<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 25
Report of Independent Accountants................ 33
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder:
As we enter a new century--and millennium--it seems appropriate to take a
look back at the progress that's been made over the last 100 years and how the
world of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Some that have stood the test of time include:
- INVESTING FOR THE LONG-TERM
- BASING INVESTMENT DECISIONS ON SOUND RESEARCH
- BUILDING A DIVERSIFIED PORTFOLIO
- BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE
While no one can predict the future, at Van Kampen we believe that these
ideas will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
[SIG.]
Richard F. Powers, III
Chairman
Van Kampen Asset Management Inc.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
The nation's brisk rate of economic growth continued throughout 1999,
bringing the United States to the verge of its longest economic expansion on
record. High levels of consumer spending, a host of new jobs, and increasing
productivity kept the economy strong. Gross domestic product, the primary
measure of economic growth, increased 4.2 percent for the year, including an
impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent
in the fourth quarter.
EMPLOYMENT
The job market remained vibrant throughout the year, with more than 2.7
million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1
percent in October--its lowest rate in three decades. With jobs plentiful and
wages on the rise, most Americans were optimistic about the future. At the end
of the year the consumer confidence index hit its highest level since 1968.
Although wage pressures caused some concerns about the potential erosion of
corporate profits, productivity gains helped keep those concerns muted through
the end of the year.
INFLATION AND INTEREST RATES
Although the Consumer Price Index continued to reflect historically low
inflation--rising only 2.7 percent during 1999--concerns about future increases
in inflation were prevalent throughout the reporting period. The Federal Reserve
Board remained active in guarding against inflation and trying to temper
economic growth. The Fed reversed its three interest-rate cuts from the fall of
1998 by raising rates in June, August, and November 1999.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Fourth Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4.0
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.7
99Q4 5.8
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999
VAN KAMPEN EQUITY INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... 9.95% 9.19% 9.19%
One-year total return(2)................. 3.59% 4.31% 8.21%
Five-year average annual total
return(2)................................ 18.21% 18.53% 18.69%
Ten-year average annual total
return(2)................................ 13.37% N/A N/A
Life-of-Fund average annual total
return(2)................................ 11.42% 14.93% 15.03%
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 A shares) or contingent
deferred sales charge for early withdrawal (5% for B shares and 1% for C
shares). If the sales charge was included, total return would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
See the Comparative Performance section of the current prospectus. An investment
should be made with an understanding of the risks that an investment in equity
securities entails. These include the risk that the financial condition of the
issuers of the securities in the portfolio, or the condition of the stock market
in general, may worsen and therefore, the value of Fund shares may decline. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
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.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Standard
& Poor's 500 Index and the Russell 1000 Value Index* over time. These indexes
are broad-based, statistical composites that do 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 these indices. An investment cannot be
made directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Equity Income Fund vs. the Standard & Poor's 500 Index and the
Russell 1000 Value Index* (December 31, 1989, through December 31, 1999)
- -----------------------------------
Fund's Total Return
1 Year Avg. Annual = 3.59%
5 Year Avg. Annual = 18.21%
10 Year Avg. Annual = 13.37%
Inception Avg. Annual = 11.42%
- -----------------------------------
[INVESTMENT PERFORMANCE CHART]
<TABLE>
<CAPTION>
VAN KAMPEN EQUITY INCOME
FUND STANDARD & POOR'S 500 INDEX RUSSELL 1000 VALUE INDEX*
------------------------ --------------------------- -------------------------
<S> <C> <C> <C>
Dec1989 9432.00 10000.00 10000.00
8989.00 9312.00 9374.00
9095.00 9391.00 9605.00
9272.00 9698.00 9704.00
9037.00 9437.00 9326.00
9678.00 10305.00 10108.00
9708.00 10305.00 9876.00
9577.00 10251.00 9791.00
8899.00 9284.00 8931.00
8523.00 8895.00 8506.00
8456.00 8836.00 8386.00
8812.00 9365.00 8970.00
Dec1990 8990.00 9689.00 9195.00
9260.00 10091.00 9607.00
9709.00 10770.00 10247.00
9912.00 11091.00 10397.00
9935.00 11095.00 10474.00
10253.00 11523.00 10871.00
9933.00 11066.00 10414.00
10347.00 11563.00 10848.00
10622.00 11790.00 11047.00
10623.00 11658.00 10964.00
10809.00 11796.00 11148.00
10554.00 11278.00 10576.00
Dec1991 11388.00 12628.00 11463.00
11317.00 12376.00 11478.00
11506.00 12495.00 11758.00
11317.00 12310.00 11588.00
11531.00 12653.00 12086.00
11698.00 12666.00 12146.00
11578.00 12545.00 12071.00
11964.00 13038.00 12536.00
11867.00 12726.00 12153.00
12012.00 12940.00 12321.00
12060.00 12967.00 12332.00
12376.00 13359.00 12738.00
Dec1992 12609.00 13588.00 13041.00
12903.00 13684.00 13420.00
13099.00 13828.00 13894.00
13431.00 14180.00 14300.00
13208.00 13820.00 14117.00
13382.00 14133.00 14401.00
13588.00 14247.00 14717.00
13713.00 14171.00 14880.00
14164.00 14659.00 15417.00
14295.00 14614.00 15442.00
14472.00 14897.00 15431.00
14245.00 14705.00 15113.00
Dec1993 14627.00 14952.00 15398.00
15075.00 15438.00 15981.00
14680.00 14974.00 15431.00
14116.00 14390.00 14856.00
14250.00 14555.00 15147.00
14330.00 14736.00 15323.00
14065.00 14451.00 14956.00
14442.00 14906.00 15420.00
14873.00 15467.00 15863.00
14608.00 15157.00 15350.00
14716.00 15474.00 15565.00
14227.00 14863.00 14937.00
Dec1994 14337.00 15155.00 15104.00
14753.00 15523.00 15569.00
15226.00 16083.00 16184.00
15545.00 16626.00 16535.00
15909.00 17091.00 17058.00
16498.00 17711.00 17775.00
16812.00 18208.00 18016.00
17348.00 18786.00 18646.00
17433.00 18780.00 18909.00
17918.00 19650.00 19593.00
17776.00 19552.00 19399.00
18571.00 20355.00 20381.00
Dec1995 19010.00 20829.00 20888.00
19371.00 21509.00 21543.00
19401.00 21658.00 21708.00
19673.00 21946.00 22079.00
19673.00 22241.00 22168.00
20009.00 22749.00 22448.00
20025.00 22929.00 22466.00
19256.00 21880.00 21617.00
19779.00 22291.00 22236.00
20471.00 23632.00 23118.00
20903.00 24249.00 24012.00
22202.00 26029.00 25753.00
Dec1996 21966.00 25599.00 25423.00
22748.00 27169.00 26656.00
22976.00 27330.00 27048.00
22304.00 26290.00 26076.00
23037.00 27826.00 27170.00
24368.00 29456.00 28692.00
25184.00 30870.00 29921.00
26990.00 33282.00 32178.00
25853.00 31370.00 31033.00
27040.00 33179.00 32906.00
26369.00 32035.00 31987.00
26872.00 33463.00 33400.00
Dec1997 27267.00 34128.00 34371.00
27417.00 34474.00 33886.00
28848.00 36903.00 36168.00
30214.00 38878.00 38380.00
30405.00 39231.00 38637.00
30328.00 38493.00 38064.00
30809.00 40158.00 38545.00
30425.00 39692.00 37867.00
27548.00 33905.00 32230.00
28373.00 36171.00 34083.00
29761.00 39076.00 36723.00
31033.00 41386.00 38428.00
Dec1998 31900.00 43861.00 39735.00
31859.00 45660.00 40052.00
30839.00 44186.00 39487.00
31144.00 46043.00 40304.00
32801.00 47790.00 44071.00
32966.00 46597.00 43589.00
33981.00 49283.00 44863.00
33607.00 47704.00 43550.00
33108.00 47406.00 41933.00
32210.00 46212.00 40470.00
33797.00 49102.00 42738.00
34340.00 50038.00 42465.00
Dec1999 35074.00 53078.00 42665.00
</TABLE>
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 A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
* Since Lipper Analytical Services has reclassified how it categorizes its
indices, we will no longer be using Lipper comparisons because we believe the
new system is less applicable. As a result, the Lipper Equity Income Fund
Index will not appear in this or future reports. In its place, we have
included the Russell 1000 Value Index, a second index that we believe
represents an additional point of comparison for the Fund. The Russell 1000
Value Index measures the performance of 1,000 companies with lower
price-to-book ratios and lower forecasted growth values.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN EQUITY INCOME FUND
We recently spoke with representatives of the adviser of the Van Kampen Equity
Income Fund about the key events and economic forces that shaped the markets
during the Fund's fiscal year. The representatives are led by James A. Gilligan,
portfolio manager, who has managed the Fund since January 1990 and worked in the
investment industry since 1985. He is joined by Scott A. Carroll and James O.
Roeder, portfolio managers, and Stephen L. Boyd, chief investment officer for
equity investments. The following discussion reflects their views on the Fund's
performance during the 12-month period ended December 31, 1999.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED?
A The stock market celebrated a historic year, with the Dow Jones Industrial
Average and the Standard & Poor's 500 Index up 27.2 percent and 21.0
percent, respectively. This performance capped an equally spectacular
decade for the market, with 10-year cumulative returns of 439.3 percent and
430.8 percent, respectively, for the two indices. After a somewhat slow start,
the equity market--led by growth and particularly technology stocks--began its
ascent in earnest at the end of the first quarter. In April, value stocks
briefly took center stage, but investors soon renewed their interest in growth.
The end result was a significant disparity between the average return of growth
and value stocks for the reporting period, as demonstrated by the 33.2 percent
return for the Russell 1000 Growth Index versus the 7.4 percent return for the
Russell 1000 Value Index.
Although interest rates rose sharply throughout the year, the increases
caused only brief stock market corrections in July and October. Even as fears of
additional rate increases by the Federal Reserve Board continued through the end
of the period, the stock market was relatively unaffected; the economic strength
that triggered higher rates failed to cause any appreciable increase in the rate
of inflation.
Q WHAT WAS YOUR STRATEGY FOR MANAGING THE FUND IN THIS ENVIRONMENT?
A In seeking value investments, we continued to focus on companies that we
believed were underappreciated by the market and demonstrated a catalyst
for positive change. At the same time, we monitored the portfolio for
existing holdings that no longer appeared to meet our value criteria. For
example, we decreased or eliminated some of the Fund's holdings in the
technology area when we believed they had become overvalued or showed signs of
disappointing earnings. Throughout the year, we reduced the Fund's substantial
position in IBM because of concerns that Year 2000 computer problems would
weaken mainframe sales. In October, IBM announced an earnings shortfall, so we
sold the remaining shares.
We pursued a similar strategy with Adobe and Oracle, two top contributors to
the Fund's performance. We initially purchased shares of these leading companies
because
5
<PAGE> 7
they were selling at historically low values. After their shares appreciated
significantly, we gradually began reducing these holdings, while maintaining
positions in each company at the end of the reporting period.
Despite these reductions, technology stocks contributed heavily to the
Fund's return and comprised the largest sector in the Fund at the end of the
period. This heightened profile was primarily due to price appreciation among
the Fund's existing technology stocks, although we added new positions in
companies such as Alcatel, Nortel, and Hewlett Packard. Of course, not all the
stocks in the portfolio performed as favorably, and there is no guarantee that
any of these stocks will perform as well or continue to be owned by the Fund in
the future.
Q IN WHAT OTHER AREAS DID YOU SEARCH FOR VALUE?
A We looked to the utilities and consumer nondurables sectors, both of which
trailed the technology sector but experienced favorable returns relative
to other value stocks. Within the utilities sector, we sought to take
advantage of opportunities in the deregulated energy market. For example, we
added to the Fund's position in Illinova, an electric utility company,
immediately after it announced a merger with Dynegy, a large energy trading
company. Overall, this sector contributed moderately to the Fund's return.
Within the consumer nondurables sector, we added a position in Proctor and
Gamble because of its prospects for accelerated revenues and earnings growth.
This stock performed well, as did Colgate-Palmolive, which announced
better-than-expected earnings in the second half of the year. However, the
Fund's gains in this sector were overshadowed by its position in Philip Morris,
which continued to suffer from legal difficulties. We also continued to monitor
the progress of bottling companies added to the portfolio early in the year. To
date, these holdings have not met our expectations for appreciation, although
they have met several of our fundamental objectives.
Q WERE THERE ANY OTHER DISAPPOINTMENTS IN THE PORTFOLIO?
A One of the biggest disappointments was the performance of HMO stocks.
Halfway through the Fund's fiscal year, we believed that HMO stocks were
due to emerge from a long period of underperformance, as customer rate
increases promised to outweigh projected cost increases. This belief was
confirmed as holdings in this sector performed well going into the summer.
However, the threat of legislation to increase the liability of HMOs and the
announcement of class-action lawsuits late in the period caused us to reevaluate
holdings in Aetna and United HealthCare. As a result, we sold all of Aetna and
more than half of the Fund's position in United HealthCare in the second half of
the reporting period.
The financial sector also turned in poor returns because of rising interest
rates and earnings deceleration. Regional banks such as FleetBoston Financial
were weak, as were larger banks such as Bank of America. Not all financial
stocks were disappointing, however. We added to Citigroup, which did well
relative to the sector, and enjoyed positive performance from Marsh & McLennan.
6
<PAGE> 8
In addition to our mixed results in these areas, the portfolio's allocation
to bonds continued to drag the Fund's return. Due to concerns about rising
interest rates, we slightly decreased the Fund's exposure to the depressed
fixed-income market. Despite the effects of higher rates, the Fund's holdings in
convertible securities contributed positively to its performance. The most
significant contributors were BEA Systems, Laboratory Corporation of America,
and Telefonos de Mexico. For additional Fund portfolio highlights, please refer
to page 9.
Q TAKING EVERYTHING INTO CONSIDERATION, HOW DID THE FUND PERFORM DURING THE
FISCAL YEAR?
A Although the majority of the stock market did not participate in the rally
that lifted the technology sector, our holdings in technology and other
carefully chosen value stocks boosted the Fund's return during the fiscal
year. As a result, the Fund achieved a total return of 9.95 percent(1) (Class A
shares at net asset value) for the 12-month period ended December 31, 1999. By
comparison, the Standard & Poor's 500 Index returned 21.01 percent, and the
Russell 1000 Value Index, which most closely resembles the Fund, returned 7.35
percent for the same period.*
The S&P 500 Index is an unmanaged, broad-based index that 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
indices do not reflect any commissions or fees that would be paid by an investor
purchasing the securities they represent. Such costs would lower the performance
of the indices. An investment cannot be made directly in an index. Of course,
past performance is no guarantee of comparable future results. Please refer to
the chart and footnotes on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKET?
A We expect this challenging market environment to continue in the short
term, as investors wait to see what effect higher rates will have on
corporate profits and stock valuations. Although we foresee a continuation
of the rising interest-rate environment, we look for interest rates to stabilize
eventually, bringing some relief to the market in general and providing
opportunities for bonds and struggling stock sectors such as finance and
utilities to recover. Ultimately, our hope is that value stocks are able to
catch up to the narrow band of growth stocks currently dominating the market. In
this scenario, we believe our bottom-up analysis and disciplined value criteria
will help us uncover fresh investment opportunities for the Equity Income Fund.
- ---------------
* Since Lipper Analytical Services has reclassified how it categorizes its
indices, we will no longer be using Lipper comparisons because we believe the
new system is less applicable. As a result, the Lipper Equity Income Fund Index
will not appear in this or future reports. In its place, we have included the
Russell 1000 Value Index, a second index that we believe represents an
additional point of comparison for the Fund.
7
<PAGE> 9
GLOSSARY OF TERMS
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.
DEREGULATION: The process of allowing utility companies to engage in open
competition to offer customers new and expanded services, as ushered in by
revised state legislation.
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.
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.
GROWTH INVESTING: An investment strategy that seeks to identify stocks that tend
to offer greater-than-average earnings growth. Growth stocks typically trade
at higher prices relative to their earnings than value stocks, due to their
higher expected earnings growth.
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.
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 the value that value investors
believe they are actually worth.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN EQUITY INCOME FUND
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1999*
<TABLE>
<S> <C>
EXXON MOBIL is a worldwide leader in the petroleum and
petrochemicals business..................................... 2.4%
U.S. TREASURY NOTES, 6.25% coupon, 10/31/01 maturity........ 2.3%
MINNESOTA MINING AND MANUFACTURING (3M) manufactures a
variety of industrial, consumer, and medical products....... 2.1%
TELEFONOS DE MEXICO provides telecommunications services to
domestic and international telephone users in Mexico........ 2.0%
U.S. TREASURY BONDS......................................... 1.6%
NORTHEAST UTILITIES, an electric utility holding company,
provides electrical service to Connecticut, New Hampshire,
and western Massachusetts................................... 1.6%
GTE provides local, long-distance; and wireless telephone
service, as well as internetworking capabilities to both
consumers and large companies............................... 1.4%
NSTAR, the result of a merger between BEC Energy and
Commonwealth Energy System, provides electricity and gas to
customers in Massachusetts.................................. 1.4%
EL PASO ENERGY owns and operates an integrated natural gas
system with natural gas pipelines across the United
States...................................................... 1.3%
KONINKLIJKE PHILIPS ELECTRONICS makes televisions, audio
equipment, VCRs, CD players, phones, pagers, and other
electronic devices.......................................... 1.3%
</TABLE>
TOP FIVE PORTFOLIO INDUSTRIES*
[GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Technology 17.90 12.30
Utilities 15.80 15.30
Finance 14.10 13.80
Health Care 11.10 14.20
Raw Materials/Processing Industries 9.90 6.00
</TABLE>
* As a percentage of long-term investments
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 65.3%
CONSUMER DISTRIBUTION 0.8%
Federated Department Stores, Inc. (a)............. 374,700 $ 18,945,769
--------------
CONSUMER NON-DURABLES 6.8%
Anheuser-Busch Cos., Inc.......................... 233,400 16,542,225
Benckiser NV, Class B -- ADR (Netherlands) (a).... 173,500 6,766,500
Colgate-Palmolive Co. ............................ 314,360 20,433,400
Nabisco Holdings Corp., Class A................... 117,800 3,725,425
Pepsi Bottling Group, Inc......................... 1,062,600 17,599,312
PepsiCo, Inc. .................................... 517,600 18,245,400
Philip Morris Cos., Inc. ......................... 63,400 1,470,088
Procter & Gamble Co. ............................. 140,700 15,415,444
Ralston Purina Group.............................. 668,400 18,631,650
Seagram Co., Ltd. -- ADR (Canada)................. 239,000 10,740,062
Seagram Co., Ltd. -- Convertible Preferred -- ADR 325,000 14,625,000
(Canada)........................................
Unilever NV -- ADR (Netherlands).................. 91,000 4,953,813
Whitman Corp. .................................... 691,100 9,286,656
--------------
158,434,975
--------------
CONSUMER SERVICES 1.1%
Aon Corp.......................................... 268,000 10,720,000
News Corp. -- Exchange Trust, 144A -- Convertible 83,000 11,879,375
Preferred (b).....................................
Sinclair Broadcast Group -- Convertible 82,000 2,875,125
Preferred.......................................
--------------
25,474,500
--------------
ENERGY 4.7%
Burlington Resources, Inc. ....................... 314,000 10,381,625
Coastal Corp. .................................... 517,200 18,328,275
Consolidated Edison, Inc. ........................ 453,380 15,641,610
El Paso Energy Corp. ............................. 704,500 27,343,407
Royal Dutch Petroleum Co. -- ADR (Netherlands).... 310,700 18,777,931
Texaco, Inc. ..................................... 378,800 20,573,575
--------------
111,046,423
--------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 9.4%
American General Corp. ........................... 263,000 $ 19,955,125
AXA Financial, Inc. .............................. 782,000 26,490,250
Bank of Tokyo-Mitsubishi, Ltd. -- ADR (Japan)..... 1,225,800 17,084,587
BankAmerica Corp. ................................ 212,200 10,649,787
Citigroup, Inc. .................................. 347,665 19,317,137
Fannie Mae........................................ 313,000 19,542,937
FleetBoston Financial Corp........................ 639,900 22,276,519
Franklin Resources, Inc........................... 100,000 3,206,250
Jefferson-Pilot Corp. ............................ 210,800 14,387,100
Lincoln National Corp. ........................... 227,000 9,080,000
Marsh & McLennan Cos., Inc. ...................... 224,200 21,453,137
MBIA, Inc. ....................................... 186,000 9,823,125
U.S. Bancorp...................................... 63,000 1,500,188
Wachovia Corp. ................................... 42,400 2,883,200
Washington Mutual, Inc. .......................... 607,260 15,788,760
WBK Trust, STRYPES -- Convertible Preferred....... 201,000 6,444,563
--------------
219,882,665
--------------
HEALTHCARE 7.4%
American Home Products Corp. ..................... 551,000 21,730,062
Aventis, SA, Warrants -- ADR (France) (a)......... 248,000 1,271,000
Beckman Coulter, Inc. ............................ 326,800 16,625,950
Bristol-Myers Squibb Co. ......................... 181,400 11,643,612
Caremark Rx Capital Trust, 144A -- Convertible 150,000 6,318,750
Preferred (a) (b)...............................
Columbia/HCA Healthcare Corp. .................... 848,300 24,865,794
IMS Health, Inc. ................................. 223,600 6,079,125
Laboratory Corp., Ser A -- Convertible 313,000 21,597,000
Preferred.......................................
Lincare Holdings, Inc. (a)........................ 259,000 8,984,063
MedPartners, Inc., TAPS -- Convertible 867,000 6,881,813
Preferred.......................................
Oxford Health Plans, Inc. (a)..................... 134,000 1,700,125
Pharmacia & Upjohn, Inc. ......................... 265,720 11,957,400
United HealthCare Corp. .......................... 143,290 7,612,281
Warner-Lambert Co. ............................... 326,400 26,744,400
--------------
174,011,375
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 5.2%
Fluor Corp. ...................................... 91,000 $ 4,174,625
Honeywell International, Inc. .................... 192,500 11,104,844
Ingersol Rand Co. ................................ 313,060 17,237,866
Koninklijke Philips Electronics NV -- ADR 200,384 27,051,840
(Netherlands)...................................
Lexmark International Group, Inc., Class A (a).... 194,000 17,557,000
Minnesota Mining & Manufacturing Co. ............. 445,100 43,564,162
--------------
120,690,337
--------------
RAW MATERIALS / PROCESSING INDUSTRIES 7.7%
Boise Cascade Corp. .............................. 261,140 10,576,170
Exxon Mobil Corp. ................................ 622,773 50,172,150
Fresenius National Med Care, Inc., Class D -- 12,000 120
Preferred (a)...................................
Imperial Chemical Industries PLC -- ADR (United 293,000 12,470,812
Kingdom)........................................
International Paper Co. .......................... 299,100 16,880,456
Monsanto Co. ..................................... 301,900 10,755,188
Monsanto Co., ACES -- Convertible Preferred....... 501,000 16,595,625
Newmont Mining Corp. ............................. 295,000 7,227,500
Pall Corp. ....................................... 584,200 12,596,812
Schlumberger Ltd. ................................ 141,000 7,931,250
Sherwin-Williams Co. ............................. 564,000 11,844,000
Tosco Corp. ...................................... 259,000 7,041,563
Transocean Sedco Forex, Inc. ..................... 27,298 919,588
USX -- U.S. Steel Group........................... 437,400 14,434,200
--------------
179,445,434
--------------
TECHNOLOGY 12.8%
Adobe Systems, Inc................................ 176,400 11,862,900
Alcatel SA -- ADR (France)........................ 426,900 19,210,500
Altera Corp. (a).................................. 156,600 7,761,487
Boeing Co. ....................................... 430,800 17,905,125
Cadence Design Systems, Inc. (a).................. 557,700 13,384,800
Cisco Systems, Inc. (a)........................... 79,400 8,505,725
Dell Computer Corp. (a)........................... 135,000 6,885,000
Electronic Data Systems Corp. .................... 216,100 14,465,194
EMC Corp. (a)..................................... 90,000 9,832,500
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Hewlett-Packard Co. .............................. 111,000 $ 12,647,062
Intel Corp. ...................................... 142,800 11,754,225
J.D. Edwards & Co. (a)............................ 161,500 4,824,813
Microsoft Corp. (a)............................... 60,000 7,005,000
Motorola, Inc. ................................... 177,300 26,107,425
Nippon Telegraph & Telephone Corp. -- ADR 305,400 26,302,575
(Japan).........................................
Nortel Networks Corp. ............................ 223,300 22,553,300
Oracle Corp. (a).................................. 219,100 24,552,894
SAP AG -- ADR (Germany) (a)....................... 85,000 4,425,313
Sun Microsystems, Inc. (a)........................ 86,600 6,706,088
SunGard Data Systems, Inc. (a).................... 555,100 13,183,625
Texas Instruments, Inc. .......................... 202,740 19,640,437
Xilinx, Inc. (a).................................. 200,400 9,111,937
--------------
298,627,925
--------------
UTILITIES 9.4%
Avista Corp., Ser L -- Convertible Preferred...... 502,000 7,655,500
BellSouth Corp. .................................. 225,200 10,542,175
DQE, Inc. ........................................ 394,000 13,642,250
Edison International.............................. 386,000 10,108,375
GPU, Inc. ........................................ 363,700 10,888,269
GTE Corp. ........................................ 419,600 29,608,025
Illinova Corp. ................................... 764,600 26,569,850
Niagara Mohawk Holdings, Inc. (a)................. 1,652,100 23,026,144
Northeast Utilities............................... 1,588,859 32,670,913
NSTAR............................................. 730,300 29,577,150
PECO Energy Co.................................... 176,400 6,129,900
SBC Communications, Inc. ......................... 165,300 8,058,375
Sprint Corp. ..................................... 121,450 8,175,103
U.S. WEST Communications Group.................... 58,830 4,235,760
--------------
220,887,789
--------------
TOTAL COMMON AND PREFERRED STOCKS 65.3%......................... 1,527,447,192
--------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 9.1%
CONSUMER DURABLES 0.5%
$10,000 Ford Motor Credit Co. .............. 6.700% 07/16/04 $ 9,793,450
3,000 General Motors Corp. ............... 7.000 06/15/03 2,979,915
--------------
12,773,365
--------------
CONSUMER NON-DURABLES 0.2%
5,000 Coca-Cola Enterprises, Inc. ........ 7.125 09/30/09 4,902,650
--------------
CONSUMER SERVICES 0.8%
10,000 Clear Channel Communications........ 6.625 06/15/08 9,295,350
10,000 Cox Communications, Inc............. 7.250 11/15/15 9,436,620
--------------
18,731,970
--------------
ENERGY 0.6%
5,000 Enron Corp. ........................ 9.125 04/01/03 5,233,650
5,500 Texas Eastern Transmission Corp. ... 8.250 10/15/04 5,696,663
2,000 Western Atlas, Inc. ................ 7.875 06/15/04 2,038,590
--------------
12,968,903
--------------
FINANCE 1.5%
5,000 American Re Corp., Ser B............ 7.450 12/15/26 4,759,740
5,000 Avalonbay Communities, Inc. ........ 7.500 08/01/09 4,776,565
5,000 Countrywide Funding Corp. .......... 8.250 07/15/02 5,075,565
5,000 Finova Capital Corp. ............... 7.625 09/21/09 4,925,465
5,000 Fleet Boston Financial Corp. ....... 6.875 01/15/28 4,412,165
2,000 General Electric Capital Corp. ..... 8.900 09/15/04 2,146,644
5,000 Lehman Brothers, Inc. .............. 7.125 07/15/02 4,973,700
5,000 Washington Mutual Capital I......... 8.375 06/01/27 4,789,570
--------------
35,859,414
--------------
PRODUCER MANUFACTURING 0.3%
1,500 Reliance Electric Co. .............. 6.800 04/15/03 1,492,601
6,000 USA Waste Services, Inc. ........... 7.000 07/15/28 4,482,882
--------------
5,975,483
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING
INDUSTRIES 1.1%
$ 5,000 Crown Cork & Seal Finance PLC....... 7.000% 12/15/06 $ 4,684,205
5,000 Crown Cork & Seal, Inc. ............ 8.375 01/15/05 5,079,390
5,000 Georgia Pacific Corp. .............. 9.500 05/15/22 5,293,385
10,000 ICI North America, Inc. ............ 8.875 11/15/06 10,494,530
--------------
25,551,510
--------------
RETAIL 0.4%
4,500 Kroger Co. ......................... 7.250 06/01/09 4,319,420
4,000 May Department Stores Co. .......... 8.375 08/01/24 3,973,784
--------------
8,293,204
--------------
TECHNOLOGY 0.5%
10,000 Raytheon Co. ....................... 6.750 08/15/07 9,320,690
2,000 Sun Microsystems, Inc. ............. 7.000 08/15/02 1,991,180
--------------
11,311,870
--------------
TRANSPORTATION 0.4%
5,000 CSX Corp. .......................... 8.625 05/15/22 5,220,575
5,000 Delta Air Lines, Inc. .............. 6.650 03/15/04 4,779,555
--------------
10,000,130
--------------
UTILITIES 2.8%
5,000 360 Communications Co. ............. 7.125 03/01/03 4,995,880
10,000 Century Telephone Enterprises, Inc.,
Ser F............................... 6.300 01/15/08 9,077,800
5,000 Commonwealth Edison Co. ............ 8.000 05/15/08 5,088,030
4,500 Edison International, Inc. ......... 6.875 09/15/04 4,411,255
5,000 El Paso Electric Co., Ser C......... 8.250 02/01/03 5,087,500
4,000 Houston Lighting & Power Co. ....... 7.750 03/15/23 3,781,792
5,000 Illinois Power Co. ................. 7.500 06/15/09 4,891,750
5,000 Niagara Mohawk Power Corp., Ser G... 7.750 10/01/08 5,005,350
5,000 Public Service Co. of Colorado, Ser
A................................... 6.875 07/15/09 4,778,750
20,000 Sprint Capital Corp. ............... 6.900 05/01/19 18,284,920
--------------
65,403,027
--------------
TOTAL CORPORATE OBLIGATIONS 9.1%......................... 211,771,526
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONVERTIBLE CORPORATE
OBLIGATIONS 8.8%
FINANCE 1.6%
$ 3,000 Aegon NV, 144A (Netherlands)
(Convertible into 216,000 common
shares) (b)......................... 4.750% 11/01/04 $ 20,625,000
4,599 APP Finance VII Euro, 144A
(Mauritius) (Convertible into
267,724 common shares) (b).......... 3.500 04/30/03 3,416,827
18,401 APP Finance VII Mauritius, 144A
(Mauritius) (Convertible into
216,000 common shares) (b).......... 3.500 04/30/03 13,639,741
--------------
37,681,568
--------------
HEALTHCARE 2.5%
30,000 Alza Corp., LYON (Convertible into
389,610 common shares).............. * 07/14/14 15,187,500
20,000 Dura Pharmaceuticals, Inc.
(Convertible into 394,984 common
shares)............................. 3.500 07/15/02 16,200,000
43,500 Roche Holdings, Inc., LYON, 144A
(Switzerland) (Convertible into
206,347 common shares).............. * 04/20/10 26,290,530
--------------
57,678,030
--------------
PHARMACEUTICALS 0.1%
2,090 Sandoz, Ltd., 144A (Switzerland)
(Convertible into 1,958 common
shares) (b)......................... 2.000 10/06/02 2,936,450
--------------
PRODUCER MANUFACTURING 0.2%
5,000 WMX Technologies, Inc. (Convertible
into 94,533 Waste Management, Inc.
common shares)...................... 2.000 01/24/05 4,162,500
--------------
TECHNOLOGY 2.6%
11,500 Bea Systems, Inc. 144A (Convertible
into 165,945 common shares) (b)..... 4.000 12/15/06 13,443,270
22,000 DSC Communications Corp.
(Convertible into 360,582 Alcatel SA
common shares)...................... 7.000 08/01/04 23,100,000
12,000 Hewlett Packard Co., LYON
(Convertible into 65,160 common
shares)............................. * 10/14/17 8,265,000
24,000 Hewlett Packard Co., LYON, 144A
(Convertible into 130,320 common
shares) (b)......................... * 10/14/17 16,530,000
--------------
61,338,270
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES 1.8%
$31,800 Telefonos de Mexico, SA (Mexico)
(Convertible into 335,013 common
shares)............................. 4.250% 06/15/04 $ 41,459,250
--------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS 8.8%............. 205,256,068
--------------
UNITED STATES OBLIGATIONS 5.7%
27,500 United States Treasury Bonds (c).... 8.750 08/15/20 33,326,562
4,250 United States Treasury Notes........ 5.875 11/30/01 4,224,766
23,000 United States Treasury Notes (c).... 5.875 02/15/04 22,626,250
4,000 United States Treasury Notes........ 6.000 08/15/04 3,938,752
48,000 United States Treasury Notes (c).... 6.250 10/31/01 48,015,024
22,000 United States Treasury Notes........ 6.250 02/15/07 21,656,250
--------------
TOTAL UNITED STATES OBLIGATIONS........................... 133,787,604
--------------
TOTAL LONG-TERM INVESTMENTS 88.9%
(Cost $1,783,086,173)............................................. 2,078,262,390
--------------
SHORT-TERM INVESTMENTS 9.7%
REPURCHASE AGREEMENT 2.2%
DLJ Mortgage Acceptance Corp. ($52,751,000 par, collateralized by
U.S. Government obligations in a pooled cash account, dated 12/31/99,
to be sold on 01/03/00 at $52,759,792).............................. 52,751,000
--------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 7.5%
Federal Home Loan Mortgage Discount Notes ($25,000,000 par, yielding
5.376%, 01/25/00 maturity) (c)...................................... 24,906,667
Federal Home Loan Mortgage Discount Notes ($25,000,000 par, yielding
5.393%, 01/27/00 maturity).......................................... 24,898,889
Federal National Mortgage Association Discount Notes ($25,000,000
par, yielding 5.405%, 02/17/00 maturity) (c)........................ 24,819,833
Federal National Mortgage Association Discount Notes ($25,000,000
par, yielding 5.279%, 01/18/00 maturity)............................ 24,934,007
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association Discount Notes ($50,000,000
par, yielding 4.700%, 01/06/00 maturity)............................ $ 49,960,834
Federal National Mortgage Association Discount Notes ($25,000,000
par, yielding 5.549%, 03/02/00 maturity) (c)........................ 24,761,083
--------------
174,281,313
--------------
TOTAL SHORT-TERM INVESTMENTS 9.7%
(Cost $227,032,313)................................................. 227,032,313
--------------
TOTAL INVESTMENTS 98.6%
(Cost $2,010,118,486)............................................... 2,305,294,703
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%......................... 32,334,795
--------------
NET ASSETS 100.0%.................................................. $2,337,629,498
--------------
</TABLE>
(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. 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
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,010,118,486)..................... $2,305,294,703
Cash........................................................ 25,461,236
Receivables:
Interest.................................................. 8,036,893
Fund Shares Sold.......................................... 3,550,131
Investments Sold.......................................... 2,921,667
Dividends................................................. 1,081,491
Variation Margin on Futures............................... 131,750
Other....................................................... 124,305
--------------
Total Assets.......................................... 2,346,602,176
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 3,944,297
Distributor and Affiliates................................ 1,989,059
Capital Gain Distributions................................ 1,033,761
Investments Purchased..................................... 843,813
Investment Advisory Fee................................... 719,937
Trustees' Deferred Compensation and Retirement Plans........ 235,833
Accrued Expenses............................................ 205,978
--------------
Total Liabilities..................................... 8,972,678
--------------
NET ASSETS.................................................. $2,337,629,498
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,986,492,300
Net Unrealized Appreciation................................. 300,292,488
Accumulated Net Realized Gain............................... 48,694,994
Accumulated Undistributed Net Investment Income............. 2,149,716
--------------
NET ASSETS.................................................. $2,337,629,498
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,068,481,700 and 139,737,046 shares of
beneficial interest issued and outstanding)........... $ 7.65
Maximum sales charge (5.75%* of offering price)......... .47
--------------
Maximum offering price to public........................ $ 8.12
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $1,148,898,362 and 151,613,845 shares of
beneficial interest issued and outstanding)........... $ 7.58
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $120,249,436 and 15,866,802 shares of
beneficial interest issued and outstanding)........... $ 7.58
==============
</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 Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 42,044,593
Dividends................................................... 29,654,053
------------
Total Income............................................ 71,698,646
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,299,731, $11,542,855 and $1,079,925,
respectively)............................................. 14,922,511
Investment Advisory Fee..................................... 8,101,825
Shareholder Services........................................ 3,637,813
Custody..................................................... 162,166
Trustees' Fees and Related Expenses......................... 77,660
Legal....................................................... 56,976
Other....................................................... 753,862
------------
Total Expenses.......................................... 27,712,813
Less Credits Earned on Overnight Cash Balances.......... 34,770
------------
Net Expenses............................................ 27,678,043
------------
NET INVESTMENT INCOME....................................... $ 44,020,603
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $233,945,000
Futures................................................... 7,717,054
------------
Net Realized Gain........................................... 241,662,054
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 378,269,769
------------
End of the Period:
Investments............................................... 295,176,217
Futures................................................... 5,116,271
------------
300,292,488
------------
Net Unrealized Depreciation During the Period............... (77,977,281)
------------
NET REALIZED AND UNREALIZED GAIN............................ $163,684,773
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $207,705,376
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 44,020,603 $ 34,406,616
Net Realized Gain.............................. 241,662,054 112,427,033
Net Unrealized Appreciation/Depreciation During
the Period................................... (77,977,281) 132,837,124
-------------- --------------
Change in Net Assets from Operations........... 207,705,376 279,670,773
-------------- --------------
Distributions from Net Investment Income*...... (43,396,205) (34,947,222)
Distributions from Net Realized Gain*.......... (211,031,389) (110,554,644)
-------------- --------------
Total Distributions............................ (254,427,594) (145,501,866)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (46,722,218) 134,168,907
-------------- --------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold...................... 1,758,232,318 1,143,314,008
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 224,331,373 132,142,154
Cost of Shares Repurchased..................... (1,642,853,668) (987,638,702)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 339,710,023 287,817,460
-------------- --------------
TOTAL INCREASE IN NET ASSETS................... 292,987,805 421,986,367
NET ASSETS:
Beginning of the Period........................ 2,044,641,693 1,622,655,326
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$2,149,716 and $1,525,318 respectively)...... $2,337,629,498 $2,044,641,693
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from Net Investment Income:
Class A Shares............................... $ (21,806,216) $ (16,719,601)
Class B Shares............................... (19,796,994) (16,833,408)
Class C Shares............................... (1,792,995) (1,394,213)
-------------- --------------
$ (43,396,205) $ (34,947,222)
-------------- --------------
Distributions from Net Realized Gain:
Class A Shares............................... $ (95,603,166) $ (43,282,677)
Class B Shares............................... (104,683,398) (62,071,749)
Class C Shares............................... (10,744,825) (5,200,218)
-------------- --------------
$ (211,031,389) $ (110,554,644)
============== ==============
</TABLE>
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 December 31,
--------------------------------------------
Class A Shares 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $ 7.820 $7.242 $6.740 $ 6.31 $ 5.16
-------- ------ ------ ------ ------
Net Investment Income.............. .185 .174 .152 .158 .20
Net Realized and Unrealized Gain... .568 1.030 1.435 .796 1.458
-------- ------ ------ ------ ------
Total from Investment Operations... .753 1.204 1.587 .954 1.658
-------- ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... .183 .175 .168 .156 .188
Distributions from Net Realized
Gain........................... .744 .451 .917 .368 .32
-------- ------ ------ ------ ------
Total Distributions................ .927 .626 1.085 .524 .508
-------- ------ ------ ------ ------
Net Asset Value, End of the
Period........................... $ 7.646 $7.820 $7.242 $6.740 $ 6.31
======== ====== ====== ====== ======
Total Return (a)................... 9.95% 16.99% 24.13% 15.55% 32.57%
Net Assets at End of the Period
(In millions).................... $1,068.5 $808.5 $638.1 $471.8 $349.9
Ratio of Expenses to Average
Net Assets (b)................... .82% .85% .86% .97% .95%
Ratio of Net Investment Income to
Average Net Assets (b)........... 2.43% 2.31% 2.09% 2.50% 3.43%
Portfolio Turnover................. 81% 61% 86% 99% 92%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
22
<PAGE> 24
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
Class B Shares 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $ 7.766 $ 7.203 $6.713 $ 6.30 $ 5.16
-------- ------- ------ ------ ------
Net Investment Income............. .128 .118 .100 .113 .15
Net Realized and Unrealized
Gain............................ .559 1.019 1.423 .784 1.458
-------- ------- ------ ------ ------
Total from Investment
Operations...................... .687 1.137 1.523 .897 1.608
-------- ------- ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income...... .131 .123 .116 .116 .148
Distributions from Net Realized
Gain.......................... .744 .451 .917 .368 .32
-------- ------- ------ ------ ------
Total Distributions............... .875 .574 1.033 .484 .468
-------- ------- ------ ------ ------
Net Asset Value, End of the
Period.......................... $ 7.578 $ 7.766 $7.203 $6.713 $ 6.30
======== ======= ====== ====== ======
Total Return (a).................. 9.19% 16.17% 23.23% 14.56% 31.51%
Net Assets at End of the Period
(In millions)................... $1,148.9 $1,140.0 $908.7 $633.3 $408.9
Ratio of Expenses to Average
Net Assets (b).................. 1.58% 1.62% 1.64% 1.74% 1.75%
Ratio of Net Investment Income to
Average Net Assets (b).......... 1.67% 1.55% 1.32% 1.74% 2.62%
Portfolio Turnover................ 81% 61% 86% 99% 92%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
23
<PAGE> 25
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
Class C Shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $7.767 $7.204 $6.713 $ 6.30 $ 5.16
------ ------ ------ ------ ------
Net Investment Income............. .133 .117 .100 .113 .15
Net Realized and Unrealized
Gain............................ .554 1.020 1.424 .784 1.458
------ ------ ------ ------ ------
Total from Investment
Operations...................... .687 1.137 1.524 .897 1.608
------ ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income...... .131 .123 .116 .116 .148
Distributions from Net Realized
Gain.......................... .744 .451 .917 .368 .32
------ ------ ------ ------ ------
Total Distributions............... .875 .574 1.033 .484 .468
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $7.579 $7.767 $7.204 $6.713 $ 6.30
====== ====== ====== ====== ======
Total Return (a).................. 9.19% 16.17% 23.23% 14.56% 31.51%
Net Assets at End of the Period
(In millions)................... $120.2 $ 96.1 $ 75.8 $ 55.2 $ 38.3
Ratio of Expenses to Average Net
Assets (b)...................... 1.58% 1.62% 1.64% 1.74% 1.76%
Ratio of Net Investment Income to
Average Net Assets (b).......... 1.67% 1.55% 1.32% 1.73% 2.63%
Portfolio Turnover................ 81% 61% 86% 99% 92%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1999, there were no
when issued or delayed delivery purchase commitments.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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. Discounts are amortized over
the expected life of each applicable security. Premiums on debt securities are
not amortized. Income and expenses of the Fund are allocated on a pro rata basis
to each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At December 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $2,015,796,898, the aggregate gross unrealized
appreciation is $368,772,631 and the aggregate gross unrealized depreciation is
$79,274,826, resulting in net unrealized appreciation on long- and short-term
investments of $289,497,805.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses relating to wash sale
transactions and gains recognized for tax purposes on open future positions at
December 31, 1999.
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 (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
F. EXPENSE REDUCTIONS--During the year ended December 31, 1999, the Fund's
custody fee was reduced by $34,770 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 year ended December 31, 1999, the Fund recognized expenses of
approximately $57,000 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 December 31, 1999, the Fund recognized expenses of
approximately $412,200 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 December 31,
1999, the Fund recognized expenses of approximately $2,760,200. 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.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
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
============ ===============
Repurchases:
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>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
At December 31, 1998, capital aggregated $624,072,653, $943,694,748 and
$79,014,876 for Classes A, B, and C, respectively. For the year ended December
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 108,360,203 $ 836,859,216
Class B.................................. 36,029,610 276,860,624
Class C.................................. 3,865,558 29,594,168
------------ --------------
Total Sales................................ 148,255,371 $1,143,314,008
============ ==============
Dividend Reinvestment:
Class A.................................. 7,130,348 $ 54,671,876
Class B.................................. 9,437,571 71,897,500
Class C.................................. 731,441 5,572,778
------------ --------------
Total Dividend Reinvestment................ 17,299,360 $ 132,142,154
============ ==============
Repurchases:
Class A.................................. (100,205,548) $ (776,904,382)
Class B.................................. (24,828,078) (189,850,088)
Class C.................................. (2,747,855) (20,884,232)
------------ --------------
Total Repurchases.......................... (127,781,481) $ (987,638,702)
============ ==============
</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 year ended December 31, 1999, 16,169,173 Class B shares automatically
converted to Class A shares and are shown in the above table as sales of Class A
shares and repurchases of Class B shares. Class C shares purchased before
January 1, 1997, and any dividend reinvestment plan 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 year
ended December 31, 1999, no Class C shares converted to Class A shares. The CDSC
will be
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
imposed on most redemptions made within five years of the purchase for Class B
and one year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First............................................ 5.00% 1.00%
Second........................................... 4.00% None
Third............................................ 3.00% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth and Thereafter............................. None None
</TABLE>
For the year ended December 31, 1999, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $721,900 and CDSC on redeemed shares of approximately $2,080,500.
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 $1,627,989,344 and $1,686,201,689,
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 the 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 (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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 year ended December 31, 1999, 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 year ended December 31, 1999, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ---------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1998.......................... 161
Futures Opened............................................ 660
Futures Closed............................................ (666)
-----
Outstanding at December 31, 1999.......................... 155
=====
</TABLE>
The futures contracts outstanding at December 31, 1999, and the description
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/DEPRECIATION
- ----------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--Mar 2000 S&P 500
Index Futures (Current Notional
Value of $371,050 per
contract)........................ 155 $5,116,271
=== ==========
</TABLE>
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1999, are payments retained by Van Kampen of
approximately $9,327,500.
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 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
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Equity Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Equity Income Fund (the
"Fund") at December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 2000
33
<PAGE> 35
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
** Open to new investors for a
limited time
34
<PAGE> 36
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, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 2000 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 2000, the report, if used with prospective
investors, must be accompanied by a quarterly performance update, if applicable.
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended December 31, 1999.
The Fund designated and paid $148,089,338 as a 20% rate gain distribution. For
corporate shareholders 24.26% of the distributions qualify for the dividend
received deductions. In January 2000, the Fund provided tax information to
shareholders for the 1999 calendar year.
35
<PAGE> 37
RESULTS OF SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Portfolio was held on
December 15, 1999, where shareholders voted on the election of trustees and
independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
J. Miles Branagan............................... 169,848,214 1,507,725
Jerry D. Choate................................. 169,803,137 1,552,802
Linda Hutton Heagy.............................. 169,821,118 1,534,821
R. Craig Kennedy................................ 169,847,667 1,508,272
Mitchell M. Merin............................... 169,834,268 1,521,671
Jack E. Nelson.................................. 169,829,395 1,526,544
Richard F. Powers, III.......................... 169,827,530 1,528,409
Phillip B. Rooney............................... 169,819,043 1,536,896
Fernando Sisto.................................. 169,729,575 1,626,364
Wayne W. Whalen................................. 169,841,467 1,514,472
Suzanne H. Woolsey, Ph.D. ...................... 169,802,935 1,553,004
Paul G. Yovovich................................ 169,791,217 1,564,722
</TABLE>
2) With regard to the ratification of PricewaterhouseCoopers LLP to act as
independent public accounts for the Portfolio, 168,251,931 shares were voted in
the affirmative and 670,355 shares were voted against the proposal and 2,433,651
shares abstained from voting.
36
<PAGE> 38
YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your investment portfolio. We look forward to
continuing to serve your investment needs.