,876,691,965
Net Unrealized Appreciation................................. 1,073,363,606
Accumulated Net Realized Gain............................... 47,934,581
Accumulated Undistributed Net Investment Income............. 7,018,406
--------------
NET ASSETS.................................................. $4,005,008,558
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $3,851,149,678 and 278,579,455 shares of
beneficial interest issued and outstanding)............ $ 13.82
Maximum sales charge (5.75%* of offering price).......... .84
--------------
Maximum offering price to public......................... $ 14.66
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $139,235,594 and 10,206,693 shares of
beneficial interest issued and outstanding)............ $ 13.64
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,623,286 and 1,069,476 shares of
beneficial interest issued and outstanding)............ $ 13.67
==============
</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 Six Months Ended December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 25,681,487
Interest.................................................... 7,525,608
--------------
Total Income............................................ 33,207,095
--------------
EXPENSES:
Investment Advisory Fee..................................... 8,376,160
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $4,214,080, $717,493 and $68,250,
respectively)............................................. 4,999,823
Shareholder Services........................................ 2,280,024
Custody..................................................... 124,741
Legal....................................................... 149,600
Trustees' Fees and Related Expenses......................... 58,547
Other....................................................... 648,606
--------------
Total Expenses.......................................... 16,637,501
Less Credits Earned on Overnight Cash Balances.......... 5,141
--------------
Net Expenses............................................ 16,632,360
--------------
NET INVESTMENT INCOME....................................... $ 16,574,735
==============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 147,195,157
Futures................................................... 7,923,263
--------------
Net Realized Gain......................................... 155,118,420
--------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,038,531,718
--------------
End of the Period:
Investments............................................... 1,061,139,660
Futures................................................... 12,223,946
--------------
1,073,363,606
--------------
NET UNREALIZED APPRECIATION DURING THE PERIOD............... 34,831,888
--------------
NET REALIZED AND UNREALIZED GAIN............................ $ 189,950,308
==============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 206,525,043
==============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1999 and
the Year Ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1999 June 30, 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 16,574,735 $ 28,270,551
Net Realized Gain.............................. 155,118,420 499,496,614
Net Unrealized Appreciation/Depreciation During
the Period................................... 34,831,888 (12,965,129)
--------------- ---------------
Change in Net Assets from Operations........... 206,525,043 514,802,036
--------------- ---------------
Distributions from Net Investment Income:
Class A Shares............................... (28,409,788) (24,874,829)
Class B Shares............................... -0- -0-
Class C Shares............................... -0- -0-
--------------- ---------------
(28,409,788) (24,874,829)
--------------- ---------------
Distributions from Net Realized Gain:
Class A Shares............................... (544,831,394) (295,682,808)
Class B Shares............................... (20,187,050) (11,170,764)
Class C Shares............................... (2,173,332) (972,178)
--------------- ---------------
(567,191,776) (307,825,750)
--------------- ---------------
Total Distributions............................ (595,601,564) (332,700,579)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES........................ (389,076,521) 182,101,457
--------------- ---------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 3,199,049,892 7,524,592,594
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 553,360,846 309,004,514
Cost of Shares Repurchased..................... (3,428,258,844) (7,759,211,083)
--------------- ---------------
Net Change in Net Assets from Capital
Transactions................................. 324,151,894 74,386,025
--------------- ---------------
TOTAL CHANGE IN NET ASSETS..................... (64,924,627) 256,487,482
NET ASSETS:
Beginning of the Period........................ 4,069,933,185 3,813,445,703
--------------- ---------------
End of the Period (Including accumulated
undistributed net investment income of
$7,018,406 and $18,853,459, respectively).... $ 4,005,008,558 $ 4,069,933,185
=============== ===============
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Six Months Ended -----------------------------------------
Class A Shares December 31, 1999 1999 1998 1997 1996(a)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $ 15.471 $ 14.971 $ 13.872 $ 11.92 $ 11.62
-------- -------- -------- -------- --------
Net Investment Income.... .071 .117 .122 .132 .12
Net Realized and
Unrealized Gain........ .694 1.743 3.541 3.191 2.09
-------- -------- -------- -------- --------
Total from
Investment
Operations............. .765 1.860 3.663 3.323 2.21
-------- -------- -------- -------- --------
Less:
Distributions from and
in Excess of Net
Investment Income.... .120 .106 .144 .121 .15
Distributions from Net
Realized Gain........ 2.292 1.254 2.420 1.250 1.76
-------- -------- -------- -------- --------
Total Distributions...... 2.412 1.360 2.564 1.371 1.91
-------- -------- -------- -------- --------
Net Asset Value, End of
the Period............. $ 13.824 $ 15.471 $ 14.971 $ 13.872 $ 11.92
======== ======== ======== ======== ========
Total Return (b)......... 5.46%* 13.65% 29.89% 30.06% 20.48%
Net Assets at End of the
Period (In millions)... $3,851.1 $3,905.1 $3,661.4 $2,992.2 $2,534.3
Ratio of Expenses to
Average Net Assets
(c).................... .82% .83% .88% .97% .94%
Ratio of Net Investment
Income to Average Net
Assets (c)............. .88% .78% .80% 1.01% 1.02%
Portfolio Turnover....... 23%* 94% 67% 144% 213%
</TABLE>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended June 30, 1996 and June 30, 1997 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 (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Six Months Ended -------------------------------------
Class B Shares December 31, 1999 1999 1998 1997 1996(a)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $15.239 $14.766 $13.730 $ 11.81 $ 11.53
------- ------- ------- ------- -------
Net Investment Income...... .004 .005 .045 .046 .02
Net Realized and
Unrealized Gain.......... .690 1.722 3.466 3.151 2.07
------- ------- ------- ------- -------
Total from
Investment Operations.... .694 1.727 3.511 3.197 2.09
------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income...... -0- -0- .055 .027 .05
Distributions from
Net Realized Gain...... 2.292 1.254 2.420 1.250 1.76
------- ------- ------- ------- -------
Total Distributions........ 2.292 1.254 2.475 1.277 1.81
------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $13.641 $15.239 $14.766 $13.730 $ 11.81
======= ======= ======= ======= =======
Total Return (b)........... 5.05%* 12.79% 28.92% 29.08% 19.44%
Net Assets at End of the
Period (In millions)..... $ 139.2 $ 151.8 $ 140.3 $ 95.5 $ 72.1
Ratio of Expenses to
Average Net Assets (c)... 1.60% 1.61% 1.66% 1.74% 1.75%
Ratio of Net Investment
Income to Average Net
Assets (c)............... .08% 0% .03% .23% .21%
Portfolio Turnover......... 23%* 94% 67% 144% 213%
</TABLE>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended June 30, 1996 and June 30, 1997 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 (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Six Months Ended -------------------------------------
Class C Shares December 31, 1999 1999 1998 1997 1996(a)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $15.280 $14.787 $13.752 $ 11.83 $11.52
------- ------- ------- ------- ------
Net Investment Income...... .002 .002 .028 .036 .02
Net Realized and
Unrealized Gain.......... .683 1.745 3.482 3.163 2.10
------- ------- ------- ------- ------
Total from
Investment Operations.... .685 1.747 3.510 3.199 2.12
------- ------- ------- ------- ------
Less:
Distributions from and in
Excess of Net
Investment Income...... -0- -0- .055 .027 .05
Distributions from Net
Realized Gain.......... 2.292 1.254 2.420 1.250 1.76
------- ------- ------- ------- ------
Total Distributions........ 2.292 1.254 2.475 1.277 1.81
------- ------- ------- ------- ------
Net Asset Value, End of the
Period................... $13.673 $15.280 $14.787 $13.752 $11.83
======= ======= ======= ======= ======
Total Return (b)........... 4.97%* 12.91% 28.87% 29.04% 19.74%
Net Assets at End of the
Period (In millions)..... $ 14.6 $ 13.0 $ 11.7 $ 7.0 $ 4.5
Ratio of Expenses to
Average Net Assets (c)... 1.59% 1.61% 1.66% 1.74% 1.75%
Ratio of Net Investment
Income to Average Net
Assets (c)............... .08% .01% .04% .23% .15%
Portfolio Turnover......... 23%* 94% 67% 144% 213%
</TABLE>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) For the years ended June 30, 1996 and June 30, 1997 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
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Pace 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 capital growth by investing principally in common stock. The Fund
commenced investment operations on July 22, 1969. The distribution of the Fund's
Class B and Class C shares commenced on January 10, 1992 and August 27, 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. The
Fund's security valuation for unlisted securities and listed securities for
which the last sale price is not available was changed in 1998 from bid side
pricing to the mean of the bid and asked prices. The impact of the change, which
was not material, is included as a component of the change in unrealized
appreciation/depreciation for the six months ended December 31, 1999. 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.
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 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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
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 amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gain differs for financial reporting and tax purposes as a
result of the deferral for tax purposes of losses relating to wash sale
transactions.
At December 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $2,917,460,586; the aggregate gross unrealized
appreciation is $1,176,761,830 and the aggregate gross unrealized depreciation
is $123,199,931, resulting in net unrealized appreciation on long- and
short-term investments of $1,053,561,899.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares and pays dividends
annually from net investment income and from net realized gains on securities.
Distributions from net realized gains for book purposes may include short-term
capital gains and gains on futures transactions. All short-term capital gains
are included in ordinary income for tax purposes.
F. EXPENSE REDUCTIONS--During the six months ended December 31, 1999, the Fund's
custody fee was reduced by $5,141 as a result of credits earned on overnight
cash balances.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $1 billion...................................... .50 of 1%
Next $1 billion....................................... .45 of 1%
Next $1 billion....................................... .40 of 1%
Over $3 billion....................................... .35 of 1%
</TABLE>
For the six months ended December 31, 1999, the Fund recognized expenses of
approximately $149,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended December 31, 1999, the Fund recognized expenses of
approximately $355,100 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 December
31, 1999, the Fund recognized expenses of approximately $1,871,000. 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At December 31, 1999, capital aggregated $2,741,222,956, $122,036,867 and
$13,432,142 for Classes A, B, and C, respectively. For the six months ended
December 31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................. 205,665,869 $ 3,086,620,121
Class B................................. 6,895,061 101,294,347
Class C................................. 746,669 11,135,424
------------ ---------------
Total Sales............................... 213,307,599 $ 3,199,049,892
============ ===============
Dividend Reinvestment:
Class A................................. 39,858,482 $ 532,509,323
Class B................................. 1,426,470 18,815,135
Class C................................. 154,038 2,036,388
------------ ---------------
Total Dividend Reinvestment............... 41,438,990 $ 553,360,846
============ ===============
Repurchases:
Class A................................. (219,358,393) $(3,298,998,770)
Class B................................. (8,077,893) (119,142,815)
Class C................................. (682,129) (10,117,259)
------------ ---------------
Total Repurchases......................... (228,118,415) $(3,428,258,844)
============ ===============
</TABLE>
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1999, capital aggregated $2,421,092,282, $121,070,200 and
$10,377,589 for Classes A, B and C, respectively. For the year ended June 30,
1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................. 501,845,270 $ 7,187,575,737
Class B................................. 20,290,932 285,120,945
Class C................................. 3,680,466 51,895,912
------------ ---------------
Total Sales............................... 525,816,668 $ 7,524,592,594
============ ===============
Dividend Reinvestment:
Class A................................. 21,854,091 $ 297,652,697
Class B................................. 776,995 10,466,117
Class C................................. 65,607 885,700
------------ ---------------
Total Dividend Reinvestment............... 22,696,693 $ 309,004,514
============ ===============
Repurchases:
Class A................................. (515,854,980) $(7,416,888,916)
Class B................................. (20,603,743) (290,215,746)
Class C................................. (3,688,547) (52,106,421)
------------ ---------------
Total Repurchases......................... (540,147,270) $(7,759,211,083)
============ ===============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the six months ended December 31, 1999, 669,024 Class B shares automatically
converted to Class A shares and are shown in the above table as sales of Class A
shares and repurchases of Class B shares. Class C shares purchased before
January 1, 1997, and any dividend reinvestment plan C shares received thereon,
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
December 31, 1999, no Class C shares converted to Class A shares. The CDSC for
Class B and C shares will be imposed on most redemptions made within five years
of the
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First............................................ 5.00% 1.00%
Second........................................... 4.00% None
Third............................................ 3.00% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth and Thereafter............................. None None
</TABLE>
For the six months ended December 31, 1999, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $142,300 and CDSC on redeemed shares of approximately $138,900.
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 $837,573,037 and $1,234,641,242,
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 generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The fund
generally invests in stock index futures. These contracts are generally used to
provide the return of an index without purchasing all
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
of the securities underlying the index or to manage the Fund's overall exposure
to the equity markets.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts for the six months ended December 31,
1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1999.............................. 300
Futures Opened............................................ 850
Futures Closed............................................ (575)
----
Outstanding at December 31, 1999.......................... 575
====
</TABLE>
The futures contracts outstanding at December 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
S&P 500 Futures--March 2000
(Current notional value of $371,050
per contract)......................... 575 $12,223,946
=== ===========
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended December 31, 1999, are payments retained by Van Kampen
of approximately $728,300.
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each Fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each Fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each Fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
29
<PAGE> 31
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and ongoing expenses.
Please read it carefully before you
invest or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
* Closed to new investors
** Open to new investors for a
limited time
30
<PAGE> 32
VAN KAMPEN PACE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President
and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
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 ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 2000
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 2000, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
31
<PAGE> 33
RESULTS OF SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December
15, 1999, where shareholders voted on the election of trustees and the selection
of independent public accountants.
1) With regard to the election of the following trustees by the common
shareholders of the Fund:
<TABLE>
<CAPTION>
# of Shares
-------------------------
in favor Withheld
- ------------------------------------------------------------------------------
<S> <C> <C>
J. Miles Branagen.................................. 131,510,099 3,921,729
Jerry D. Choate.................................... 131,565,126 3,866,702
Linda Hutton Heagy................................. 131,585,123 3,846,704
R. Craig Kennedy................................... 131,641,682 3,790,145
Mitchell M. Merin.................................. 131,619,265 3,812,563
Jack E. Nelson..................................... 131,638,117 3,793,711
Richard F. Powers, III............................. 131,603,271 3,828,557
Philip B. Rooney................................... 131,618,396 3,813,431
Fernando Sisto..................................... 131,331,107 4,100,720
Wayne W. Whalen.................................... 131,640,660 3,791,167
Suzanne H. Woolsey................................. 131,583,780 3,848,047
Paul G. Yovovich................................... 131,603,043 3,828,784
</TABLE>
2) With regard to the ratification of PriceWaterhouseCoopers LLP as
independent public accountants for the Trust, 129,928,629 shares voted for the
proposal, 1,029,952 shares voted against and 4,473,346 shares abstained.
32
<PAGE> 34
YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your Investment portfolio. We look forward to
continuing to serve your Investment needs.
