<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 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 23
REPORT OF INDEPENDENT AUDITORS 30
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is the theme of a
national advertising campaign that we recently kicked off. The message
emphasizes our depth of investment-management history, as well as our firm
belief that with the right investments, anyone can realize life's true wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION, AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.1
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 5.2
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 4.01% 3.20% 3.13%
-------------------------------------------------------------------------
One-year total return(2) -1.95% -1.19% 2.25%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 17.79% 18.11% 18.32%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 13.70% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 13.20% 13.87%(3) 15.39%
-------------------------------------------------------------------------
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 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 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 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.
4
<PAGE> 6
GROWTH OF A $10,000 INVESTMENT
(June 30, 1990 - June 30, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PACE FUND STANDARD & POOR'S 500 INDEX
--------- ---------------------------
<S> <C> <C>
6/90 9424 10000
8050 8632
8615 9402
9958 10763
6/91 9830 10739
10490 11313
11348 12254
11093 11946
6/92 10871 12173
11068 12557
11845 13186
12339 13760
6/93 12522 13826
13016 14182
13129 14509
12656 13964
6/94 12442 14024
12757 14709
12644 14706
13586 16134
6/95 15007 17669
16402 19069
16790 20213
17837 21297
6/96 18080 22250
18717 22933
20242 24842
20293 25512
6/97 23514 29957
26481 32197
26359 33118
30175 37728
6/98 30542 38970
26686 35101
32154 42564
32670 44681
6/99 34712 47825
32356 44845
36606 51508
37189 52679
6/00 36103 51278
</TABLE>
This chart compares your fund's performance to that of the Standard &
Poor's 500 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 they represent. 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. An
investment cannot be made 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--June 30, 2000)
<TABLE>
<S> <C> <C>
1. INTEL 4.7%
Designs, manufactures, and markets
microcomputer components.
2. GENERAL ELECTRIC 4.5%
Produces appliances, lighting
products, aircraft engines, and
plastics.
3. CISCO SYSTEMS 4.2%
Provides solutions that connect
computing devices and computer
networks.
4. PFIZER 3.2%
Manufactures pharmaceuticals,
including Viagra and Lipitor, and
consumer products such as Certs,
Listerine, and Visine.
5. ORACLE 3.0%
Supplies software products for
information management and also
offers consulting and systems
integration services.
6. EXXON MOBIL 2.7%
Explores for and produces petroleum
and petrochemicals worldwide.
7. EMC 2.0%
Provides products and services that
help companies store and access large
amounts of computer data.
8. CITIGROUP 1.9%
Provides financial services to
consumer and corporate customers
around the world.
9. NORTEL NETWORKS 1.8%
Supplies network solutions to the
communications industry worldwide.
10. ELI LILLY 1.8%
Develops pharmaceutical products for
worldwide distribution.
</TABLE>
TOP FIVE SECTORS*
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Technology 35.9 20.2
Finance 13.1 14.8
Health Care 12 11.7
Energy 9.6 7.6
Producer Manufacturing 7 5.5
</TABLE>
* These sectors represent broad groupings of related industries.
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN PACE FUND ABOUT THE
KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S
RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM WAS HEADED BY JOHN M.
CUNNIFF, SENIOR PORTFOLIO MANAGER, UNTIL MAY 25, 2000, AT WHICH TIME MICHAEL
DAVIS AND MARY JAYNE MALY, SENIOR PORTFOLIO MANAGERS, ASSUMED LEAD MANAGEMENT
RESPONSIBILITIES FOR THE FUND. MR. DAVIS HAS BEEN IN THE INVESTMENT INDUSTRY
SINCE 1983 AND MS. MALY SINCE 1984. MR. DAVIS AND MS. MALY ARE JOINED BY JEFF D.
NEW, SENIOR PORTFOLIO MANAGER, AND THOMAS COPPER, PORTFOLIO MANAGER. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A The U.S. economy remained strong in the past year. This robust backdrop
created an environment that allowed many companies to enjoy great success and
post earnings that continually exceeded Wall Street analysts' expectations.
Value investing fell by the wayside as growth investors became willing to pay
historically high prices for the stocks of these top-performing companies. This
helped the technology-heavy NASDAQ index, which returned a phenomenal 86 percent
in 1999, and the S&P 500 Index, which returned 21 percent. (Of course, past
performance is no guarantee of future results.) Because of this continued
economic strength, the Federal Reserve Board (the Fed) continued raising
interest rates in an effort to slow the economy and prevent inflation.
Investors spent much of the reporting period trying to determine how far the
Fed would go and what effect rising rates would have on various sectors and
stocks. That uncertainty showed up in the markets in the form of some fairly
dramatic market swings, especially in the technology sector. All of the record
highs hit by the Dow Jones Industrial Average, S&P 500 Index, and the NASDAQ
during the last half of 1999 masked the fact that the markets were very
narrow--more stocks lost value than gained. It was the outstanding performance
of a select few stocks that carried the day. From the start of 2000 through
early March, technology stocks did very well. On March 10, the technology-heavy
NASDAQ index reached its all-time peak but then started to decline and finally
plummeted in early to mid-April. Technology stocks staged a brief rally toward
the end of April, only to go down and rally again. During this
7
<PAGE> 9
volatility at the end of the period, a slowing gross domestic product (GDP) and
some other economic indicators such as housing, retail, and unemployment claims
were starting to point to a slowdown, indicating that the Fed's actions were
working.
All this uncertainty had an effect on performance, as the fund returned 4.01
percent for the 12-month period ended June 30, 2000 (Class A shares at net asset
value; if the maximum sales charge of 5.75 percent were included, the return
would have been lower). As a result of recent market activity, current
performance may vary from the figures shown. By comparison, the Standard &
Poor's 500 Index returned 7.24 percent. Of course, past performance is no
guarantee of future results. The S&P 500 Index is an unmanaged, broad-based
index that measures the performance of 500 stocks in 83 industrial groups and
reflects the general performance of the stock markets. It 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. If these costs had
been included, performance would have been less favorable. It is not possible to
invest directly in an index. Please refer to the chart and footnotes on page 4
for additional fund performance results.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND THROUGH THIS ACTIVE PERIOD?
A The fund has always invested primarily in stocks of large, well-established
companies with above-average potential for capital growth. What we saw in the
markets during this period did not cause us to change that. We use a "bottom-up"
process when selecting stocks, which means that we evaluate stocks on a
company-by-company basis. As a result, we focus far more on the merits of each
individual company than on market movements or interest-rate changes.
We do pay attention, however, to ways we can capitalize on market trends for
the shareholders' benefit. For instance, we spoke earlier about the market
favoring growth stocks over value and how technology stocks dominated the
markets. The fund owned some basic materials stocks, such as DuPont, that were
out of favor. We believed the proceeds from the sale of those stocks would
better benefit the fund if they were invested in stocks such as ADC
Telecommunications and Nokia--companies in real growth areas of the market. We
also increased the percentage of drug and energy stocks that the fund held.
Their growth rates were not as high as the technology stocks that dominated the
headlines, but we believed they were poised to do well. We also reduced the
amount of communications services stocks in the portfolio. Consumer
long-distance companies in particular were pressured by a number of competitive
services and Internet communication options, and their stocks suffered as a
result. Finally, we reduced the amount of retail stocks in the portfolio.
Q DID THOSE STRATEGIES CHANGE WHEN THE MANAGEMENT TEAM CHANGED?
A No, this fundamental process did not change when the management team
changed.
8
<PAGE> 10
Q HOW DID THESE THEMES PLAY OUT IN SPECIFIC STOCKS THE FUND OWNED?
A We talked about energy being an attractive sector, and our decision to
increase the fund's energy exposure helped boost fund performance. In the past
12 months, we added a number of offshore drillers and companies whose businesses
are tied to drilling and operating oil and gas wells. Oil and gas prices were
high during the period, which led to increased drilling activity. BJ Services,
Smith International, and Schlumberger all did well because of this.
Our confidence in large-cap drug stocks was well placed. In addition to a
lack of investor interest in the group, there was uncertainty regarding a
possible Medicare prescription drug benefit and the effect it would have on drug
prices. This resulted in the group's P/E ratios being relatively low even though
they had consistent, moderate growth rates. The fund owned both Pfizer and
Warner Lambert, two companies that merged during the reporting period. Hence,
the fund's position in the surviving company, Pfizer, increased during the
period due to the success of existing drugs and the expected expense synergies
coming out of the merger.
Many of the stocks that helped fund performance were in the technology
sector. The fund held Intel, Cisco, and Oracle, all of which had a positive
effect on fund performance as they've each emerged as the dominant company in
their respective markets. Our confidence in the long-term prospects of the
semiconductor industry led us to add a significant amount of Texas Instruments
stock to the portfolio.
Of course, not all of the stocks in the fund performed as favorably, nor is
there any guarantee that any of the stocks mentioned above will continue to
perform as well or will be held by the fund in the future. For additional fund
portfolio highlights, please refer to page 6.
Q WHAT STOCKS HURT FUND PERFORMANCE DURING THE PERIOD?
A Not all technology stocks could be counted on for positive performance, with
Microsoft's decline detracting significantly from fund performance. We sold the
bulk of the fund's position in Microsoft due to our belief that the company will
play a continually smaller role than it has in the past as technology shifts
away from desktop computers to cell phones and other devices used to access the
Internet. We also sold IBM because we were concerned about its future revenue
growth and what the year 2000 problem did to its business.
Many retail stocks hurt the fund's performance. The stocks of Tommy
Hilfiger, Home Depot, and Office Depot declined, primarily due to concerns that
higher interest rates would slow consumer spending.
Another sector that performed poorly was communication services, which
includes the stocks of independent telecommunications companies. We reduced the
fund's position in WorldCom, a telecommunications stock, because the company
had trouble meeting revenue growth
9
<PAGE> 11
targets, and we felt that it would become increasingly difficult for WorldCom to
grow revenues and earnings in the long-distance arena. We sold AT&T for similar
reasons.
Q WHAT DO YOU SEE AHEAD FOR BOTH THE MARKETS AND THE FUND?
A We envision a similar economic environment. We believe that the overall
outlook for corporate profits is good and think that the Fed has been successful
in trying to slow the economy. Because of this, we expect to see sustainable
growth rather than a boom/bust cycle. This is good for stocks because it sets
the stage for good earnings growth without the risk of inflation.
With that said, we believe our best long-term course of action is to stick
to our investment discipline and continue to look for positive future
fundamentals regardless of market movements. Shareholders can expect to see a
few modifications to the portfolio as the current portfolio managers settle in.
We will try to get the fund slightly more focused, so we expect to sell some of
the stocks and reduce the total number of stocks the fund owns. We also expect
to shift the fund toward a slightly stronger growth orientation than it has had
in the past, but we will definitely be focusing on what is known in the industry
as growth at a reasonable price--paying attention to how much a growth stock
costs relative to its peers and the rest of the market when deciding whether to
add it to the portfolio.
10
<PAGE> 12
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.
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 ESTIMATE: A forecast for a company's net income during a given period.
An earnings estimate can come from the company's management as well as from
independent analysts.
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.
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 from 83 industrial groups. The index, which tracks industrial,
transportation, financial, and utility stocks, to name a few, provides a guide
to the overall health of the U.S. stock market.
P/E RATIO: The price-to-earnings ratio shows the "multiple" of earnings at which
a stock is selling. The P/E ratio is calculated by dividing a stock's current
price by its current earnings per share. A high multiple means that investors
are optimistic about future growth and have bid up the stock's price.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe the stocks are
actually worth.
11
<PAGE> 13
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 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 97.5%
CONSUMER DISTRIBUTION 4.5%
Best Buy Co., Inc. (a)..................................... 278,200 $ 17,596,150
Federated Department Stores, Inc. (a)...................... 225,800 7,620,750
Home Depot, Inc. .......................................... 580,800 29,003,700
Kohl's Corp. (a) .......................................... 276,000 15,352,500
Kroger Co. (a)............................................. 356,000 7,854,250
Limited, Inc. ............................................. 590,000 12,758,750
Safeway, Inc. (a).......................................... 605,000 27,300,625
Target Corp. .............................................. 106,200 6,159,600
Wal-Mart Stores, Inc. ..................................... 750,900 43,270,612
--------------
166,916,937
--------------
CONSUMER DURABLES 0.7%
Ford Motor Co. ............................................ 333,200 14,327,600
Harley-Davidson, Inc. ..................................... 285,000 10,972,500
Visteon Corp. ............................................. 1 11
--------------
25,300,111
--------------
CONSUMER NON-DURABLES 6.0%
Anheuser-Busch Cos., Inc. ................................. 331,500 24,758,906
Avon Products, Inc. ....................................... 424,000 18,868,000
Coca-Cola Co. ............................................. 739,000 42,446,313
Colgate-Palmolive Co. ..................................... 300,000 17,962,500
General Mills, Inc. ....................................... 521,100 19,932,075
Kimberly-Clark Corp. ...................................... 500,800 28,733,400
Nike, Inc., Class B........................................ 400,000 15,925,000
Pepsi Bottling Group, Inc. ................................ 460,000 13,426,250
PepsiCo, Inc. ............................................. 872,300 38,762,831
--------------
220,815,275
--------------
CONSUMER SERVICES 3.0%
Brinker International, Inc. (a)............................ 554,400 16,216,200
Harrah's Entertainment, Inc. (a)........................... 362,300 7,585,656
Park Place Entertainment Corp. (a)......................... 467,000 5,691,563
Starwood Hotels & Resorts Worldwide, Inc., Class B......... 714,000 23,249,625
Time Warner, Inc. ......................................... 412,900 31,380,400
Viacom, Inc., Class B (a).................................. 404,004 27,548,023
--------------
111,671,467
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ENERGY 9.4%
Anadarko Petroleum Corp. .................................. 440,000 $ 21,697,500
Apache Corp. .............................................. 426,000 25,054,125
Baker Hughes, Inc. ........................................ 175,000 5,600,000
BJ Services Co. (a)........................................ 233,600 14,600,000
Chevron Corp. ............................................. 193,700 16,428,181
Coastal Corp. ............................................. 589,500 35,885,812
El Paso Energy Corp. ...................................... 262,600 13,376,188
Enron Corp. ............................................... 191,000 12,319,500
Exxon Mobil Corp. ......................................... 1,258,181 98,767,208
Phillips Petroleum Co. .................................... 233,700 11,845,669
Royal Dutch Petroleum Co.--ADR (Netherlands)............... 336,100 20,691,156
Schlumberger, Ltd. ........................................ 155,000 11,566,875
Smith International, Inc. (a).............................. 223,000 16,237,188
Texaco, Inc. .............................................. 139,200 7,412,400
Ultramar Diamond Shamrock Corp. ........................... 643,000 15,954,438
USX - Marathon Group....................................... 800,100 20,052,506
--------------
347,488,746
--------------
FINANCE 12.8%
Allstate Corp. ............................................ 671,000 14,929,750
American Express Co. ...................................... 439,300 22,898,512
American General Corp. .................................... 182,600 11,138,600
American International Group, Inc. ........................ 422,290 49,619,075
Associates First Capital Corp., Class A.................... 253,000 5,645,063
Bank of America Corp. ..................................... 611,179 26,280,697
Bank of New York Co., Inc. ................................ 470,000 21,855,000
Chase Manhattan Corp. ..................................... 606,450 27,934,603
CIGNA Corp. ............................................... 141,000 13,183,500
Citigroup, Inc. ........................................... 1,131,387 68,166,067
Federal Home Loan Mortgage Corp. .......................... 364,900 14,778,450
Federal National Mortgage Association...................... 357,900 18,677,906
Fleet Financial Corp. ..................................... 761,200 25,880,800
Franklin Resources, Inc. .................................. 288,900 8,775,338
JP Morgan & Co., Inc. ..................................... 96,000 10,572,000
Marsh & McLennan Cos., Inc. ............................... 106,000 11,070,375
MBNA Corp. ................................................ 481,900 13,071,538
Mellon Financial Corp. .................................... 461,500 16,815,906
Merrill Lynch & Co., Inc. ................................. 219,900 25,288,500
PNC Financial Services Group .............................. 345,000 16,171,875
Providian Financial Corp. ................................. 132,500 11,925,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FINANCE (CONTINUED)
Schwab Charles Corp. ...................................... 456,900 $ 15,363,262
Wells Fargo Co. ........................................... 611,500 23,695,625
--------------
473,737,442
--------------
HEALTHCARE 11.7%
American Home Products Corp. .............................. 634,000 37,247,500
Amgen, Inc. (a)............................................ 403,000 28,310,750
Bristol-Myers Squibb Co. .................................. 346,700 20,195,275
Eli Lilly & Co. ........................................... 632,000 63,121,000
Johnson & Johnson.......................................... 387,000 39,425,625
MedImmune, Inc. (a)........................................ 247,000 18,278,000
Merck & Co., Inc. ......................................... 525,700 40,281,762
Pfizer, Inc. .............................................. 2,369,725 113,746,800
Pharmacia Corp. ........................................... 341,000 17,625,437
Schering-Plough Corp. ..................................... 425,700 21,497,850
UnitedHealth Group, Inc. .................................. 235,700 20,211,275
Wellpoint Health Networks, Inc., Class A (a)............... 151,400 10,967,038
--------------
430,908,312
--------------
PRODUCER MANUFACTURING 6.8%
Corning, Inc. ............................................. 148,000 39,941,500
General Electric Co. ...................................... 3,070,300 162,725,900
Johnson Controls, Inc. .................................... 225,900 11,591,494
Minnesota Mining & Manufacturing Co. ...................... 149,000 12,292,500
Tyco International Ltd. ................................... 505,000 23,924,375
--------------
250,475,769
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.6%
Sealed Air Corp. .......................................... 283,000 14,822,125
Westvaco Corp. ............................................ 290,000 7,195,625
--------------
22,017,750
--------------
TECHNOLOGY 35.0%
ADC Telecommunications, Inc. (a)........................... 314,000 26,336,750
Adobe Systems, Inc. ....................................... 104,000 13,520,000
Advanced Micro Devices, Inc. (a)........................... 168,000 12,978,000
Agilent Technologies, Inc. (a)............................. 103,511 7,633,936
Alcatel -- ADR (France).................................... 146,000 9,709,000
Altera Corp. (a)........................................... 292,000 29,765,750
America Online, Inc. (a)................................... 650,220 34,299,105
Analog Devices, Inc. (a)................................... 183,000 13,908,000
Apple Computer, Inc. (a)................................... 170,600 8,935,175
Applied Materials, Inc. (a)................................ 437,000 39,603,125
Atmel Corp. (a)............................................ 203,000 7,485,625
Cisco Systems, Inc. (a).................................... 2,356,800 149,804,100
Comverse Technology, Inc. (a).............................. 79,000 7,347,000
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Dell Computer Corp. (a).................................... 922,100 $ 45,471,056
EMC Corp. (a).............................................. 951,600 73,213,725
First Data Corp. .......................................... 305,000 15,135,625
Hewlett-Packard Co. ....................................... 271,400 33,891,075
Intel Corp. ............................................... 1,258,300 168,218,981
JDS Uniphase Corp. (a)..................................... 157,000 18,820,375
Linear Technology Corp. ................................... 226,000 14,449,875
LSI Logic Corp. (a)........................................ 333,600 18,056,100
Lucent Technologies, Inc. ................................. 368,200 21,815,850
Micron Technology, Inc. (a)................................ 702,000 61,819,875
Microsoft Corp. (a)........................................ 619,400 49,552,000
National Semiconductor Corp. (a)........................... 185,000 10,498,750
Network Appliance, Inc. (a)................................ 179,200 14,425,600
Nokia Corp.--ADR (Finland)................................. 816,800 40,788,950
Nortel Networks Corp. ..................................... 966,000 65,929,500
Oracle Corp. (a)........................................... 1,273,100 107,019,969
QUALCOMM, Inc. (a)......................................... 47,300 2,838,000
Sanmina Corp. (a).......................................... 218,600 18,690,300
STMicroelectronics NV--ADR (Netherlands)................... 425,000 27,279,688
Sun Microsystems, Inc. (a)................................. 444,000 40,376,250
Texas Instruments, Inc. ................................... 567,000 38,945,812
VERITAS Software Corp. (a)................................. 54,000 6,102,844
Xilinx, Inc. (a)........................................... 328,000 27,080,500
Yahoo!, Inc. (a)........................................... 90,000 11,148,750
--------------
1,292,895,016
--------------
TRANSPORTATION 0.6%
Delta Air Lines, Inc. ..................................... 262,800 13,287,825
Kansas City Southern Industries, Inc. ..................... 105,900 9,392,006
--------------
22,679,831
--------------
UTILITIES 6.4%
GTE Corp. ................................................. 628,200 39,105,450
McLeodUSA, Inc. (a)........................................ 417,000 8,626,688
Nextel Communications, Inc. (a)............................ 179,300 10,970,919
PECO Energy Co. ........................................... 407,000 16,407,188
Qwest Communications International, Inc. (a)............... 578,400 28,739,250
SBC Communications, Inc. .................................. 1,220,920 52,804,790
Sprint Corp. .............................................. 503,900 25,698,900
Time Warner Telecom, Inc., Class A (a)..................... 158,600 10,209,875
U.S. West, Inc. ........................................... 113,900 9,766,925
WorldCom, Inc. (a)......................................... 795,700 36,502,737
--------------
238,832,722
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<S> <C> <C>
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $2,671,621,006)................................................. $3,603,739,378
--------------
SHORT-TERM INVESTMENTS 1.6%
COMMERCIAL PAPER 1.3%
General Electric Capital Corp. ($50,000,000 par, yielding 6.93%,
07/03/00 maturity).................................................. 49,980,972
REPURCHASE AGREEMENT 0.3%
Bank of America Securities ($10,900,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 06/30/00, to
be sold on 07/03/00 at $10,906,222)................................. 10,900,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $60,880,972).................................................. 60,880,972
--------------
TOTAL INVESTMENTS 99.1%
(Cost $2,732,501,978)............................................... 3,664,620,350
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%........................... 33,196,199
--------------
NET ASSETS 100.0%.................................................... $3,697,816,549
==============
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
ADR--American Depositary Receipt.
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,732,501,978)..................... $3,664,620,350
Receivables:
Investments Sold.......................................... 57,762,821
Fund Shares Sold.......................................... 30,308,329
Dividends................................................. 1,986,313
Other....................................................... 200,531
--------------
Total Assets............................................ 3,754,878,344
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 47,749,747
Fund Shares Repurchased................................... 6,004,460
Investment Advisory Fee................................... 1,306,666
Distributor and Affiliates................................ 1,198,695
Custodian Bank............................................ 20,344
Trustees' Deferred Compensation and Retirement Plans........ 453,669
Accrued Expenses............................................ 328,214
--------------
Total Liabilities....................................... 57,061,795
--------------
NET ASSETS.................................................. $3,697,816,549
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $2,632,507,185
Net Unrealized Appreciation................................. 932,118,372
Accumulated Net Realized Gain............................... 116,388,105
Accumulated Undistributed Net Investment Income............. 16,802,887
--------------
NET ASSETS.................................................. $3,697,816,549
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $3,542,419,136 and 259,814,649 shares of
beneficial interest issued and outstanding)............. $ 13.63
Maximum sales charge (5.75%* of offering price)......... .83
--------------
Maximum offering price to public........................ $ 14.46
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $137,649,531 and 10,269,759 shares of
beneficial interest issued and outstanding)............. $ 13.40
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $17,747,882 and 1,321,457 shares of
beneficial interest issued and outstanding)............. $ 13.43
==============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 19
Statement of Operations
For the Year Ended June 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $83,548)..... $ 43,754,786
Interest.................................................... 15,249,818
--------------
Total Income............................................ 59,004,604
--------------
EXPENSES:
Investment Advisory Fee..................................... 16,374,993
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $8,245,442, $1,366,711 and $145,585,
respectively)............................................. 9,757,738
Shareholder Services........................................ 4,325,349
Legal....................................................... 254,914
Custody..................................................... 223,827
Trustees' Fees and Related Expenses......................... 140,908
Other....................................................... 1,589,695
--------------
Total Expenses.......................................... 32,667,424
Less Credits Earned on Cash Balances.................... 7,536
--------------
Net Expenses............................................ 32,659,888
--------------
NET INVESTMENT INCOME....................................... $ 26,344,716
==============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 212,649,559
Futures................................................... 10,970,746
--------------
Net Realized Gain......................................... 223,620,305
--------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,038,531,718
End of the Period:
Investments............................................. 932,118,372
--------------
Net Unrealized Depreciation During the Period............... (106,413,346)
--------------
NET REALIZED AND UNREALIZED GAIN............................ $ 117,206,959
==============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 143,551,675
==============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Statement of Changes in Net Assets
For the Years Ended June 30, 2000, and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 26,344,716 $ 28,270,551
Net Realized Gain.................................. 223,620,305 499,496,614
Net Unrealized Depreciation During
the Period....................................... (106,413,346) (12,965,129)
--------------- ---------------
Change in Net Assets from Operations............... 143,551,675 514,802,036
--------------- ---------------
Distributions from Net Investment Income:
Class A Shares................................... (28,395,288) (24,874,829)
Class B Shares................................... -0- -0-
Class C Shares................................... -0- -0-
--------------- ---------------
(28,395,288) (24,874,829)
--------------- ---------------
Distributions from Net Realized Gain:
Class A Shares................................... (544,879,338) (295,682,808)
Class B Shares................................... (20,187,425) (11,170,764)
Class C Shares................................... (2,173,374) (972,178)
--------------- ---------------
(567,240,137) (307,825,750)
--------------- ---------------
Total Distributions................................ (595,635,425) (332,700,579)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............................ (452,083,750) 182,101,457
--------------- ---------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 3,737,396,139 7,524,592,594
Net Asset Value of Shares Issued Through
Dividend Reinvestment............................ 553,360,846 309,004,514
Cost of Shares Repurchased......................... (4,210,789,871) (7,759,211,083)
--------------- ---------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... 79,967,114 74,386,025
--------------- ---------------
TOTAL INCREASE/DECREASE IN NET ASSETS.............. (372,116,636) 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
$16,802,887 and $18,853,459, respectively)....... $ 3,697,816,549 $ 4,069,933,185
=============== ===============
</TABLE>
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 JUNE 30,
CLASS A SHARES --------------------------------------------------------
2000 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......... .110 .117 .122 .132 .12
Net Realized and Unrealized
Gain........................ .464 1.743 3.541 3.191 2.09
-------- -------- -------- -------- --------
Total from Investment
Operations.................... .574 1.860 3.663 3.323 2.21
-------- -------- -------- -------- --------
Less:
Distributions from 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........................ $ 13.634 $ 15.471 $ 14.971 $ 13.872 $ 11.92
======== ======== ======== ======== ========
Total Return (b)................ 4.01% 13.65% 29.89% 30.06% 20.48%
Net Assets at End of the Period
(In millions)................. $3,542.4 $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)..... .72% .78% .80% 1.01% 1.02%
Portfolio Turnover.............. 71% 94% 67% 144% 213%
</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 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
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
CLASS B SHARES ---------------------------------------------------
2000 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/Loss....... (.011) .005 .045 .046 .02
Net Realized and Unrealized
Gain........................... .467 1.722 3.466 3.151 2.07
------- ------- ------- ------- ------
Total from Investment Operations... .456 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........................... $13.403 $15.239 $14.766 $13.730 $11.81
======= ======= ======= ======= ======
Total Return (b)................... 3.20% 12.79% 28.92% 29.08% 19.44%
Net Assets at End of the Period (In
millions)........................ $ 137.7 $ 151.8 $ 140.3 $ 95.5 $ 72.1
Ratio of Expenses to Average Net
Assets (c)....................... 1.62% 1.61% 1.66% 1.74% 1.75%
Ratio of Net Investment Income/Loss
to Average Net Assets (c)........ (.06%) 0% .03% .23% .21%
Portfolio Turnover................. 71% 94% 67% 144% 213%
</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 to 0% after the fifth year.
If the sales charge was included, total returns would be lower.
(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
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
CLASS C SHARES ---------------------------------------------------
2000 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/Loss....... (.028) .002 .028 .036 .02
Net Realized and Unrealized
Gain........................... .471 1.745 3.482 3.163 2.10
------- ------- ------- ------- ------
Total from Investment Operations... .443 1.747 3.510 3.199 2.12
------- ------- ------- ------- ------
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........................... $13.431 $15.280 $14.787 $13.752 $11.83
======= ======= ======= ======= ======
Total Return (b)................... 3.13% 12.91% 28.87% 29.04% 19.74%
Net Assets at End of the Period (In
millions)........................ $ 17.7 $ 13.0 $ 11.7 $ 7.0 $ 4.5
Ratio of Expenses to Average Net
Assets (c)....................... 1.62% 1.61% 1.66% 1.74% 1.75%
Ratio of Net Investment Income/Loss
to Average Net Assets (c)........ (.10%) .01% .04% .23% .15%
Portfolio Turnover................. 71% 94% 67% 144% 213%
</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 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
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
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 the last sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the mean of the bid and asked prices. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. Short-term securities with remaining maturities of 60 days or less
are valued at amortized cost, which approximates market value.
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.
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.
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
June 30, 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.
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 June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $2,738,611,338, the aggregate gross unrealized
appreciation is $1,015,073,309 and the aggregate gross unrealized depreciation
is $89,064,297, resulting in net unrealized appreciation on long- and short-term
investments of $926,009,012.
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 year ended June 30, 2000, the Fund's custody
fee was reduced by $7,536 as a result of credits earned on cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $1 billion............................................ .50 of 1%
Next $1 billion............................................. .45 of 1%
Next $1 billion............................................. .40 of 1%
Over $3 billion............................................. .35 of 1%
</TABLE>
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
For the year ended June 30, 2000, the Fund recognized expenses of
approximately $254,900 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 June 30, 2000, the Fund recognized expenses of
approximately $428,400 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 June 30, 2000,
the Fund recognized expenses of approximately $3,378,800. Transfer agency fees
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
3. CAPITAL TRANSACTIONS
At June 30, 2000, capital aggregated $2,492,104,934, $123,674,831 and
$16,727,420 for Classes A, B, and C, respectively. For the year ended June 30,
2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................ 239,982,150 $ 3,545,961,373
Class B............................................ 12,119,947 170,558,418
Class C............................................ 1,481,813 20,876,348
------------ ---------------
Total Sales.......................................... 253,583,910 $ 3,737,396,139
============ ===============
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............................................ (272,439,480) $(4,007,458,044)
Class B............................................ (13,239,713) (186,768,922)
Class C............................................ (1,165,292) (16,562,905)
------------ ---------------
Total Repurchases.................................... (286,844,485) $(4,210,789,871)
============ ===============
</TABLE>
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
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, and any dividend reinvestment Class B Shares received
thereon will automatically convert to Class A Shares after the eighth year
following purchase. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment Class B Shares received thereon automatically convert to
Class A Shares after the sixth year following purchase. For the years ended June
30, 2000 and 1999, 1,616,635 and 0, respectively, Class B Shares automatically
converted to Class A Shares 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 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 years ended June
30, 2000 and 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 purchase for
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
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 June 30, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A Shares of approximately
$311,300 and CDSC on redeemed shares of approximately $320,600. 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 $2,528,050,879 and $2,896,607,495,
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.
The Fund may invest in futures contracts, a type of derivative. A futures
contract is an agreement involving the delivery of a particular asset on a
specified future date at an agreed upon price. The fund generally invests in
stock index futures. These contracts are generally used to provide the return of
an index without purchasing all of the securities underlying the index or to
manage the Fund's overall exposure to the equity markets.
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin).
Transactions in futures contracts for the year ended June 30, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at June 30, 1999................................ 300
Futures Opened.............................................. 1,425
Futures Closed.............................................. (1,725)
------
Outstanding at June 30, 2000................................ -0-
======
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 2000, are payments retained by Van Kampen of
approximately $1,428,800.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, 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
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Pace Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Pace Fund (the "Fund"), as of June
30, 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
June 30, 1999, and the financial highlights for each of the four years in the
period then ended were audited by other auditors whose report dated July 28,
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 June 30, 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 June 30, 2000, the results of its operations, changes
in net assets and financial highlights for the year then ended, in conformity
with accounting principles generally accepted in the United States.
SIG
Chicago, Illinois
August 3, 2000
30
<PAGE> 32
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
31
<PAGE> 33
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN 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
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 June 30, 2000. The
Fund designated and paid $481,350,916 as a 20% rate gain distribution. For
corporate shareholders 56.00% 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
December 31, 2000, the report, if used with prospective investors, must be
accompanied by a quarterly performance update.
32
