<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 25
FUND OFFICERS AND IMPORTANT ADDRESSES 33
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION, AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 - June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 - June 30, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on NAV(1) 7.61% 6.87% 7.01%
--------------------------------------------------------------------------
Six-month total return(2) 1.37% 1.87% 6.01%
--------------------------------------------------------------------------
One-year total return(2) 4.67% 5.16% 9.16%
--------------------------------------------------------------------------
Five-year average annual total
return(2) 16.18% 16.42% 16.61%
--------------------------------------------------------------------------
Ten-year average annual total
return(2) 13.87% N/A N/A
--------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 11.48% 15.00%(3) 15.01%
--------------------------------------------------------------------------
Commencement date 08/03/60 05/01/92 07/06/93
--------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (5.75% for Class A Shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A Shares of
$1 million or more, a CDSC of 1% may be imposed on certain redemptions made
within one year of purchase. Returns for Class B Shares are calculated
without the effect of the maximum 5% CDSC, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
fifth year. Returns for Class C Shares are calculated without the effect of
the maximum 1% CDSC, charged on certain redemptions made within one year of
purchase. If the sales charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (5.75% for Class A
Shares) or contingent deferred sales charge ("CDSC"). On purchases of Class
A Shares of $1 million or more, a CDSC of 1% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B Shares are
calculated with the effect of the maximum 5% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the fifth year. Returns for Class C Shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within
one year of purchase.
(3) The total return reflects the conversion of Class B Shares into Class A
Shares six years after the end of the calendar month in which the shares
were purchased. See Footnote 3 in the Notes to Financial Statements for
additional information.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions.
4
<PAGE> 6
The medium-grade debt securities in which the Fund may invest are subject to
greater market risks and less assurance as to the ability of the issuer to
meet principal and interest obligations than higher-rated securities. Debt
securities rated in lower categories are considered high-risk securities;
the rating agencies consider them speculative, and payment of interest and
principal is not considered well-assured.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of long-term investments--June 30, 2000)
<TABLE>
<S> <C> <C>
1. UNITED STATES TREASURY
NOTES 2.7%
6.625% coupon, 5/31/02 maturity.
2. EXXON MOBIL 2.1%
Explores for and produces petroleum
and
petrochemicals worldwide.
3. UNITED STATES TREASURY
NOTES 2.0%
6.250% coupon, 10/31/01 maturity.
4. LABORATORY CORPORATION 1.8%
Provides clinical laboratory services
to the medical industry worldwide.
5. PHARMACIA 1.6%
Develops pharmaceuticals, agricul-
tural products, and consumer goods.
6. MINNESOTA MINING AND
MANUFACTURING (3M) 1.6%
Manufactures industrial and consumer
goods, including brand-name products
such as Scotch and Post-It Notes.
7. TELEFONOS DE MEXICO 1.6%
Provides telecommunications services
to residents of Mexico.
8. EL PASO ENERGY 1.5%
Supplies natural gas to the United
States and northern Mexico.
9. UNITED STATES TREASURY
BONDS 1.5%
8.750% coupon, 8/15/20 maturity.
10. KONINKLIJKE PHILIPS
ELECTRONICS 1.5%
Makes televisions, audio equipment,
phones, and other electronic devices.
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Finance 17.7 14.1
Technology 17.0 17.9
Health Care 12.2 11.1
Utility 12.0 15.8
United States Obligations 8.8 6.4
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN EQUITY INCOME FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE SIX MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
JAMES A. GILLIGAN, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE
JANUARY 1990 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1985. HE IS JOINED
BY PORTFOLIO MANAGERS SCOTT A. CARROLL AND JAMES O. ROEDER. THE FOLLOWING
DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE FUND OPERATED, AND HOW DID THE FUND PERFORM
IN THAT ENVIRONMENT?
A Overall, it was an extremely volatile
period for the markets, and investors continued to favor growth over value
investing, which has been the case for most of the past six years. (There can be
no assurance that growth stocks will continue to be favored over value stocks in
the future.)
The Standard & Poor's 500 Index struggled in the first month of the year as
investors took profits off the table, digesting the gains achieved in the fourth
quarter of 1999. However, the technology-heavy NASDAQ index started a strong
move upward in early February with the S&P 500 following later that month. Both
indexes reached all-time highs in March.
In April, both the S&P 500 and the NASDAQ fell sharply due to concerns about
technology stocks' high valuations and the effects of continued interest-rate
increases on U.S. corporate earnings. As the reporting period ended in June,
both indexes had recovered from their lows but were still significantly below
their highs. Mixed signals about the strength of the economy have left investors
unsure about the outlook for corporate profits, which has tempered their
willingness to assign high valuations to most sectors.
In the early part of the year, technology stocks continued to dominate all
other sectors. When technology started to weaken in April and May, there was
renewed enthusiasm for more stable areas such as consumer durables (including
food and soft drink companies), and health-care stocks. Energy stocks, for the
most part, also performed well in the wake of accelerating energy prices.
Although it was a difficult market in which to find attractively valued
stocks, the fund profited from some well-positioned holdings that boosted its
return during the reporting period. As a result, for the six-month period ended
June 30, 2000, the fund achieved a total return of 7.61 percent (Class A shares
at net asset value; if the
7
<PAGE> 9
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 lost 0.42
percent, and the Russell 1000 Value Index, which more closely resembles the
composition of the fund, lost 4.23 percent for the same period. 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 from 83
industrial groups and reflects the general performance of the stock market, and
the Russell 1000 Value Index is an unmanaged index that reflects the general
performance of value stocks. These indexes are statistical composites that do
not include any commissions or sales charges that would be paid by an investor
purchasing the securities they represent. Such costs would lower the performance
of the index. 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 WAS YOUR STRATEGY
FOR MANAGING THE FUND IN THIS ENVIRONMENT?
A As always, we continued to look for
attractively valued companies that we believe have a catalyst to drive their
stock prices higher. Late in the period, we favored natural gas and energy
service stocks due to rising energy prices. As a result, we added a number of
oil service stocks to the portfolio to capture the upside potential of the
increased spending that we predict from oil companies in coming years. The
addition of Schlumberger, Transocean, and Halliburton all contributed to the
fund's performance.
At the same time, we monitored the portfolio for stocks that no longer met
our value criteria. During the reporting period, we decreased the fund's
position in technology stocks due to our concerns about their high valuations
relative to the rest of the market. Holdings in Texas Instruments, Motorola,
Nortel, and Alcatel were all reduced or eliminated.
Q YOU MENTIONED RECENT STRENGTH
AMONG HEALTH-CARE AND CONSUMER NONDURABLE STOCKS EARLIER. HOW DID THOSE
SECTORS FACTOR INTO THE FUND'S PERFORMANCE?
A The fund was well-positioned in
health care. Two of the fund's better performers were Laboratory Corporation of
America and Alza. Laboratory Corporation of America, which provides independent
clinical testing to medical professionals, benefited from the company's ongoing
margin improvement. Alza, a specialty pharmaceutical company, went up on the
strength of an incontinence drug and an active drug pipeline. Schering Plough
also performed well for the fund. We added Schering to the portfolio after its
share price weakened amid concerns about the slowing growth of its largest
product. Other health-care positions that contributed to the fund's performance
were American Home Products and Pharmacia, both large pharmaceutical companies
with strong product pipelines.
In the consumer durables area, the fund's position in beverage and bottling
companies boosted performance. The
8
<PAGE> 10
fund's holding in Pepsi Bottling appreciated as the company reported strong
earnings and offered the potential for higher growth rates.
Q WHERE ELSE DID YOU SEARCH
FOR VALUE?
A We liked energy stocks. In fact,
other top contributors to the fund's performance during the reporting period
were Coastal and El Paso Energy, two gas utilities that have announced a merger.
Coastal's stock price fell in January after the merger was announced, at which
time we increased the fund's stake in Coastal in order to acquire its stock at a
low price. Both stocks appreciated dramatically as the market began to reward
energy stocks, particularly those with heavy exposure to natural gas. We started
selling Coastal stock in April to lock in this price appreciation but continued
to hold El Paso, the surviving company of the merger, because we liked its
long-term prospects.
We added to our position in the financial sector late in the reporting
period. We believe that the Fed's rate hikes are near an end and that investors
will again become attracted to financial stocks. One of the largest additions to
the portfolio during the reporting period was PaineWebber. We think it has an
extremely attractive and thriving franchise that could be of takeover interest
to other firms in the consolidating brokerage industry. The fund's positions in
John Hancock and MetLife, both former mutual insurance companies that have
converted to public ownership, also did well.
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
highlights, please refer to page 6.
Q WHAT WERE SOME OF THE
DISAPPOINTMENTS IN THE PORTFOLIO?
A The single biggest disappointment
was Electronic Data Systems (EDS), the largest independent computer management
and services company in the United States. At the end of the reporting period,
EDS announced that its earnings would not meet Wall Street analysts'
expectations, and its stock price fell on the heels of this announcement. The
fund continued to hold EDS because we see a trend toward increased data
outsourcing on the part of corporate America, and we believe EDS is
well-positioned to capitalize on that trend.
We were also disappointed by the performance of Motorola, whose stock
performed poorly when the company was unable to realize expected profitability
in its cellular phone business. We sold a portion of the fund's position in
Motorola at the end of the first quarter and the remainder by the end of June.
The stock of Federated, a department store chain, also didn't meet our
expectations. Retail stocks in general have weakened as consumer spending has
slowed as a result of the Fed's rate hikes, but the fund continues to hold
Federated because we believe it
9
<PAGE> 11
is a solid business with future performance potential.
Q WHAT IS YOUR OUTLOOK FOR THE
FUND AND THE MARKET?
A We are more confident in our
outlook since the market's April correction. Valuations have fallen to what we
believe are more reasonable levels, particularly in the technology sector, and
it does not appear that the economy will slow enough to significantly influence
earnings. Interest rates appear to have stabilized, and we believe the Fed is
almost done with its rate hikes. We would expect that money that has been
waiting on the sidelines will return to the market as earnings growth continues
and investors see signs that the worst is behind them with respect to interest-
rate hikes.
As we have previously noted, the financial sector is an area that we expect
to benefit from lower rates going forward, and we have positioned the fund
according to that expectation. In addition, we expect to increase the fund's
exposure to technology as valuations in this sector have become more reasonable
and earnings growth is still strong relative to the rest of the market.
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.
CONVERTIBLE SECURITY: A security that can be exchanged for common stock at the
option of the security holder for a specified price or rate. Examples include
convertible bonds and convertible preferred stock.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
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.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
11
<PAGE> 13
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON AND PREFERRED STOCKS 67.5%
CONSUMER DISTRIBUTION 0.9%
Federated Department Stores, Inc. (a)..................... 484,400 $ 16,348,500
Mckesson Financing Trust--Convertible Preferred........... 200,000 7,175,000
--------------
23,523,500
--------------
CONSUMER NON-DURABLES 4.0%
Anheuser-Busch Cos., Inc. ................................ 250,700 18,724,156
Colgate-Palmolive Co. .................................... 321,760 19,265,380
Pepsi Bottling Group, Inc. ............................... 847,800 24,745,163
PepsiCo, Inc. ............................................ 517,600 23,000,850
Ralston-Ralston Purina Group.............................. 446,720 8,906,480
Whitman Corp.............................................. 526,200 6,511,725
--------------
101,153,754
--------------
CONSUMER SERVICES 2.6%
Aon Corp. ................................................ 318,000 9,877,875
Equifax, Inc. ............................................ 393,000 10,316,250
H & R Block, Inc. ........................................ 400,100 12,953,238
News Corp.--Exchange Trust, 144A--Convertible Preferred
(a) (b)................................................... 83,000 15,168,250
Sinclair Broadcast Group--Convertible Preferred........... 392,200 12,158,200
USA Networks, Inc. (a).................................... 258,000 5,579,250
--------------
66,053,063
--------------
ENERGY 5.9%
Burlington Resources, Inc. ............................... 564,000 21,573,000
Coastal Corp. ............................................ 259,000 15,766,625
Dynegy, Inc., Class A..................................... 388,300 26,525,744
El Paso Energy Corp. ..................................... 704,500 35,885,468
Halliburton Co. .......................................... 400,000 18,875,000
Texaco, Inc. ............................................. 582,400 31,012,800
--------------
149,638,637
--------------
FINANCE 14.4%
Allstate Corp. ........................................... 324,000 7,209,000
American Express Co. ..................................... 307,000 16,002,375
American General Corp. ................................... 235,600 14,371,600
AXA Financial, Inc. ...................................... 731,000 24,854,000
Bank of America Corp. .................................... 643,900 27,687,700
Bank of Tokyo-Mitsubishi, Ltd.--ADR (Japan)............... 1,225,800 14,862,825
Chase Manhattan Corp. .................................... 187,000 8,613,688
Chubb Corp. .............................................. 228,000 14,022,000
Citigroup, Inc. .......................................... 272,165 16,397,941
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FINANCE (CONTINUED)
Fannie Mae................................................ 381,000 $ 19,883,437
FleetBoston Financial Corp. .............................. 539,000 18,326,000
Franklin Resources, Inc. ................................. 496,000 15,066,000
Jefferson-Pilot Corp. .................................... 185,700 10,480,444
John Hancock Financial Services (a)....................... 716,000 16,960,250
Lincoln National Corp..................................... 414,000 14,955,750
Marsh & McLennan Cos., Inc. .............................. 249,200 26,025,825
Metlife Capital Trust I--Convertible Preferred (a)........ 225,000 15,567,187
Metlife, Inc. (a)......................................... 1,212,000 25,527,750
Paine Webber Group, Inc. ................................. 471,500 21,453,250
PNC Bank Corp. ........................................... 411,000 19,265,625
Washington Mutual, Inc. .................................. 458,000 13,224,750
WBK Trust, STRYPES--Convertible Preferred................. 201,000 6,633,000
--------------
367,390,397
--------------
HEALTHCARE 8.0%
American Home Products Corp. ............................. 361,000 21,208,750
Aventis, SA, Warrants--ADR (France) (a)................... 248,000 2,356,000
Baxter International, Inc. ............................... 288,000 20,250,000
Beckman Coulter, Inc. .................................... 246,600 14,395,275
Caremark Rx Capital Trust, 144A--Convertible Preferred (a)
(b)..................................................... 150,000 7,987,500
HCA-The Healthcare Corp. ................................. 783,800 23,807,925
Laboratory Corp., Ser A--Convertible Preferred............ 313,000 43,898,250
MedPartners, Inc., TAPS--Convertible Preferred (a)........ 867,000 7,748,813
Pharmacia Corp. .......................................... 754,136 38,979,404
Schering-Plough Corp...................................... 449,000 22,674,500
--------------
203,306,417
--------------
PRODUCER MANUFACTURING 4.7%
Honeywell International, Inc. ............................ 230,500 7,764,969
Ingersol Rand Co. ........................................ 535,060 21,536,165
Koninklijke Philips Electronics NV--ADR (Netherlands)..... 738,536 35,080,460
Lexmark International Group, Inc., Class A (a)............ 260,000 17,485,000
Minnesota Mining & Manufacturing Co. ..................... 470,100 38,783,250
--------------
120,649,844
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 6.5%
Exxon Mobil Corp. ........................................ 632,773 49,672,680
Fresenius National Med Care, Inc., Class D--Preferred
(a)..................................................... 12,000 348
Imperial Chemical Industries PLC--ADR (United Kingdom)
(a)..................................................... 293,000 9,028,063
International Paper Co. .................................. 89,400 2,665,238
Monsanto Co., ACES--Convertible Preferred................. 501,000 22,670,250
Pall Corp. ............................................... 634,200 11,732,700
Rohm & Haas Co. .......................................... 284,000 9,798,000
Schlumberger Ltd. ........................................ 216,000 16,119,000
Sealed Air Corp., Ser A--Convertible Preferred............ 250,000 12,656,250
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
Sherwin-Williams Co. ..................................... 564,000 $ 11,949,750
Transocean Sedco Forex, Inc. ............................. 359,297 19,199,933
--------------
165,492,212
--------------
TECHNOLOGY 12.9%
3Com Corp. (a)............................................ 176,000 10,142,000
Adobe Systems, Inc. ...................................... 110,400 14,352,000
Alcatel SA--ADR (France).................................. 213,900 14,224,350
Altera Corp. (a).......................................... 125,000 12,742,187
America Online, Inc. (a).................................. 154,000 8,123,500
BMC Software, Inc. (a).................................... 320,500 11,693,242
Boeing Co. ............................................... 396,800 16,591,200
Cadence Design Systems, Inc. (a).......................... 611,200 12,453,200
Cisco Systems, Inc. (a)................................... 131,800 8,377,538
Compaq Computer Corp. .................................... 653,000 16,692,312
Dell Computer Corp. (a)................................... 284,000 14,004,750
Electronic Data Systems Corp. ............................ 509,100 21,000,375
Electronics for Imaging, Inc. (a)......................... 532,100 13,468,781
EMC Corp. (a)............................................. 123,000 9,463,313
Hewlett-Packard Co. ...................................... 132,000 16,483,500
Intel Corp. .............................................. 66,800 8,930,325
Lucent Technologies, Inc. ................................ 199,000 11,790,750
Nippon Telegraph & Telephone Corp.--ADR (Japan)........... 329,600 22,536,400
Nortel Networks Corp. .................................... 332,600 22,699,950
Oracle Corp. (a).......................................... 207,200 17,417,750
Raytheon Co., Class B..................................... 673,400 12,962,950
SunGard Data Systems, Inc. (a)............................ 555,100 17,208,100
Texas Instruments, Inc. .................................. 132,480 9,099,720
VERITAS Software Corp. (a)................................ 62,400 7,052,175
--------------
329,510,368
--------------
UTILITIES 7.6%
BellSouth Corp. .......................................... 225,200 9,599,150
DQE, Inc. ................................................ 202,000 7,979,000
GTE Corp. (Acquired by Verizon Communications
as of 07/03/00)........................................... 469,600 29,232,600
Niagara Mohawk Holdings, Inc. (a)......................... 1,582,400 22,054,700
Northeast Utilities....................................... 1,574,959 34,255,358
NSTAR..................................................... 694,400 28,253,400
PECO Energy Co. .......................................... 270,400 10,900,500
Reliant Energy, Inc. ..................................... 429,000 12,682,313
SBC Communications, Inc. ................................. 426,300 18,437,475
Sprint Corp. ............................................. 382,450 19,504,950
Verizon Communications.................................... 12,000 616,470
--------------
193,515,916
--------------
TOTAL COMMON AND PREFERRED STOCKS 67.5%.............................. 1,720,234,108
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 9.8%
CONSUMER DISTRIBUTION 0.2%
$5,000 DaimlerChrysler North America Holding..... 8.000% 06/15/10 $ 5,094,830
--------------
CONSUMER DURABLES 0.5%
10,000 Ford Motor Credit Co. .................... 6.700 07/16/04 9,663,260
3,000 General Motors Corp. ..................... 7.000 06/15/03 2,982,552
--------------
12,645,812
--------------
CONSUMER NON-DURABLES 0.2%
5,000 Coca-Cola Enterprises, Inc. .............. 7.125 09/30/09 4,841,150
--------------
CONSUMER SERVICES 1.5%
10,000 Clear Channel Communications.............. 6.625 06/15/08 9,265,650
10,000 Cox Communications, Inc. ................. 7.250 11/15/15 9,491,660
5,000 Liberty Media Corp. ...................... 8.250 02/01/30 4,603,250
5,000 News America, Inc. ....................... 7.625 11/30/28 4,478,210
5,000 Viacom, Inc. ............................. 7.750 06/01/05 5,050,000
5,000 Walt Disney Co. .......................... 7.300 02/08/05 5,007,390
--------------
37,896,160
--------------
ENERGY 0.6%
5,000 Enron Corp. .............................. 8.375 05/23/05 5,160,195
5,500 Texas Eastern Transmission Corp. ......... 8.250 10/15/04 5,702,141
3,500 USX-Marathon Group........................ 6.650 02/01/06 3,329,081
2,000 Western Atlas, Inc. ...................... 7.875 06/15/04 2,045,366
--------------
16,236,783
--------------
FINANCE 1.9%
5,000 American Re Corp., Ser B.................. 7.450 12/15/26 4,588,905
4,599 APP Finance VII Mauritius Ltd.
(Mauritius)............................... 3.500 04/30/03 3,380,265
5,000 Avalonbay Communities, Inc. .............. 7.500 08/01/09 4,759,490
5,000 Countrywide Funding Corp. ................ 8.250 07/15/02 5,041,310
5,000 Finova Capital Corp. ..................... 7.625 09/21/09 4,179,445
5,000 Fleet Boston Financial Corp. ............. 6.875 01/15/28 4,274,415
2,000 General Electric Capital Corp. ........... 8.900 09/15/04 2,122,714
5,000 IBM Credit Corp. ......................... 6.450 11/12/02 4,916,950
5,000 Lehman Brothers, Inc. .................... 7.125 07/15/02 4,949,105
5,000 Paine Webber Group, Inc. ................. 6.375 05/15/04 4,723,920
5,000 Washington Mutual Capital I............... 8.375 06/01/27 4,462,035
--------------
47,398,554
--------------
PRODUCER MANUFACTURING 0.2%
1,500 Reliance Electric Co. .................... 6.800 04/15/03 1,494,797
6,000 USA Waste Services, Inc. ................. 7.000 07/15/28 4,648,608
--------------
6,143,405
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 1.4%
5,000 Conoco, Inc. ............................. 6.950 04/15/29 4,570,225
5,000 Crown Cork & Seal Finance PLC............. 7.000 12/15/06 4,276,410
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$5,000 Crown Cork & Seal, Inc. .................. 8.375% 01/15/05 $ 4,786,530
5,000 Georgia Pacific Corp. .................... 9.500 05/15/22 5,019,650
10,000 ICI North America, Inc. .................. 8.875 11/15/06 10,555,920
5,000 Rohm & Haas Co. .......................... 7.850 07/15/29 5,068,880
--------------
34,277,615
--------------
RETAIL 0.3%
4,500 Kroger Co. ............................... 7.250 06/01/09 4,254,876
4,000 May Department Stores Co. ................ 8.375 08/01/24 4,056,672
--------------
8,311,548
--------------
TECHNOLOGY 0.4%
10,000 Raytheon Co. ............................. 6.750 08/15/07 9,302,540
2,000 Sun Microsystems, Inc. ................... 7.000 08/15/02 1,989,990
--------------
11,292,530
--------------
TRANSPORTATION 0.4%
5,000 CSX Corp. ................................ 8.625 05/15/22 5,012,420
5,000 Delta Air Lines, Inc. .................... 6.650 03/15/04 4,664,555
--------------
9,676,975
--------------
UTILITIES 2.2%
5,000 360 Communications Co. ................... 7.125 03/01/03 4,974,610
10,000 Century Telephone Enterprises, Inc., Ser
F......................................... 6.300 01/15/08 8,869,110
5,000 Commonwealth Edison Co. .................. 8.000 05/15/08 5,075,700
4,500 Edison International, Inc................. 6.875 09/15/04 4,375,701
5,000 Illinois Power Co. ....................... 7.500 06/15/09 4,884,380
5,000 Niagara Mohawk Power Corp., Ser G......... 7.750 10/01/08 4,881,610
5,000 Public Service Co. of Colorado, Ser A..... 6.875 07/15/09 4,695,905
20,000 Sprint Capital Corp. ..................... 6.900 05/01/19 17,796,320
--------------
55,553,336
--------------
TOTAL CORPORATE OBLIGATIONS 9.8%..................................... 249,368,698
--------------
CONVERTIBLE CORPORATE OBLIGATIONS 8.5%
CONSUMER SERVICES 0.5%
11,979 Juniper Networks, Inc. (Convertible into
73,062 common shares)..................... 4.750 03/15/07 13,102,031
--------------
FINANCE 0.4%
13,401 APP Finance VII Mauritius, 144A
(Convertible into 780,120 common shares)
(Mauritius) (b)........................... 3.500 04/30/03 9,916,740
--------------
HEALTHCARE 3.5%
38,500 Alza Corp., LYON (Convertible into 500,000
common shares)............................ * 07/14/14 30,703,750
20,000 Dura Pharmaceuticals, Inc. (Convertible
into 394,984 common shares)............... 3.500 07/15/02 16,762,500
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
HEALTHCARE (CONTINUED)
$20,000 Omnicare, Inc. (Convertible into 505,060
common shares)............................ 5.000% 12/01/07 $ 13,900,000
43,500 Roche Holdings, Inc., LYON, 144A
(Convertible into 210,753 common
shares) (b)............................... * 04/20/10 22,891,875
6,670 Roche Holdings, Inc., LYON, 144A
(Convertible into 28,858 common
shares) (b)............................... * 01/19/15 5,977,987
--------------
90,236,112
--------------
TECHNOLOGY 2.6%
4,413 Bea Systems, Inc., 144A (Convertible into
127,359 common shares) (b)................ 4.000 12/15/06 6,969,319
22,000 DSC Communications Corp. (Convertible into
360,584 Alcatel SA common shares)......... 7.000 08/01/04 25,135,000
12,000 Hewlett Packard Co., LYON (Convertible
into 90,540 common shares)................ * 10/14/17 11,340,000
24,000 Hewlett Packard Co., LYON, 144A
(Convertible into 181,080 common shares)
(b)....................................... * 10/14/17 22,680,000
--------------
66,124,319
--------------
UTILITIES 1.5%
28,000 Telefonos de Mexico, SA (Convertible into
589,960 common shares) (Mexico)........... 4.250 06/15/04 37,555,000
--------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS 8.5%......................... 216,934,202
--------------
UNITED STATES OBLIGATIONS 8.3%
5,000 United States Treasury Notes.............. 5.750 04/30/03 4,922,050
4,250 United States Treasury Notes.............. 5.875 11/30/01 4,218,168
23,000 United States Treasury Notes (c).......... 5.875 02/15/04 22,690,949
4,000 United States Treasury Notes.............. 6.000 08/15/04 3,963,752
4,000 United States Treasury Bonds.............. 6.125 08/15/29 4,042,600
48,000 United States Treasury Notes (c).......... 6.250 10/31/01 47,850,000
22,000 United States Treasury Notes.............. 6.250 02/15/07 22,027,500
65,000 United States Treasury Notes.............. 6.625 05/31/02 65,264,095
1,500 United States Treasury Notes.............. 6.625 05/15/07 1,532,865
27,500 United States Treasury Bonds.............. 8.750 08/15/20 35,285,937
--------------
TOTAL UNITED STATES OBLIGATIONS....................................... 211,797,916
--------------
TOTAL LONG-TERM INVESTMENTS 94.1%
(Cost $2,087,311,054)............................................... 2,398,334,924
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS 4.1%
COMMERCIAL PAPER 2.0%
General Electric Capital Corp. ($50,000,000 par, yielding 4.568%,
07/03/00 maturity).................................................... $ 49,980,972
--------------
REPURCHASE AGREEMENT 1.7%
State Street Bank & Trust Co. ($44,336,000 par, collateralized by U.S.
Government obligations in a pooled cash account, dated 06/30/00, to be
sold on 07/03/00 at $44,359,831)...................................... 44,336,000
--------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 0.4%
Federal National Mortgage Association Discount Notes ($10,000,000 par,
yielding 6.701%, 12/14/00) (c)........................................ 9,701,200
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $104,018,172)................................................. $ 104,018,172
--------------
TOTAL INVESTMENTS 98.2%
(Cost $2,191,329,226)............................................... 2,502,353,096
FOREIGN CURRENCY 0.0%
(Cost $14,172)...................................................... 14,526
OTHER ASSETS IN EXCESS OF LIABILITIES 1.8%........................... 44,852,741
--------------
NET ASSETS 100.0%..................................................... $2,547,220,363
==============
</TABLE>
* Zero coupon bond
(a) Non-income producing security as this security currently does not declare
dividends or pay interest.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold
only in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(c) Assets segregated as collateral for open futures transactions.
ACES--Automatically Convertible Equity Securities
ADR--American Depositary Receipt
LYON--Liquid Yield Option Note
STRYPES--Structured Yield Product Exchangeable for Stock, traded in shares
TAPS--Threshold Appreciation Price Securities
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,191,329,226)..................... $2,502,353,096
Foreign Currency (Cost $14,172)............................. 14,526
Cash........................................................ 34,071
Receivables:
Fund Shares Sold.......................................... 28,391,015
Investments Sold.......................................... 22,950,738
Interest.................................................. 9,314,711
Dividends................................................. 1,434,707
Variation Margin on Futures............................... 239,875
Other....................................................... 105,966
--------------
Total Assets............................................ 2,564,838,705
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 9,335,452
Fund Shares Repurchased................................... 4,942,413
Distributor and Affiliates................................ 1,860,597
Investment Advisory Fee................................... 760,430
Capital Gain Distributions................................ 391,491
Trustees' Deferred Compensation and Retirement Plans........ 272,956
Accrued Expenses............................................ 55,003
--------------
Total Liabilities....................................... 17,618,342
--------------
NET ASSETS.................................................. $2,547,220,363
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $2,112,850,458
Net Unrealized Appreciation................................. 310,317,864
Accumulated Net Realized Gain............................... 120,108,356
Accumulated Undistributed Net Investment Income............. 3,943,685
--------------
NET ASSETS.................................................. $2,547,220,363
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,272,302,125 and 160,492,440 shares of
beneficial interest issued and outstanding)............. $ 7.93
Maximum sales charge (5.75%* of offering price)......... .48
--------------
Maximum offering price to public........................ $ 8.41
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $1,136,757,401 and 145,015,688 shares of
beneficial interest issued and outstanding)............. $ 7.84
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $138,160,837 and 17,597,741 shares of
beneficial interest issued and outstanding)............. $ 7.85
==============
</TABLE>
* On sales of $50,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
19
<PAGE> 21
Statement of Operations
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 23,523,506
Dividends (net of foreign withholding taxes of $87,633)..... 15,960,908
------------
Total Income............................................ 39,484,414
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,394,722, $5,647,157 and $627,716,
respectively)............................................. 7,669,595
Investment Advisory Fee..................................... 4,382,283
Shareholder Services........................................ 1,815,999
Trustees' Fees and Related Expenses......................... 63,924
Custody..................................................... 50,613
Legal....................................................... 40,889
Other....................................................... 565,382
------------
Total Expenses.......................................... 14,588,685
Less Credits Earned on Overnight Cash Balances.......... 1,073
------------
Net Expenses............................................ 14,587,612
------------
NET INVESTMENT INCOME....................................... $ 24,896,802
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $129,034,746
Futures................................................... 1,920,606
Foreign Currency Transactions............................. (64,999)
------------
Net Realized Gain........................................... 130,890,353
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 300,292,488
------------
End of the Period:
Investments............................................... 311,023,870
Futures................................................... (706,360)
Foreign Currency Translation.............................. 354
------------
310,317,864
------------
Net Unrealized Appreciation During the Period............... 10,025,376
------------
NET REALIZED AND UNREALIZED GAIN............................ $140,915,729
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $165,812,531
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
Statement of Changes in Net Assets
For the Six Months Ended June 30, 2000 and the Year Ended
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 24,896,802 $ 44,020,603
Net Realized Gain................................. 130,890,353 241,662,054
Net Unrealized Appreciation/Depreciation During
the Period...................................... 10,025,376 (77,977,281)
-------------- ---------------
Change in Net Assets from Operations.............. 165,812,531 207,705,376
-------------- ---------------
Distributions from Net Investment Income:
Class A Shares.................................. (12,557,131) (21,806,216)
Class B Shares.................................. (9,598,302) (19,796,994)
Class C Shares.................................. (947,400) (1,792,995)
-------------- ---------------
(23,102,833) (43,396,205)
-------------- ---------------
Distributions from Net Realized Gain:
Class A Shares.................................. (27,992,428) (95,603,166)
Class B Shares.................................. (28,363,272) (104,683,398)
Class C Shares.................................. (3,121,291) (10,744,825)
-------------- ---------------
(59,476,991) (211,031,389)
-------------- ---------------
Total Distributions............................... (82,579,824) (254,427,594)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES........................... 83,232,707 (46,722,218)
-------------- ---------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold......................... 488,620,138 1,758,232,318
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 73,411,702 224,331,373
Cost of Shares Repurchased........................ (435,673,682) (1,642,853,668)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............................ 126,358,158 339,710,023
-------------- ---------------
TOTAL INCREASE IN NET ASSETS...................... 209,590,865 292,987,805
NET ASSETS:
Beginning of the Period........................... 2,337,629,498 2,044,641,693
-------------- ---------------
End of the Period (Including accumulated
undistributed net investment income of
$3,943,685 and $2,149,716 respectively)......... $2,547,220,363 $ 2,337,629,498
============== ===============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES JUNE 30, -----------------------------------
2000 1999 1998 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.......................... $ 7.65 $ 7.82 $ 7.24 $ 6.74 $ 6.31
-------- -------- ------ ------ ------
Net Investment Income........... 0.10 0.18 0.17 0.15 0.16
Net Realized and Unrealized
Gain.......................... 0.47 0.57 1.03 1.44 0.79
-------- -------- ------ ------ ------
Total from Investment
Operations...................... 0.57 0.75 1.20 1.59 0.95
-------- -------- ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income...... 0.09 0.18 0.17 0.17 0.15
Distributions from Net
Realized Gain................. 0.20 0.74 0.45 0.92 0.37
-------- -------- ------ ------ ------
Total Distributions............... 0.29 0.92 0.62 1.09 0.52
-------- -------- ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD.......................... $ 7.93 $ 7.65 $ 7.82 $ 7.24 $ 6.74
======== ======== ====== ====== ======
Total Return (a).................. 7.61%** 9.95% 16.99% 24.13% 15.55%
Net Assets at End of the Period
(In millions)................... $1,272.3 $1,068.5 $808.5 $638.1 $471.8
Ratio of Expenses to Average Net
Assets (b)...................... .82% .82% .85% .86% .97%
Ratio of Net Investment Income to
Average Net Assets (b).......... 2.47% 2.43% 2.31% 2.09% 2.50%
Portfolio Turnover................ 34%** 81% 61% 86% 99%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 5.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a 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.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
** Non-Annualized
See Notes to Financial Statements
22
<PAGE> 24
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES JUNE 30, ------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $ 7.58 $ 7.77 $ 7.20 $ 6.71 $ 6.30
-------- -------- ------- ------ ------
Net Investment Income............ 0.07 0.13 0.12 0.10 0.11
Net Realized and Unrealized
Gain........................... 0.45 0.56 1.02 1.42 0.78
-------- -------- ------- ------ ------
Total from Investment Operations... 0.52 0.69 1.14 1.52 0.89
-------- -------- ------- ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... 0.06 0.13 0.12 0.11 0.11
Distributions from Net
Realized Gain.................. 0.20 0.75 0.45 0.92 0.37
-------- -------- ------- ------ ------
Total Distributions................ 0.26 0.88 0.57 1.03 0.48
-------- -------- ------- ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $ 7.84 $ 7.58 $ 7.77 $ 7.20 $ 6.71
======== ======== ======= ====== ======
Total Return (a)................... 6.87%** 9.19% 16.17% 23.23% 14.56%
Net Assets at End of the Period (In
millions)........................ $1,136.8 $1,148.9 $1,140.0 $908.7 $633.3
Ratio of Expenses to Average
Net Assets (b)................... 1.58% 1.58% 1.62% 1.64% 1.74%
Ratio of Net Investment Income to
Average Net Assets (b)........... 1.71% 1.67% 1.55% 1.32% 1.74%
Portfolio Turnover................. 34%** 81% 61% 86% 99%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 5%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
fifth year. If the sales charge was included, total returns would be lower.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
** Non-Annualized
See Notes to Financial Statements
23
<PAGE> 25
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES JUNE 30, ---------------------------------
2000 1999 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $ 7.58 $ 7.77 $ 7.20 $ 6.71 $ 6.30
------ ------ ------ ------ ------
Net Investment Income............ 0.07 0.13 0.12 0.10 0.11
Net Realized and Unrealized
Gain........................... 0.46 0.55 1.02 1.42 0.78
------ ------ ------ ------ ------
Total from Investment Operations... 0.53 0.68 1.14 1.52 0.89
------ ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... 0.06 0.13 0.12 0.11 0.11
Distributions from Net
Realized Gain.................. 0.20 0.74 0.45 0.92 0.37
------ ------ ------ ------ ------
Total Distributions................ 0.26 0.87 0.57 1.03 0.48
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $ 7.85 $ 7.58 $ 7.77 $ 7.20 $ 6.71
====== ====== ====== ====== ======
Total Return (a)................... 7.01%** 9.19% 16.17% 23.23% 14.56%
Net Assets at End of the Period (In
millions)........................ $138.2 $120.2 $ 96.1 $ 75.8 $ 55.2
Ratio of Expenses to Average Net
Assets (b)....................... 1.58% 1.58% 1.62% 1.64% 1.74%
Ratio of Net Investment Income to
Average Net Assets (b)........... 1.71% 1.67% 1.55% 1.32% 1.73%
Portfolio Turnover................. 34%** 81% 61% 86% 99%
</TABLE>
(a) 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.
(b) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
** Non-Annualized
See Notes to Financial Statements
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Equity Income 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 the highest possible income consistent with safety of
principal by investing primarily in income-producing equity instruments and
other debt securities issued by a wide group of companies in many different
industries. The Fund commenced investment operations on August 3, 1960. The
distribution of the Fund's Class B and Class C Shares commenced on May 1, 1992
and July 6, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the mean of the bid and asked prices. Fixed income
investments are stated at value using market quotations or indications of value
obtained from an independent pricing service. For those securities where
quotations or prices are not available, valuations are determined in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such security only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue 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 gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses for tax purposes
relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $2,194,807,058, the aggregate gross unrealized
appreciation is $402,699,116 and the aggregate gross unrealized depreciation is
$95,167,250, resulting in net unrealized appreciation on long- and short-term
investments of $307,531,866.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
quarterly from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
F. FOREIGN CURRENCY TRANSLATION The market values of foreign securities, forward
currency exchange contracts and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars based on quoted exchange rates
as of noon Eastern Standard Time. The cost of securities is determined using
historical exchange rates. Income and expenses are translated at prevailing
exchange rates when accrued or incurred. Gains and losses on the sale of
securities are not segregated for financial reporting purposes between amounts
arising from changes in exchange rates and amounts arising from changes in the
market prices of securities. Realized gain and loss on foreign currency includes
the net realized amount from the sale of currency and the amount realized
between trade date and settlement date on security transactions.
G. EXPENSE REDUCTIONS During the six months ended June 30, 2000, the Fund's
custody fee was reduced by $1,073 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $150 million.......................................... .50 of 1%
Next $100 million........................................... .45 of 1%
Next $100 million........................................... .40 of 1%
Over $350 million........................................... .35 of 1%
</TABLE>
For the six months ended June 30, 2000, the Fund recognized expenses of
approximately $40,900 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 six months ended June 30, 2000, the Fund recognized expenses of
approximately $58,700 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended June 30,
2000, the Fund recognized expenses of approximately $1,403,700. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At June 30, 2000, capital aggregated $1,067,694,436, $925,865,491 and
$119,290,531 for Classes A, B, and C, respectively. For the six months ended
June 30, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A.............................................. 37,165,890 $ 289,804,609
Class B.............................................. 22,122,816 170,731,403
Class C.............................................. 3,626,502 28,084,126
------------ -------------
Total Sales............................................ 62,915,208 $ 488,620,138
============ =============
Dividend Reinvestment:
Class A.............................................. 4,593,207 $ 36,066,961
Class B.............................................. 4,367,857 33,897,305
Class C.............................................. 443,622 3,447,436
------------ -------------
Total Dividend Reinvestment............................ 9,404,686 $ 73,411,702
============ =============
Repurchases:
Class A.............................................. (21,003,703) $(163,081,947)
Class B.............................................. (33,088,830) (254,599,233)
Class C.............................................. (2,339,185) (17,992,502)
------------ -------------
Total Repurchases...................................... (56,431,718) $(435,673,682)
============ =============
</TABLE>
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
At December 31, 1999, capital aggregated $904,904,813, $975,836,016 and
$105,751,471 for Classes A, B, and C, respectively. For the year ended December
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................ 184,426,601 $ 1,454,879,523
Class B............................................ 33,847,881 264,613,375
Class C............................................ 4,962,745 38,739,420
------------ ---------------
Total Sales.......................................... 223,237,227 $ 1,758,232,318
============ ===============
Dividend Reinvestment:
Class A............................................ 13,293,568 $ 100,260,988
Class B............................................ 15,199,440 113,479,642
Class C............................................ 1,419,166 10,590,743
------------ ---------------
Total Dividend Reinvestment.......................... 29,912,174 $ 224,331,373
============ ===============
Class A............................................ (161,372,353) $(1,274,308,351)
Class B............................................ (44,226,967) (345,951,749)
Class C............................................ (2,892,930) (22,593,568)
------------ ---------------
Total Repurchases.................................... (208,492,250) $(1,642,853,668)
============ ===============
</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 plan Class B Shares
received on such shares, automatically convert to Class A Shares eight years
after the end of the calendar month in which the shares were purchased. Class B
Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
Shares received on such shares, automatically convert to Class A Shares six
years after the end of the calendar month in which the shares were purchased.
For the six months ended June 30, 2000 and the year ended December 31, 1999,
13,034,722 and 16,169,173 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 Class C Shares received on such shares,
automatically convert to Class A Shares ten years after the end of the calendar
month in which such shares were purchased. Class C Shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the six months ended
June 30, 2000 and the year ended December 31, 1999, no Class C Shares converted
to Class A Shares. The CDSC will be imposed on most redemptions made within five
years of the purchase for
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
Class B Shares and one year of the purchase for Class C Shares as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 5.00% 1.00%
Second..................................................... 4.00% None
Third...................................................... 3.00% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth and Thereafter....................................... None None
</TABLE>
For the six months ended June 30, 2000, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $461,700 and CDSC on redeemed shares of approximately $1,074,600.
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 $930,540,303 and $758,564,259,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or to generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when exercising a call
option contract or taking delivery of a security underlying a futures contract.
In these instances, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
30
<PAGE> 32
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing or selling specific
securities. During the six months ended June 30, 2000, the Fund did not invest
in option contracts.
B. FUTURES CONTRACTS 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. 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 June 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at December 31, 1999............................ 155
Futures Opened.............................................. 565
Futures Closed.............................................. (625)
----
Outstanding at June 30, 2000................................ 95
====
</TABLE>
The futures contracts outstanding at June 30, 2000, and the description and
unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
Long Contracts--Sep 2000 S&P 500 Index Futures (Current
Notional Value of $367,025 per contract).................. 95 $(706,360)
== =========
</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
31
<PAGE> 33
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
plan (collectively the "Plans"). The Plans govern payments for the distribution
of the Fund's shares, ongoing shareholder services and maintenance of
shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 2000, are payments retained by Van Kampen of
approximately $4,538,100.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, entered 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 facility meets or exceeds $650 million on a complex-wide basis,
each Fund will be limited to its pro-rata percentage based on the net assets of
each participating fund. Interest on borrowings is charged under the agreement
at a rate of 0.50% above the federal funds rate per annum. An annual commitment
fee of 0.09% per annum is charged on the unused portion of the credit facility,
which each Fund incurs based on its pro-rata percentage of quarterly net assets.
The Fund did not borrow against the credit facility during the period.
32
<PAGE> 34
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN EQUITY INCOME 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 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.
PricewaterhouseCoopers LLP has ceased being the Fund's independent auditors
effective May 18, 2000. The cessation of the client-auditor relationship
between the Fund and PricewaterhouseCoopers was based solely on a possible
future business relationship by PricewaterhouseCoopers with an affiliate of
the Fund's Investment Adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other pertinent
data. After December 31, 2000, the report, if used with prospective investors,
must be accompanied by a quarterly performance update, if applicable.
33
